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Form 10-Q SHARING SERVICES GLOBAL For: Jun 30

August 15, 2022 5:59 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-55997

 

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   30-0869786
(State or other jurisdiction
of incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

1700 Coit Road, Suite 290, Plano, Texas   75075
(Address of principal executive offices)   (Zip Code)

 

(469) 304-9400

(Registrant’s telephone number, including area code)

 

None

 

(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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
Non-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☐ No

 

As of August 12, 2022, there were 262,832,833 shares of the issuer’s Class A Common Stock outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION  
Item 1. Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 31
   
PART II—OTHER INFORMATION  
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 33

 

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

 

  Page
   
Condensed consolidated balance sheets as of June 30, 2022, and March 31, 2022 5
   
Condensed consolidated statements of operations and comprehensive loss for the three months ended June 30, 2022, and June 30, 2021 6
   
Condensed consolidated statements of cash flows for the three months ended June 30, 2022, and June 30, 2021 7
   
Condensed consolidated statements of changes in stockholders’ equity for the three months ended June 30, 2022, and June 30, 2021 8
   
Notes to the unaudited condensed consolidated financial statements 9

 

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  $14,453,492   $17,023,266 
Trade accounts receivable, net   1,889,118    1,682,958 
Income taxes receivable   -    300,000 
Inventory, net   4,132,781    4,374,236 
Other current assets, net   2,428,486    3,511,282 
Total Current Assets   22,903,877    26,891,742 
Property and equipment, net   9,586,821    9,585,141 
Right-of-use assets, net   527,492    593,389 
Deferred income taxes, net   81,205    81,205 
Investment in unconsolidated entities, net   9,929,294    5,063,940 
Intangible assets   652,761    688,670 
Other assets, net   170,597    260,637 
TOTAL ASSETS  $43,852,047   $43,164,724 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $575,000   $985,139 
Accrued sales commission payable   3,247,913    3,745,481 
Employee stock warrants liability   344,463    452,050 
State and local taxes payable   1,381,888    1,339,366 
Note payable, related party   5,687,500    - 
Accrued and other current liabilities   2,669,096    3,079,782 
Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of 20,033,135 and 20,151,230 as of June 30, 2022, and March 31, 2022, respectively.   7,016,865    9,898,770 
Total Current Liabilities   20,922,725    19,500,588 
Deferred income tax liability, net   550,780    - 
Settlement liability, long term portion   -    373,677 
Lease liability, long-term   461,515    461,515 
TOTAL LIABILITIES   21,935,020    20,335,780 
Commitments and contingencies   -       
Stockholders’ Equity          
Preferred stock, $0.0001 par value, 200,000,000 shares authorized:          
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,100,000 shares issued and outstanding as of June 30, 2022, and March 31, 2022, respectively   310    310 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding at June 30 and March 31   -    - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares and 3,220,000 shares issued and outstanding at June 30 and March 31, 2022, respectively   322    322 
Common Stock, $0.0001 par value, 800,000,000 shares authorized:          
Class A common stock, $0.0001 par value, 790,000,000 shares designated, 288,923,969 shares and 288,923,969 shares issued and outstanding at June 30 and March 31, 2022, respectively   28,892    28,892 
Class B common stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding   -    - 
Treasury Stock, 26,091,136 shares, at cost   (626,187)   - 
Additional paid in capital   81,950,266    80,738,719 
Shares to be issued   12,146    12,146 
Accumulated deficit   (59,239,346)   (57,886,336)
Accumulated other comprehensive loss   (209,376)   (65,109)
Total Stockholders’ Equity   21,917,027    22,828,944 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $43,852,047   $43,164,724 

 

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  $5,303,618   $11,211,526 
Cost of goods sold   1,657,028    3,353,810 
Gross profit   3,646,590    7,857,716 
Operating expenses          
Selling and marketing expenses   2,757,800    5,150,475 
General and administrative expenses   4,550,903    4,728,310 
Total operating expenses   7,308,703    9,878,785 
Operating loss   (3,662,113)   (2,021,069)
Other income (expense)          
Interest expense, net   (3,120,054)   (2,930,014)
Litigation settlements and other   69,229    (23,605)
Unrealized gain on investments   4,884,173      
Gain (loss) on employee warrants liability   114,960    1,134,170 
Gain on extinguishment of debt   -    1,040,400 
Other non-operating expense   20,938    - 
Total other income (expense), net   1,969,246    (779,049)
Loss before income taxes   (1,692,867)   (2,800,118)
Income tax (benefit) provision   (339,857)   747,889 
Net loss  $(1,353,010)  $(3,548,007)
Other Comprehensive Income/Loss (net of tax):          
Currency translation adjustments   (144,267)   32,203 
Total other comprehensive income (loss)   (144,267)   32,203 
Comprehensive loss  $(1,497,277)  $(3,515,804)
Net income (loss) per share:          
Basic  $(0.01)  $(0.02)
Diluted  $(0.00)  $(0.02)
Weighted average shares:          
Basic   278,315,485    184,435,274 
Diluted   278,315,485    184,435,274 

