Form 10-Q SHARING SERVICES GLOBAL For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
or
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange in which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐
As of August 12, 2022, there were shares of the issuer’s Class A Common Stock outstanding.
TABLE OF CONTENTS
| 2 |
In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31st in this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours,” and “us” refer to Sharing Services Global Corporation and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report and in any documents incorporated by reference herein which are not purely historical, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.
Readers should not place undue reliance upon the Company’s forward-looking statements since such statements speak only as of the date they were made. Such forward-looking statements may refer to events that ultimately do not occur, or may occur to a different extent, or occur at a different time than such forward-looking statements describe. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report and in any documents incorporated by reference herein, whether as a result of new information, future events, or otherwise. The Company acknowledges that all forward-looking statements involve risks and uncertainties that could cause actual events and/or results to differ materially from the events and/or results described in the forward-looking statements.
| 3 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited financial statements: condensed consolidated balance sheets as of June 30, 2022, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows, and condensed consolidated statements of changes in stockholders’ equity for the three months ended June 30, 2022 and 2021, are those of Sharing Services Global Corporation and its subsidiaries.
Index to Unaudited Condensed Consolidated Financial Statements
| 4 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | March 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade accounts receivable, net | ||||||||
| Income taxes receivable | ||||||||
| Inventory, net | ||||||||
| Other current assets, net | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred income taxes, net | ||||||||
| Investment in unconsolidated entities, net | ||||||||
| Intangible assets | ||||||||
| Other assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued sales commission payable | ||||||||
| Employee stock warrants liability | ||||||||
| State and local taxes payable | ||||||||
| Note payable, related party | ||||||||
| Accrued and other current liabilities | ||||||||
| Convertible
notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of | ||||||||
| Total Current Liabilities | ||||||||
| Deferred income tax liability, net | ||||||||
| Settlement liability, long term portion | ||||||||
| Lease liability, long-term | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series A convertible preferred stock, $ par value, shares designated, shares issued and outstanding as of June 30, 2022, and March 31, 2022, respectively | ||||||||
| Series B convertible preferred stock, $ par value, shares designated, shares issued and outstanding at June 30 and March 31 | ||||||||
| Series C convertible preferred stock, $ par value, shares designated, shares and shares issued and outstanding at June 30 and March 31, 2022, respectively | ||||||||
| Common Stock, $ par value, shares authorized: | ||||||||
| Class A common stock, $ par value, shares designated, shares and shares issued and outstanding at June 30 and March 31, 2022, respectively | ||||||||
| Class B common stock, $ par value, shares designated, shares issued and outstanding | ||||||||
| Treasury Stock, shares, at cost | ( | ) | ||||||
| Additional paid in capital | ||||||||
| Shares to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| Three Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Net sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Litigation settlements and other | ( | ) | ||||||
| Unrealized gain on investments | ||||||||
| Gain (loss) on employee warrants liability | ||||||||
| Gain on extinguishment of debt | ||||||||
| Other non-operating expense | ||||||||
| Total other income (expense), net | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax (benefit) provision | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other Comprehensive Income/Loss (net of tax): | ||||||||
| Currency translation adjustments | ( | ) | ||||||
| Total other comprehensive income (loss) | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation gain | ( | ) | ( | ) | ||||
| Deferred income tax benefit | ( | ) | ||||||
| Amortization of debt discount and other | ||||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | ||||
| Unrealized gain on investments | ( | ) | ||||||
| Provision for obsolete inventory | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Income taxes payable | ( | ) | ||||||
| Lease liability | ||||||||
| Accrued and other liabilities | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for property and equipment | ( | ) | ( | ) | ||||
| Collection of notes receivable | ||||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Retirement of loan | ( | ) | ||||||
| Proceeds from issuance of promissory notes | ||||||||
| Common stock received on litigation settlement | ( | ) | ||||||
| Proceeds from convertible notes | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| IMPACT OF CURRENCY RATE CHANGES ON CASH | ( | ) | ||||||
| Increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemented disclosure of non-cash investing and financing activities: | ||||||||
| Stock issued for financing fees and prepaid interest on debt | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Additional | Shares | Other | ||||||||||||||||||||||||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | Paid in | to be | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Issued | Stock | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| Refinancing of debt and detachable warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of Common Stock |
|
|
| ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Additional | Shares | Other | ||||||||||||||||||||||||||||||||||||||||||||||
| of | Par | of | Par | of | Par | of | Par | Paid in | to be | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Issued | Deficit | Loss | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for deferred financing costs and prepaid interest on debt | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Conversions of preferred stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Expiration of common stock puts | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 8 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS
Description of Operations
Sharing Services Global Corporation and subsidiaries (“Sharing Services,” “we,” or the “Company”) aim to build shareholder value by developing or acquiring businesses that augment the Company’s product and services portfolio, business competencies, and geographic reach.
The Company was incorporated in the State of Nevada in April 2015.
Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” Currently, The Happy Co.TM markets and distributes its health and wellness products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. In addition, certain of the Company’s domestic subsidiaries market its health and wellness products on a “not-for-resale” basis to consumers in other countries outside the U.S.
Subscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company is preparing to launch a subscription-based travel services business under the proprietary brand “Hapi Travel.” The Hapi TravelTM services are designed to offer the opportunity to travel to destinations in the U.S. and abroad to people of all ages, demographics, and economic backgrounds. Hapi TravelTM will also provide entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.
Company-Owned and Franchised Destination Cafes – Sharing Services recently entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from Hapi Café, Inc., a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and the ultimate Master Franchise Agreement. Each corporate-owned or franchised Hapi CaféTM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi TravelTM subsidiary’s proprietary travel services.