 

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  $(1,353,010)  $(3,548,007)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   171,035    87,114 
Stock-based compensation gain   (107,588)   (931,533)
Deferred income tax benefit   -    (717,960)
Amortization of debt discount and other   3,412,427    2,356,507 
Gain on extinguishment of debt   (324,230)   (1,040,400)
Unrealized gain on investments   (4,884,173)   - 
Provision for obsolete inventory   108,055   116,334 
Changes in operating assets and liabilities:          
Accounts receivable   (206,163)   4,755 
Inventory   (111)   (3,450,228)
Other current assets   298,812   730,387 
Other assets   (19,950)   (89,935)
Accounts payable   374,997   959,990 
Income taxes payable   (30,259)   1,446,896 
Lease liability   4,162    1,621 
Accrued and other liabilities   (1,220,512)   (1,942,929)
Net Cash Used in Operating Activities   (3,776,508)   (6,017,388)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for property and equipment   (136,807)   (244,728)
Collection of notes receivable        10,070 
Net Cash Used in Investing Activities   (136,807)   (234,658)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Retirement of loan   (3,270,174)   - 
Proceeds from issuance of promissory notes   5,687,500    - 
Common stock received on litigation settlement   (1,043,645)   - 
Proceeds from convertible notes   -    30,000,000 
Net Cash Provided by Financing Activities   1,373,681   30,000,000 
IMPACT OF CURRENCY RATE CHANGES ON CASH   (30,140)   26,304 
Increase (decrease) in cash and cash equivalents   (2,569,774)   23,774,258 
Cash and cash equivalents, beginning of period   17,023,266    12,144,409 
Cash and cash equivalents, end of period  $14,453,492   $35,918,667 
           
Supplemental cash flow information          
Cash paid for interest  $481,043   $14,442 
Cash paid for income taxes  $-   $- 
Supplemented disclosure of non-cash investing and financing activities:          
Stock issued for financing fees and prepaid interest on debt  $-   $5,400,000 

 

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   3,100,000   $310       -   $-    3,220,000   $322    288,923,969   $28,892   $80,738,719   $12,146   $-   (57,886,336)  $(65,109)- $22,828,944 
Refinancing of debt and detachable warrants   -    -    -    -    -    -    -    -    1,211,547    -         -    -    1,211,547 
Repurchase of 26,091,136 shares of Common Stock                                 

 

    

 

    

 

         (626,187)             (626,187)
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -         -    (144,267)   (144,267)
Net loss   -    -    -    -    -    -    -    -    -    -         (1,353,010)        (1,353,010)
Balance – June 30, 2022   3,100,000   $310    -   $-    3,220,000   $322    288,923,969   $28,892   $81,950,266   $12,146    (626,187)   (59,239,346)  $(209,376)- $21,917,027 

 

                                                                  
   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   5,100,000   $510    -   $-    3,230,000   $323    160,100,769   $16,010   $43,757,768   $12,146 -  $(37,627,718)-  $-   $6,159,039 
Common stock issued for deferred financing costs and prepaid interest on debt   -    -    -    -    -    -    27,000,000    2,700    6,477,300    - -   (1,080,000) -  -    5,400,000 
Conversions of preferred stock             -    -    (10,000)   (1)   10,000    1    -    -    -    -    - 
Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax   -    -    -    -    -    -    -    -    21,330,000    -    -    -    21,330,000 
Expiration of common stock puts   -    -    -    -    -    -    -    -    -    -    177,879    -    177,879 
Stock-based compensation expense   -    -    -    -    -    -    -    -    280,000    -    -    -    280,000 
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -    -    32,203    32,203 
Net loss   -    -    -    -    -    -    -    -    -    -    (3,548,007)   -    (3,548,007)
Balance – June 30, 2021   5,100,000   $510    -   $-    3,220,000   $322    187,110,769   $18,711   $71,845,068   $12,146  - $(42,077,846) - $32,203   $29,831,114 

 

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 $1.2 million and $3.3 million, respectively, including $1.1 million and $3.0 million, respectively held by one merchant processor. In addition, as of June 30, 2022, and March 31, 2022, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $1.0 million and $1.4 million, respectively. Amounts held by our merchant processor or held in bank accounts located in foreign countries are generally not insured by any federal agency.