Targeted Ownership Interests – Directly or through its subsidiaries, the Company from time to time will invest in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the Company’s resources and business competencies and to participate in these businesses’ growth. As part of the Company’s commitment to these emerging businesses’ success, the Company, directly or through its subsidiaries, also offers non-traditional inventory financing, equity or debt financing, order fulfillment and logistic, CRM “Back Office” solutions, and other success-critical services to these businesses.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for year ended March 31, 2022.
| 9 |
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with GAAP requires the use of judgment and requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures about contingent assets and liabilities, if any. Matters that require the use of estimates and assumptions include: the recoverability of notes and accounts receivable, the valuation of inventory, the useful lives of fixed assets, the assessment of long-lived assets for impairment, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, allocation of the transaction price to multiple performance obligations in a sales transaction, the measurement and recognition of right-of-use assets and related lease liabilities, the valuation of stock-based compensation awards, the measurement and recognition of uncertain tax positions, and the valuation of loss contingencies, if any. Actual results may differ from these estimates in amounts that may be material to our consolidated financial statements. We believe that the estimates and assumptions used in the preparation of our consolidated financial statements are reasonable.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash
equivalents include recent customer remittances deposited with our merchant processors at the balance sheet date, which generally settle
within 24 to 72 hours. As of June 30, 2022, and March 31, 2022, cash and cash equivalents included cash held by our merchant processors
of $
Notes Receivable, net
At
June 30, 2022 and March 31, 2022, Notes receivable were $
Inventory
Inventory
consists of finished goods and promotional materials and are stated at the lower of cost, determined using the first-in, first-out (“FIFO”)
method, or net realizable value. The Company periodically assesses its inventory levels when compared to current and anticipated sales
levels. As of June 30, 2022, and March 31, 2022,the allowance for obsolete inventory was
$
Note Payable
In
May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $
On
June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc.
(“APB”), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $
| 10 |
Foreign Currency Translation
Prior to April 1, 2021, substantially all the Company’s consolidated net sales were denominated in U.S. dollars. As part of our growth initiatives, we are in the process of expanding operations outside the United States. The functional currency of each of our foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individual material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in accumulated other comprehensive loss in our condensed consolidated balance sheets.
Comprehensive Income (Loss)
For the three months ended June 30, 2022, the Company’s comprehensive loss was comprised of currency translation adjustments and net loss. Prior to April 1, 2021, the only component of the Company’s comprehensive income (loss) was its net earnings (loss).
Revenue Recognition
As
of June 30, 2022, and March 31, 2022, deferred sales revenue associated with product invoiced but not received by customers at the balance
sheet date was $
During the three months ended June 30, 2022, no individual
customer, or affiliated group of customers, represented 10% or more of our consolidated net sales, and approximately
During the three months ended June 30, 2022, substantially
all our consolidated net sales are from our health and wellness products (including approximately
During the three months ended June 30, 2022, approximately
Sales Commissions
The
Company recognizes sales commission expense, when incurred, in accordance with GAAP. During the three months ended June 30, 2022 and
2021, sales commission expense, which is included in selling and marketing expenses in our consolidated statements of operations and
comprehensive loss, was $
Recently Issued Accounting Standards - Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period that includes the enactment date. The Company adopted ASU 2019-12 effective April 1, 2021, and adoption did not have a material impact on its consolidated financial statements.
Recently Issued Accounting Standards - Pending Adoption
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal quarter beginning on April 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its consolidated financial statements.
| 11 |
We calculate basic earnings (loss) per share by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated similarly but reflects the potential impact of shares issuable upon the conversion or exercise of outstanding convertible preferred stock, convertible notes payable, stock warrants and other commitments to issue common stock, except where the impact would be anti-dilutive.
The calculation of diluted earnings per share also reflects an adjustment to net earnings for the potential reduction to a reporting period’s interest expense, net of applicable income tax, which would result if the Company’s convertible notes payable were converted at the beginning of such reporting period.
| Three Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average basic shares | ||||||||
| Weighted average diluted shares | ||||||||
| Loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| June 30, 2022 | June 30, 2021 | |||||||
| Convertible preferred stock | ||||||||
| Convertible notes payable | ||||||||
| Stock warrants | ||||||||
| Total potential incremental shares | ||||||||
The preceding table does not include and stock warrants held by employees which are not vested (or exercisable) at June 30, 2022, and June 30, 2021, respectively.
NOTE 4 – INVENTORY, NET
Inventory consists primarily of finished goods. The Company provides an allowance for any slow-moving or obsolete inventory. As of June 30, 2022, and March 31, 2022, inventory consists of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Finished Goods | $ | $ | ||||||
| Allowance for inventory obsolescence | ( | ) | ( | ) | ||||
| $ | $ | |||||||
NOTE 5 – OTHER CURRENT ASSETS, NET
Other current assets consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Prepaid consulting fees, related party | $ | $ | ||||||
| Inventory-related deposits | ||||||||
| Prepaid insurance and other operational expenses | ||||||||
| Deposits for sales events | ||||||||
| Right to recover asset | ||||||||
| Subtotal | ||||||||
| Less: allowance for losses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Prepaid
consulting fees represent the fair value on the grant date of stock warrants issued to DSS in January 2022 for consulting services to
be rendered over a year from the issue date (see Note 12 – Related Party Transactions for more information). Prepaid insurance
and other operational expenses primarily consist of payments for goods and services (such as freight, trade show expenses and insurance
premiums) which are expected to be realized in the next operating cycle. Right to recover asset is associated with our customers’
right of return and is expected to be realized in one year or less. As of both June 30, 2022, and March 31, 2022, the provision for losses
in connection with certain inventory-related deposits for which recoverability is less than certain was $
| 12 |
NOTE 6 – INVESTMENT IN UNCONSOLIDATED ENTITIES, NET
In
September 2021, the Company, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered
into a Securities Purchase Agreement (the “SPA”) pursuant to which the Company invested $
The
Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance
with GAAP. During the three months ended June 30, 2022, the Company recognized unrealized gains, before income tax, of $
In
September 2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company acquired a
On a quarterly basis, the Company evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized when recovery in full of the Company’s investment is no longer probable. Investment balances are written off against the allowance after the potential for recovery is considered remote.
Investment in unconsolidated entities consists of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Investment in detachable GNTW stock warrant | $ | $ | ||||||
| Investment in GNTW common stock | ||||||||
| Investment in Stemtech convertible note | ||||||||
| Investment in MojiLife, LLC | ||||||||
| Subtotal | ||||||||
| Less, allowance for impairment losses | ( | ) | ( | |||||
| $ | $ |
The following table reflects the activity in the allowance for impairment losses for the periods presented:
| June 30, 2022 | March 31, 2022 | |||||||
| Balance at beginning of fiscal year | $ | $ | ||||||
| Provision for estimated impairment losses | ||||||||
| Balance at end of fiscal year | $ | $ |
| 13 |
NOTE 7 – PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Building and building improvements | $ | $ | ||||||
| Computer software | ||||||||
| Furniture and fixtures | ||||||||
| Computer equipment | ||||||||
| Leasehold improvements and other | ||||||||
| Total property and equipment | ||||||||
| Impairment of property and equipment | ( | ) | ( | |||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
NOTE 8 – ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
| June 30, 2022 | March 31, 2022 | |||||||
| Deferred sales revenues | $ | $ | ||||||
| Liability associated with uncertain tax positions | ||||||||
| Payroll and employee benefits | ||||||||
| Settlement liability, current portion | ||||||||
| Lease liability, current portion | ||||||||
| Due to related parties | ||||||||
| Other operational accruals | ||||||||
| $ | $ | |||||||
Lease
liability, current portion, represent obligations due within one year under operating leases for office space, automobiles, and
office equipment. See Note14 - LEASES below for more information. Other operational
accruals as of June 30, 2022, as presented above, include accrued expense of $
| 14 |
NOTE 9 - CONVERTIBLE NOTES PAYABLE, RELATED PARTIES
Convertible notes payable consists of the following:
| Issuance Date | Maturity Date | Interest Rate | Conversion Price (per share) | June 30, 2022 | March 31, 2022 | |||||||||||||
| % | $ | $ | $ | |||||||||||||||
| % | $ | |||||||||||||||||
| % | $ | |||||||||||||||||
| Total convertible notes payable | ||||||||||||||||||
| Less: unamortized debt discount and deferred financing costs | ||||||||||||||||||
| Less: current portion of convertible notes payable | ||||||||||||||||||
| Long-term convertible notes payable | $ | $ | ||||||||||||||||
The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s Common Stock at the conversion prices shown above.
In
October 2017, the Company issued a Convertible Promissory Note in the principal amount of $
On
April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase
Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $
In
connection with the issuance of the Note and the detachable Warrant, the Company allocated $
| 15 |
On
June 15, 2022, the Company and DSSI which, together with DSS, is a majority shareholder of the Company, entered into an agreement pursuant
to which the Company issued, to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal amount of $
During the three months ended June 30, 2022, and June
30, 2021, interest expense in connection with the Company’s convertible notes was $
NOTE 10 – INCOME TAXES
The statutory rates for our domestic and our material foreign operations are as follows for the periods shown:
| Country | 2022 | 2021 | ||||||
| United States | % | % | ||||||
| Republic of Korea | % | % |
Our consolidated effective income tax rate reconciliation is as follows:
| Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Federal statutory rate | % | % | ||||||
| State and local income taxes | ( | ) | ||||||
| Change in valuation allowance for NOL carry-forwards | ( | ) | ||||||
| Stock warrant transactions and other items | ( | ) | ||||||
| Effective income tax rate | % | ( | )% | |||||
Income taxes applicable to our foreign operations are not material in the periods presented.
NOTE 11 - STOCKHOLDERS’ EQUITY
Common Stock
During
the three months ended June 30, 2022, the Company issued to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal
amount of $
In May 2022, the Company
and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated with the former officer,
on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022 Settlement Agreement”)
pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c) the Company
made a one-time payment of $
At
the Annual Meeting, the Company’s Shareholders ratified the Third Amended and Restated Articles of Incorporation of the Company
and approved the maximum number of shares which the Corporation shall have the authority to issue of Two Billion Two Hundred Million
(
| 16 |
The Company’s Board of Directors has designated shares of Class B Common Stock, par value per share. As of both: June 30, 2022, and March 31, 2022, there were shares of the Company’s Class A Common Stock issued. As of June 30, 2022, and March 31, 2022, there were 262,832,833 shares and shares, respectively, net of shares held in Treasury Stock at June 30, 2022, of the Company’s Class A Common Stock outstanding. As of June 30, 2022, and March 31, 2022, there were shares of the Company’s Class B Common Stock issued and outstanding.
NOTE 12 - RELATED PARTY TRANSACTIONS
Decentralized Sharing Systems, Inc.
In July 2020, the Company and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $ million in the Company and the Company agreed to issue million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to million shares of the Company’s Class A Common Stock at an exercise price of $ per share. Concurrently with the SPA Agreement, Mr. Chan and DSS, then a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued million of its Class A Common Stock pursuant to the SPA Agreement. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.
In
April 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $
In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $ in the Company in exchange for million shares of Class A Common Stock (the “Shares”) and stock warrants (the “Stock Warrants”) to purchase up to million shares of the Company’s Class A Common Stock. The Stock Warrants are fully vested, have a term of five () years and are exercisable at any time prior to expiration, at the option of DSSI, at a per share price equal to $. On the effective date of the Stock Purchase and Share Subscription Agreement, the closing price for the Company’s common stock was $ per share and the Company recognized a deemed dividend of $ million in connection with the transaction.
In January 2022, the Company and DSS who, together
with its subsidiaries, is currently a majority shareholder of the Company, entered into a one-year Business Consulting Agreement (the
“Consulting Agreement”) pursuant to which DSS will provide to the Company certain consulting services, as defined in the
Consulting Agreement. The Consulting Agreement may be terminated by either party on a 60-day’s written notice. In connection with
the Consulting Agreement, the Company agreed to pay DSS a flat monthly fee of sixty thousand dollars ($
On
June 15, 2022, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase Agreement
(the “SPA”), pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $
| 17 |
In
connection with the loan, the Company agreed to pay to DSSI a loan Origination Fee of $
As
of June 30, 2022, DSS and its affiliates owned, in the aggregate,
HWH International, Inc.
In
October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $
HWH World, Inc.
A
subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc. (“HWH World”), a
subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. Pursuant to the terms of the sublease
agreement, the Company recognized a right-of-use asset and an operating lease liability of $
In
September 2021, the Company and HWH World entered into an Advisory Agreement pursuant to which the Company provides strategic advisory
services to HWH World in connection with its North America expansion plans in exchange for a monthly fee of $
Impact Biomedical, Inc.