 

Notes Receivable, net

 

At June 30, 2022 and March 31, 2022, Notes receivable were $539,623 and $601,520, before allowance for impairment losses of $539,623 and $601,520, respectively.

 

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 $108,055 and 108,055, respectively, in connection with health and wellness product that is damaged, expired or otherwise in excess of forecasted outputs, based on our current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.

 

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”). At March 31, 2021, loan principal in the amount of $1.0 million was outstanding. 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. The Company recognized a gain on extinguishment of debt of $1.0 million in connection with such loan forgiveness.

 

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 $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 on June 17, 2022. APB is a subsidiary of DSS, Inc. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB. Monthly payments of principal and interest in the amount of $43,897 are due beginning July 1, 2022 and are payable on the same date of each month thereafter.

 

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 $195,282 and $344,071, respectively. In addition, as of June 30, 2022, and March 31, 2022, deferred sales revenue associated with our unfulfilled performance obligations for services offered on a subscription basis was $65,318, and $70,968, and deferred sales revenue associated with our performance obligations for customers’ right of return was $63,046 and $63,890, and deferred revenues associated with customer loyalty points was $81,980 and $68,287, respectively. Deferred sales revenue is expected to be recognized over one year.

 

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 63% of our net sales were to customers (including 37% to recurring customers, which we refer to as “SmartShip” sales, and approximately 26% to new customers) and approximately 37% of our net sales were to our independent distributors. During the three months ended June 30, 2021, no individual customer, or affiliated group of customers, represents 10% or more of our consolidated net sales, and approximately 70% of our net sales were to customers (including 31% to recurring customers and approximately 39% to new customers) and approximately 30% of our net sales were to our independent distributors. During the three months ended June 30, 2022, and June 30, 2021, approximately 93% and 89%, respectively, of our consolidated net sales were to our customers and/or independent distributors located in the United States. No other country accounted for 10% or more of our consolidated net sales.

 

During the three months ended June 30, 2022, substantially all our consolidated net sales are from our health and wellness products (including approximately 70% from the sale of Nutraceutical products, 20% from the sale of coffee and other functional beverages, 9% from the sale of weight management products, and approximately 1% from the sale of all other health and wellness products). During the three months ended June 30, 2021, substantially all our consolidated net sales are from our health and wellness products (including approximately 42% from the sale of Nutraceutical products, 27% from the sale of coffee and other functional beverages, 12% from the sale of weight management products, and approximately 19% from the sale of all other health and wellness products). 

 

During the three months ended June 30, 2022, approximately 94% of our consolidated product purchases were from a third-party manufacturer based in the U.S. During the three months ended June 30, 2021, approximately 49% of our consolidated product purchases were from a third-party manufacturer based in the U.S., while 51% of our product purchases were from a related-party supplier located in the Republic of Korea.

 

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 $2.4 million and $5.0 million, respectively.

 

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

 

 

NOTE 3 – LOSS PER SHARE

 

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.

 

The following table sets forth the computations of basic and diluted loss per share:


   June 30, 2022   June 30, 2021 
   Three Months Ended 
   June 30, 2022   June 30, 2021 
Net loss  $(1,353,010)  $(3,548,007)
Weighted average basic shares   278,315,485    184,435,274 
Weighted average diluted shares   278,315,485    184,435,274 
Loss per share:          
Basic  $(0.01)  $(0.02)
Diluted  $(0.00)  $(0.02)

 

The following potentially dilutive securities and instruments were outstanding as of June 30, 2022, and June 30, 2021, but excluded from the table above:

 

   June 30, 2022   June 30, 2021 
Convertible preferred stock   6,320,000    8,325,165 
Convertible notes payable   135,377,975    152,231,082 
Stock warrants   -    168,295,815 
Total potential incremental shares   141,697,975    328,852,062 

 

The preceding table does not include 1,875,000 and 8,750,000 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 
   June 30, 2022   March 31, 2022 
Finished Goods  $4,240,836   $4,482,291 
Allowance for inventory obsolescence   (108,055)   (108,055)
Inventory, net  $4,132,781   $4,374,236 

 

NOTE 5 – OTHER CURRENT ASSETS, NET

 

Other current assets consist of the following:

 

 

   June 30, 2022   March 31, 2022 
   June 30, 2022   March 31, 2022 
Prepaid consulting fees, related party  $2,013,706   $2,867,123 
Inventory-related deposits   312,090    384,477 
Prepaid insurance and other operational expenses   261,823    201,275 
Deposits for sales events   5,000    222,540 
Right to recover asset   15,632    15,632 
Subtotal   2,608,251    3,691,047 
Less: allowance for losses   (179,765)   (179,765)
Other current assets  $2,428,486   $3,511,282 

 

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 $179,765.