In
the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased health and wellness products from Impact Biomedical,
Inc., a subsidiary of DSS, in the aggregate amount of $
| 18 |
K Beauty Research Lab. Co., Ltd
In
the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty
Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai
Ambrose Chan, a Director of the Company, in the aggregate amount of $
Premier Packaging Corporation
During
the three months ended June 30, 2021, a wholly owned subsidiary of the Company issued purchase orders to Premier Packaging Corporation,
a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount of $
Alchemist Holdings, LLC
In February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed to transfer to the Company million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations to the Company. Under the terms of the Accommodation Agreement, Alchemist and the former Company officer also agreed to transfer to the Company million shares of the Company’s Common Stock held by Alchemist, to offset certain legal and other expenses incurred by the Company in connection with various related-party legal claims. Accordingly, in the fiscal year ended March 31, 2021, the Company and Alchemist caused the transfer to the Company, in the aggregate, of million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares.
In
May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated
with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022
Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer
sold to the Company shares of the Company’s common stock then
under the voting and dispositive control of the former officer; (c) the Company made a one-time payment of $
The
Company subleases warehouse and office space from Alchemist, until May 2022, a
| 19 |
American Premium Water Corporation
In
July 2021, the Company, and American Premium Water Corporation (“American Premium”) entered into a business consulting agreement
pursuant to which the Company provides consulting services to American Premium in exchange for a monthly fee of $
Alset Title Company, Inc.
In
December 2021, Sharing Services, through one of its subsidiaries, purchased an office building in Lindon, Utah for $
Hapi Café, Inc.
In November 2021, Sharing Services and Hapi Café, Inc., a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the Master Franchise Agreement.
American Pacific Bancorp
On
June 15, 2022, Sharing Services, through one of its subsidiaries, entered into a secured real estate promissory note with American
Pacific Bancorp, Inc. (“APB”), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company
approximately $
Stock Warrants
Stock Warrants Issued to Directors, Officers and Employees
In July 2020, the Company and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $ million in the Company in exchange for million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to million shares of the Company’s Class A Common Stock at an exercise price of $ per share. In July 2020, Mr. Chan assigned to DSS all interests in the SPA Agreement and the transactions contemplated in the SPA Agreement were completed. Mr. Chan is also a Director of DSS.
In
October 2017, the Company issued a convertible note in the principal amount of $
During fiscal year 2020, subsidiaries of the Company entered multi-year employment agreements with its key employees. In general, each employment contract contained a fully vested initial grant of warrants exercisable at a fixed exercise price and, provided for subsequent grants that were exercisable at a discounted price based on the 10-day average stock price determined at the time of exercise. The subsequent grants would vest at each anniversary date of the employment agreement effective date. The Company begins recognizing the compensatory nature of the warrants at the service inception date and ceases recognition at the vesting date. Due to the variable nature of the exercise price for some grants, the Company will continue to recognize expense (or benefit) after the end of the service period until the warrants are exercised or expire. As such, the Company disclosures below are based on either (i) the fixed exercise price of the warrant; or (ii) the variable exercise price of the warrant as determined on the last day of the period.
| 20 |
During
the three months ended June 30, 2022, and 2021, the Company recognized a compensatory gain of $
NOTE 14 – LEASES
The Company leases space for its offices and warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842.
The
Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements
classified as operating leases. The Company has remaining lease terms of approximately
The following information pertains to the Company’s leases as of the balance sheet dates indicated:
| Assets | Classification | June 30, 2022 | March 31, 2022 | |||||||
| Operating leases | Right-of-use assets, net | $ | $ | |||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Operating leases | Accrued and other current liabilities | $ | $ | |||||||
| Operating leases | Lease liability, long-term | |||||||||
| Total lease liabilities | $ | $ | ||||||||
The following information pertains to the Company’s leases for the periods indicated:
| Three Months Ended June 30, | ||||||||||
| Lease cost | Classification | 2022 | 2021 | |||||||
| Operating lease cost | General and administrative expenses | $ | $ | |||||||
| Operating lease cost | Depreciation and amortization | |||||||||
| Operating lease cost | Interest expense, net | |||||||||
| Total lease cost | $ | $ | ||||||||
The Company’s lease liabilities are payable as follows:
| Twelve months ending June 30, | Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total remaining payments | ||||
| Less imputed interest | ( | ) | ||
| Total lease liability | $ | |||
| 21 |
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Legal Matters in General
The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on our consolidated financial position, results of operations, or cash flows.
The Company maintains certain liability insurance. However, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.
The outcome of litigation is uncertain, and despite management’s view of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. No provision for legal matters was deemed necessary at June 30, 2022.
Legal Proceedings
The Company from time to time is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
| (a) | Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. On December 11, 2020, three investors in Four Oceans Global, LLC filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three investors in 2015. The Company and its affiliated entities have filed an answer denying the three investors’ claims. Plaintiffs filed a first amended complaint on October 14, 2021. The Company and its affiliated companies were dismissed with prejudice from this matter on July 20, 2022. |
| (b) | AAA Ref. No. 01-20-0019-3907; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending before the American Arbitration Association. On December 30, 2020, the Company and its affiliated companies filed an arbitration complaint against Robert Oblon for breach of contract and a declaratory judgment relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter was settled and closed as of June 30, 2022. |
| (c) | Case No. 4:20-cv-00989; Sharing Services Global Corporation, Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC v. Robert Oblon, pending in the in the United States District Court for the Eastern District of Texas. On December 30, 2020, the Company and its affiliated companies filed a lawsuit against Robert Oblon seeking injunctive relief relating to the Multi-Party Settlement Agreement with Robert Oblon. This matter was settled and closed as of June 30, 2022. |
| (d) | Case No. 4:21-cv-00026; Elepreneurs Holdings, LLC d/b/a Elepreneur, LLC, Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC, and SHRG IP Holdings, LLC v. Lori Ann Benson, Andrea Althaus and Lindsey Buboltz, pending in the United States District Court for the Eastern District of Texas. On December 31, 2020, the Company filed suit against three former distributors and obtained injunctive relief from the 429th Judicial District of Collin County, Texas. The lawsuit was removed by the three former distributors to federal court. The Company subsequently obtained injunctive relief from the federal court. This matter remains pending as of June 30, 2022. |
| (e) | Case No. 4:21-cv-00183; Sharing Services Global Corporation f/k/a Sharing Services, Inc., Elepreneurs Holdings, LLC n/k/a Elevacity Holdings, LLC, Elepreneurs U.S., LLC n/k/a Elevacity U.S., LLC and SHRG IP Holdings, LLC v. AmplifeiIntl, LLC d/b/a HAPInss and HAPInssBrands, LLC pending in the United States District Court for the Eastern District of Texas. On March 5, 2021, the Company and its affiliated entities filed suit against a newly formed competitor for various claims including trademark infringement, trade secret violations, and unfair competition under state and federal law as well as tortious interference with contracts and business relationships. This matter was settled and closed as of June 30, 2022. |
| 22 |
| (f) | Case No. 429-01137-2022; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Mark Willodson, Judy Willodson and Valentus, Inc., pending in the 429th Judicial District Court of Collin County, Texas. On March 9, 2022, the Company filed suit against a competitor and former distributors. This matter remains pending as of June 30, 2022. |
| (g) | Case No. 4:22-cv-00042; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Brian Christopher Schweda, Jr., pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. This matter remains pending as of June 30, 2022. |
| (h) | Case No. 4:22-cv-00047; Elevacity U.S., LLC d/b/a The Happy Co. and Elepreneurs U.S., LLC d/b/a Elepreneurs, LLC v. Kimberley McLean, pending in the United States District Court for the Eastern District of Texas. On January 20, 2022, the Company filed suit against a former distributor. This matter remains pending as of June 30, 2022. |
NOTE 16 - FAIR VALUE MEASUREMENTS OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities, accounts payable and convertible notes payable. The carrying amounts of cash equivalents, if any, trade accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.
Consistent with the valuation hierarchy contained in ASC Topic 820, we categorized certain of our financial assets and liabilities as follows:
| June 30, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities | $ | $ | $ | |||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| March 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Investment in unconsolidated entities | $ | $ | $ | $ | ||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
NOTE 17 - SUBSEQUENT EVENTS
On July 28, 2022, at the Company’s Annual Meeting of Stockholders, the Company’s Stockholders: (i) elected each John (“JT”) Thatch and Robert H Trapp to serve as Class I directors for a four-year term or until their respective successors are elected and qualified, (ii) ratified the Third Amended and Restated Articles of Incorporation of the Company which was previously approved by the Board of Directors, and (iii) ratified the appointment by the Board of Directors of Ankit Consulting Services, Inc., Certified Public Accountants as the Company’s independent registered public accounting firm for the fiscal year that commenced on April 1, 2022.
In
July and August 2022, the Company made investments in marketable securities, in the aggregate, of approximately $
In October 2017, Sharing Services issued a Convertible Promissory Note
in the principal amount of $
| 23 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following section discusses management’s views of the financial condition and the results of operations and cash flows of Sharing Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction with: (a) our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, and (b) our condensed consolidated financial statements included elsewhere in this Quarterly Report. This section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” above for a discussion of forward-looking statements.
Summary Results of Operations:
| Three Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | Increase (Decrease) | % Change | |||||||||||||
| Net sales | $ | 5,303,618 | $ | 11,211,526 | $ | (5,907,908 | ) | -52.7 | % | |||||||
| Gross profit | 3,646,590 | 7,857,716 | (4,211,126 | ) | -53.6 | % | ||||||||||
| Operating expenses | (7,308,703 | ) | (9,878,785 | ) | (2,570,081 | ) | -26.0 | % | ||||||||
| Operating loss | (3,662,113 | ) | (2,021,069 | ) | (1,641,044 | ) | 81.2 | % | ||||||||
| Non-operating income (expense), net | 1,969,246 | (779,049 | ) | 2,748,295 | -352.8 | % | ||||||||||
| Loss before income taxes | (1,692,867 | ) | (2,800,118 | ) | (1,107,251 | ) | -39.5 | % | ||||||||
| Income tax (benefit) expense | (339,857 | ) | 747,889 | (1,087,746 | ) | -145.4 | % | |||||||||
| Net loss | $ | (1,353,010 | ) | $ | (3,548,007 | ) | $ | 2,194,997 | -61.9 | % | ||||||
Highlights for the Three months ended June 30, 2022:
| ● | For the three months ended June 30, 2022, our consolidated net sales decreased $5.9 million, or 52.7%, to $5.3 million, compared to the three months ended June 30, 2021. | |
| ● | For the three months ended June 30, 2022, our consolidated gross profit decreased $4.2 million, or 53.6%, to $3.6 million, compared to the three months ended June 30, 2021. Our consolidated gross margin was 68.8% for the three months ended June 30, 2022, compared to 70.1% for the three months ended June 30, 2021. | |
| ● | For the three months ended June 30, 2022, our consolidated operating expenses decreased $2.6 million, or 26.0%, to $7.3 million, compared to the three months ended June 30, 2021. | |
| ● | For the three months ended June 30, 2022, our consolidated operating loss was $3.7 million, compared to $2.0 million for the three months ended June 30, 2021. | |
| ● | For the three months ended June 30, 2022, our consolidated net non-operating income was $1.9 million, compared to net non-operating expenses of $779,049 for the three months ended June 30, 2021. | |
| ● | For the three months ended June 30, 2022, our consolidated net loss was $1.3 million compared to net loss of $3.5 million for the three months ended June 30, 2021. For the three months ended June 30, 2022, and June 30, 2021, our diluted losses per share were $0.00 and $0.02, respectively. | |
| ● | For the three months ended June 30, 2022, our consolidated net cash used by operating activities was $3.8 million compared to $6.0 million for the three months ended June 30, 2021. | |
| ● | In June 2022, the Company and Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (“DSS”), and, together with DSS, a major shareholder of the Company entered into an agreement pursuant to which the parties to the agreement replaced the $30.0 million loan from April 2021 with a $27.0 million loan. | |
| ● | In June 2022, the Company, through a subsidiary, and American Pacific Bancorp, Inc. (“APB”), a subsidiary of DSS, entered into a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million. |
| 24 |
Overview
Summary Description of Business
Sharing Services Global Corporation and subsidiaries (“Sharing Services”, “we,” or the “Company”) aim to build shareholder value by developing or acquiring businesses and technologies that increase the Company’s product and services portfolio, business competencies, and geographic reach.
Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the U.S. and Canada using a direct selling business model. In addition, the Company distributes its products from the U.S. to customers located in Australia, New Zealand and other countries. The Company’s U.S. subsidiaries market our products and services through an independent sales force, using their proprietary websites, including: www.elevacity.com and www.thehappyco.com. In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).
The Company was incorporated in the State of Nevada on April 24, 2015.
As further discussed below, the Company intends to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.
Convertible Notes and Borrowing Under Short-term Financing Arrangements
Historically, the Company has funded a substantial portion of its liquidity and cash needs through the intermittent issuance of convertible notes and borrowings under short-term financing arrangements, and through the intermittent issuance of equity securities. See “Liquidity and Capital Resources” below for additional information about the Company’s convertible notes and borrowings under short-term financing arrangements.
Industry and Business Trends
The information in “Industry and Business Trends” included in ITEM 1 — “Business” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, is incorporated herein by reference.
Strategic Profitable Growth Initiatives
The Company intends to grow its business by pursuing a multipronged growth strategy, that includes: (a) expanding its product offerings, both within the health and wellness category and in new product categories, (b) expanding its direct-to-consumer geographic footprint (primarily in Asia), and (c) launching its previously announced membership-based consumer travel products line worldwide. This growth strategy may also include the use of strategic acquisitions of businesses that augment the Company’s product and services portfolio, business competencies and geographic reach.
Continuing Uncertainty Regarding the Recent COVID Pandemic
In 2020, in response to the COVID pandemic, governments in the countries where our products are sold mandated or recommended various containment measures, including selective business closures, social distancing, quarantine, stay-at-home or shelter-in-place directives, and limitations on, or cancellations of, larger meetings and other public events. We believe that the actual impact of the health crisis, and/or actions taken to contain the spread of the virus, have had and continue to have an adverse impact on the economies in the geographies we serve. Consumer demand for discretionary products such as ours is sensitive to significant downturns in the economy, increases in unemployment or decreases in perceived employment security, and decreases in consumer sentiment in general.
In efforts to protect our customers, distributors, employees, and other business partners, in 2020, we instituted several preventive measures, including temporarily transitioning a significant number of our corporate employees to working remotely, increasing efforts to clean and sanitize our business facilities, increasing employee safety communication, and transitioning our sales conventions to a virtual convention platform. While these temporary measures are increasingly being eased or fully reversed at the time of this Quarterly Report, we believe these necessary, temporary measurements are likely to have had an adverse impact on our business.
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As a result of the foregoing, we cannot predict with certainty the scope, duration, and ultimate impact of this public health emergency in the countries where we operate, including its impact on the economy, but we believe these conditions are likely to have had and continue to have a material adverse impact on our business, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.
The COVID emergency also may have the effect of exacerbating some of the other risk factors described elsewhere in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, including the success of our growth initiatives, our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in a timely manner, our dependence on one supplier for a substantial portion of the products we sell, potential fluctuations in our quarterly financial performance, our ability to generate sustained, positive cash flows from operations with which to fund our working capital needs, the potential impact on our financial performance from economic slowdowns, our ability to effectively and cost-efficiently respond to any epidemics and other health emergencies, and the potential impact on our business of any disruption in our information technology systems.
Results of Operations
The Three months ended June 30, 2022, Compared to the Three months ended June 30, 2021
Net Sales
For the three months ended June 30, 2022, our consolidated net sales decreased by $5.9 million, or 52.7%, to $5.3 million, compared to the three months ended June 30, 2021. The decrease in net sales mainly reflects: (a) continuation of the decline in consumer orders that we experienced since the fourth quarter of the fiscal year 2020, (b) a decline in independent distributor orders, in the number of new independent distributors and in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (c) the generally adverse impact on consumer buying trends resulting from the recent increase in consumer good prices and in energy costs in the U.S. and from lingering effects of the COVID global health emergency and actions taken to help mitigate the spread of the virus in the geographies in which we operate. In efforts to restore strong sales growth, in the past several months, we have developed and launched our new business brand, “The Happy CoTM,” at our Elevacity division, have accelerated our previously announced initiatives to expand our operations into additional international geographies, and have further intensified our efforts to recruit, develop and reward our distributors and our efforts to reach new consumers, including through the continued introduction of new products.
We believe there continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets of several countries, including the U.S. and Canada. Please see Overview - Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Health Crisis above.
The $5.9 million decrease in consolidated net sales primarily reflects a decrease in number of comparable product units sold, partially offset by sales of products introduced since June 30, 2021, of approximately $795,000.
During the three months ended June 30, 2022, and 2021, the Company derived substantially all its consolidated net sales from the sale of its Elevate health and wellness product line.
During the three months ended June 30, 2022, approximately 63% of our net sales were to customers (including approximately 37% to recurring customers, which we refer to as “SmartShip” sales, and approximately 26% were to new customers) and approximately 37% of our net sales were to our independent distributors.
Gross Profit
For the three months ended June 30, 2022, our consolidated gross profit decreased by $4.2 million, or 53.6%, to $3.6 million, compared to the three months ended June 30, 2021, and our consolidated gross margins were 68.8% and 70.1%, respectively. For the three months ended June 30, 2022, gross margin was affected by an increase in shipping expenses and promotional pricing, as a percentage of sales.
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Selling and Marketing Expenses
For the three months ended June 30, 2022, our consolidated selling and marketing expenses decreased by $2.4 million, to $2.8 million, or 46.5% of consolidated net sales, compared to $5.2 million, or 45.9% of consolidated net sales, for the three months ended June 30, 2021. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $2.7 million (which reflects decrease in our consolidated net sales discussed above) partially offset by higher sales convention expenses of approximately $309,800 (as we resumed holding some in-person conventions).
General and Administrative Expenses
For the three months ended June 30, 2022, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased by approximately $177,407 to $4.5 million, or 85.8% of consolidated net sales compared to $4.7 million, or 42.2% of consolidated net sales, for the three months ended June 30, 2021. The approximately $177,407 decrease in consolidated general and administrative expenses was primarily due to lower stock-based compensation expense of approximately $108,000, and lower employee compensation and compensation-related benefits of approximately $760,000, partially offset by higher consulting and professional fees of approximately $867,000.
Interest Expense, Net
For the three months ended June 30, 2022, our consolidated interest expense was $143,086, excluding amortization of debt discount of $2.1 million and amortization of deferred financing costs of $400,000, and interest income of $42,033. Consolidated interest expense of $3.1 million reflects $3.0 million associated with borrowings from “DSSI”.
For the three months ended June 30, 2021, our consolidated interest expense was $579,182, excluding amortization of debt discount of $2,356,507, amortization of deferred financing costs of $235,401, and interest income of $5,674. Consolidated interest expense of $579,183 reflects $565,479 associated with borrowings under the $30.0 million from “DSSI”.
Litigation Settlements and Other Non-operating Income/Expenses
For the three months ended June 30, 2022, our net consolidated non-operating income include litigation settlements and other non-operating income of approximately $1.97 million. For the three months ended June 30, 2021, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of approximately $779,600.
Gain (loss) on employee warrants liability
For the three months ended June 30, 2022, we recognized a compensatory gain of $114,960, compared to $1,134,170 for the three months ended June 30, 2021, in connection with employee warrants with a variable exercise price after service was completed.
Gain on Extinguishment of Debt
In June 2021, the Company’s borrowings under the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) were forgiven pursuant to the CARES Act. The Company recognized a gain on extinguishment of debt of $1.0 million, before income tax, in connection therewith.
Income Tax (Benefit) Provision
Income tax (benefit) provision include current and deferred income taxes for both our domestic and foreign operations. Income from our international operations is subject to taxation in the countries in which we operate.
During the three months ended June 30, 2022, the Company recognized a current federal income tax benefit of $882,692, a provision for deferred federal income taxes of $552,445, and a state and local tax benefit of $9,610. During the three months ended June 30, 2021, the Company recognized a provision for current federal income taxes of $1,445,951, net of a valuation allowance recognized of $1,428,620, a provision for state and local taxes of $19,898, and a deferred income tax benefit of $717,960.
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Net Loss and Loss per Share
As a result of the foregoing, for the three months ended June 30, 2022, our consolidated net loss was $1.4 million, compared to $3.5 million for the three months ended June 30, 2021. For the three months ended June 30, 2022, and June 30, 2021, our diluted loss per share was $0.00 and $0.02, respectively.
Liquidity and Capital Resources
We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our obligations and commitments. We believe that, for this purpose, liquidity cannot be considered separately from capital resources.
Working Capital
Working capital (total current assets minus total current liabilities) was $2.0 million and $7.4 million as of June 30, 2022, and March 31, 2022, respectively,
As of June 30, 2022, our cash and cash equivalents were $14.5 million. Based upon the current level of operations and anticipated investments necessary to grow our business, we believe that existing cash balances and anticipated funds from operations will likely be sufficient to meet our working capital requirements over the next 12 months.
Historical Cash Flows
Historically, our primary sources of cash have been capital transactions involving the issuance of equity securities and secured and unsecured debt (See “Recent Issuances of Equity Securities” and “Short-term Borrowings and Convertible Notes” below) and cash flows from operating activities; and our primary uses of cash have been for operating activities, capital expenditures, acquisitions, net cash advances to related parties, and debt repayments in the ordinary course of our business.
The following table summarizes our cash flow activities for the three months ended June 30, 2022, compared to the three months ended June 30, 2021:
| Three Months Ended June 30, | ||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||
| Net cash used in operating activities | $ | (3,776,508 | ) | $ | (6,017,388 | ) | $ | 2,240,880 | ||||
| Net cash used in investing activities | (136,807 | ) | (234,658 | ) | 97,851 | |||||||
| Net cash provided by financing activities | 1,373,681 | 30,000,000 | (28,626,319 | ) | ||||||||
| Impact of currency rate changes in cash | (30,140 | ) | 26,304 | (56,444 | ) | |||||||
| Net (decrease) increase in cash and cash equivalents | $ | (2,569,774 | ) | $ | 23,774,258 | $ | (26,344,032 | ) | ||||
Net Cash Used in Operating Activities
For the three months ended June 30, 2022, net cash used in operating activities was $3.8 million, compared to net cash used in operating activities of $6.0 million for the three months ended June 30, 2021. The $2.2 million change was due to a decline in profitability, excluding non-cash items, such as depreciation and amortization, stock-based compensation expense, provision for obsolete inventory losses, amortization of debt discount, losses on impairment of investments in unconsolidated entities and a note receivable, and estimated settlement liability. In addition, the change in net cash used in operating activities reflects a change in operating assets and liabilities of $1.3 million.
Net Cash Used in Investing Activities
For the three months ended June 30, 2022, net cash used in investing activities was $136,807, compared to $234,658 for the three months ended June 30, 2021. The $97,851 change was due to lower capital expenditures and capitalizable costs related to ongoing upgrades to our information technology systems.
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Net Cash Provided by Financing Activities
For the three months ended June 30, 2022, net cash used in financing activities decreased by $28.6 million, to $1.4 million, compared to $30.0 million for the three months ended June 30, 2021, primarily due to refinancing of the April 2021 DSSI loan.
Impact of currency rate changes in cash
For the three months ended June 30, 2022, the impact of currency rate changes in cash was $30,140, compared to $26,304 for the three months ended June 30, 2021. Prior to April 1, 2021, substantially all our consolidated net sales were denominated in U.S. dollars. Effective April 1, 2021, the Company’s consolidated financial statements reflect the operation of our wholly owned subsidiaries operating in the Asia Pacific region. See Note 2 of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, for information about our translation of foreign currency financial statements.
Legal Proceedings
The information contained in Note 15, COMMITMENTS AND CONTINGENCIES - Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.
Potential Future Acquisitions
The Company, directly and through its subsidiaries, may make strategic acquisitions and purchases of equity interests in businesses that complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash provided by operations, if any, and issuance of equity securities and debt.
Short-term Borrowings and Convertible Notes
Borrowing Under Financing Arrangements (Note Payable)
In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1.0 million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan have been forgiven effective May 25, 2021. The loan forgiveness applies to all principal and interest accrued through the loan forgiveness effective date.
Convertible Notes from Related Parties
Decentralized Sharing Systems, Inc.
On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) which, together with DSS, Inc., is a majority shareholder of the Company, entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the occurrence of an Event of Default, as defined in the Note. At any time during the term of the Note, all or part of the Note, including principal, less unamortized prepaid interest, if any, plus any accrued interest and other fees was convertible into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder.
On June 15, 2022, the Company and DSSI entered into an agreement pursuant to which the Company issued to DSSI: (a) a two-year Convertible, Advancing Promissory Note in the principal amount of $27.0 million (the “2022 Note”) in favor of DSSI and (b) a detachable Warrant to purchase up to 818,181,819 shares of the Company’s Class A Common Stock at the exercise price of $0.033 per share. The 2022 Note bears interest at the annual rate of 8% and is due and payable on demand or, if no demand, on May 1, 2024. At any time during the term of the 2022 Note, all or part of the Note may be converted into up to 818,181,819 shares of the Company’s Class A Common Stock, at the option of the holder. Under the terms of the agreement, the Company paid to DSSI a loan origination fee of $270,000, and DSSI surrendered to the Company all DSSI’s rights pursuant to the Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 and the detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, issued concurrently with such $30.0 million note, as discussed in the preceding paragraph.
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American Pacific Bancorp, Inc.
On June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”), a subsidiary of DSS, and the Company entered a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million. The loan bears interest at the annual rate of 8%, matures on June 1, 2024, and is secured by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received net proceeds of $5,522,829 from APB. Heng Fai Ambrose Chan and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB.
HWH International, Inc.
In October 2017, the Company issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
Capital Requirements
During the three months ended June 30, 2022, capital expenditures for property and equipment (consisting of furniture and fixtures, computer equipment and software, other office equipment and leasehold improvements) in the ordinary course of our business were $136,807.
Contractual Obligations
There were no material changes to our contractual cash obligations during the three months ended June 30, 2022, except for (a) the June 2022 refinancing of our loan from DSSI and (b) the June 2022 financing or our Lindon, Utah office building, as described above.
Off-Balance Sheet Financing Arrangements
As of June 30, 2022, we had no off-balance sheet financing arrangements.
Inflation
In recent history, inflation has generally been low in the geographies where we operate. However, at the time of this Quarterly Report, the increase in price of consumer goods in the United States has reached a 40-year high, primarily as a result of higher energy costs, higher housing costs, and the impact global supply chain disruptions. Please see “Our business and financial performance could be adversely affected by inflation” contained in ITEM 1A, — “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.
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Critical Accounting Estimates
While the Company is not aware of material changes to its critical accounting estimates or assumptions since March 31, 2022, it is reasonably possible that estimates made in the Company’s unaudited condensed consolidated financial statements have been, or will be, materially impacted as a result of the ultimate resolution of the uncertainties associated with the COVID health crisis. This may include estimates regarding allowance for slow-moving or obsolete inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the valuation of loss contingencies. Please see Overview - Continuing Uncertainty Regarding the Recent COVID Pandemic above.
Accounting Changes and Recent Accounting Pronouncements
For discussion of accounting changes and recent accounting pronouncements, see Note 2 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, is not required to provide the information called for by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the fiscal period covered by this Annual Report, and concluded that, as of June 30, 2022, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management and its Board of Directors, as appropriate to allow timely decisions regarding required disclosure.
Limitations on the Company’s Controls and Procedures. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. Any system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system will be met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud (if any) within the Company have been detected. Furthermore, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements and/or omissions due to error or fraud may occur undetected.
In light of the Form 10-K/A filed by the Company with the Securities Exchange Commission (SEC) on July 7, 2022, for the purpose of correcting a typographical error included in its Consolidated Statements of Changes in Stockholders’ Equity for fiscal years ended March 31, 2022 and 2021, management determined that the Company had a significant deficiency in its internal control over financial reporting. The significant deficiency was attributable mainly to our failure to effectively review and proofread the registration statement, detect and correct any errors before it was filed with the SEC. To address this significant deficiency, procedures have been developed and implemented by the accounting department in August 2022, to ensure the timely review, proof reading and sign-off of all registration statements prior to their submission to the SEC.
Changes in Internal Control over Financial Reporting. Except for the remedial actions described above, during our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The information contained in Note 15, COMMITMENTS AND CONTINGENCIES - Legal Proceedings, of the Notes to Unaudited Condensed Consolidated Financial Statements located elsewhere in this Quarterly Report is incorporated herein by reference.
Item 1A. Risk Factors.
The factors contained in ITEM 1A, — “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, are incorporated herein by reference.
Item 2. Unregistered Sales of Securities and Use of Proceeds.
(a) Unregistered Sales of Securities
None
(b) Not applicable
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
Item 3. Defaults Upon Senior Securities.
(a) Not applicable
(b) Not applicable
Item 4. Mining Safety Disclosures.
Not applicable
Item 5. Other Information.
None
| 32 |
Item 6. Exhibits.
The following exhibits are filed as part of this Quarterly Report unless otherwise indicated:
| 33 |
*Included herewith
| 34 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SHARING SERVICES GLOBAL CORPORATION | ||
| (Registrant) | ||
| Date: August 15, 2022 | ||
| By: | /s/ John Thatch | |
| John Thatch | ||
| President, Chief Executive Officer and Vice Chairman of the Board of Directors | ||
| (Principal Executive Officer) | ||
| Date: August 15, 2022 | ||
| By: | /s/ Anthony S. Chan | |
| Anthony S Chan | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 35 |
Exhibit 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Thatch, certify that:
(1) I have reviewed this Quarterly Report on Form 10-Q of Sharing Services Global Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 15, 2022 | ||
| By: | /s/ John Thatch | ||
| John Thatch | |||
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony S. Chan, certify that:
(1) I have reviewed this Quarterly Report on Form 10-Q of Sharing Services Global Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | August 15, 2022 | ||
| By: | /s/ Anthony S. Chan | ||
| Anthony S. Chan | |||
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Sharing Services Global Corporation (the “Company”) on Form 10-Q for the three months ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Thatch, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ John Thatch | ||
| John Thatch | |||
| Chief Executive Officer | |||
| Date: | August 15, 2022 |
Exhibit 32.2
CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Sharing Services Global Corporation (the “Company”) on Form 10-Q for the three months ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony S. Chan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ Anthony S. Chan | ||
| Anthony S. Chan | |||
| Chief Financial Officer | |||
| Date: | August 15, 2022 |
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