 

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 $1.4 million in Stemtech in exchange for: (a) a Convertible Promissory Note in the amount of $1.4 million in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares GNTW common stock (the “GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the Company an origination fee of $500,000, payable in shares of GNTW’s common stock. The Convertible Note matures on September 9, 2024, bears interest at the annual rate of 10%, and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on the closing price per share of GNTW’s common stock during the 30-day period ended September 19, 2021. The GNTW Warrant expires on September 13, 2024 and conveys the right to purchase up to 1.4 million shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company 154,173 shares of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee. In November 2021, Globe Net Wireless Corp. changed its corporate name to Stemtech Corporation. In connection therewith, the investee’s common stock is now traded under the symbol “STEK”.

 

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 $4,865,354 in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.

 

In September 2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company acquired a 30.75% equity interest in MojiLife, LLC, a limited liability company organized in the State of Utah, in exchange for $1,537,000. MojiLife is an emerging growth distributor of technology-based consumer products for the home and car. MojiLife’s products include esthetically attractive, cordless scent diffusers for the home or for the car, as well as proprietary home cleaning products and accessories.

 

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  $7,000,000   $3,570,000 
Investment in GNTW common stock   770,865    393,141 
Investment in Stemtech convertible note   2,158,429    1,100,799 
Investment in MojiLife, LLC   1,537,000    1,537,000 
Subtotal   11,466,294    6,600,940 
Less, allowance for impairment losses   (1,537,000)   (1,537,000 
Investments  $9,929,294   $5,063,940 

 

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  $1,537,000   $- 
Provision for estimated impairment losses   -    1,537,000 
Balance at end of fiscal year  $1,537,000   $1,537,000 

  

13

 

  

NOTE 7 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

           
   June 30, 2022   March 31, 2022 
Building and building improvements  $8,975,805   $8,976,878 
Computer software   1,015,742    875,925 
Furniture and fixtures   237,042    237,045 
Computer equipment   223,393    223,424 
Leasehold improvements and other   261,304    263,208 
Total property and equipment   10,713,286    10,576,480 
Impairment of property and equipment   (100,165)   (100,165 
Accumulated depreciation and amortization   (1,026,300)   (891,174)
Property and equipment, net  $9,586,821   $9,585,141 

 

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  $405,626   $547,217 
Liability associated with uncertain tax positions   921,987    921,987 
Payroll and employee benefits   309,736    478,360 
Settlement liability, current portion   -    341,919 
Lease liability, current portion   68,477    134,578 
Due to related parties   

288,731

    

125,532

 
Other operational accruals   674,539    530,189 
Accrued and other current liabilities  $2,669,096   $3,079,782 

 

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 $379,556 and accrued interest of $118,405.

 

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 
April 2021  April 2024   8%  $0.20   $-   $30,000,000 
October 2017  October 2022   12%  $0.15    50,000    50,000 
June 2022  June 2024   8%  $0.03    27,000,000    - 
Total convertible notes payable         27,050,000    30,050,000 
Less: unamortized debt discount and deferred financing costs         20,033,135    20,151,230 
          7,016,865    9,898,770 
Less: current portion of convertible notes payable         7,016,865    9,898,770 
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 $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 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.

 

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 $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. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc., “DSS”), and, together with DSS, is a major shareholder of the Company. 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 bore interest at the annual rate of 8%, with a maturity date of April 5, 2024, subject to certain accelerated provisions upon the occurrence of an Event of Default, as was defined in the Note. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest could have been converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Interest on the Note was pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year was pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. As further discussed below, the Note and the detachable Warrant were redeemed in June 2022.

 

In connection with the issuance of the Note and the detachable Warrant, the Company allocated $15.0 million of the net proceeds from the loan to the detachable Warrant, allocated $12.0 million of the net proceeds to the beneficial conversion feature embedded in the Note and recognized deferred financing costs of $3.0 million. The resulting debt discount and the deferred financing costs were being amortized into interest expense over the term of the note (three years). During the three months ended June 30, 2021, the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and 12,000,000 shares in prepayment of interest for the first year and recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.

 

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 $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 agreed to pay to DSSI a loan origination fee of $270,000. In addition, DSSI agreed to surrender to the Company all DSSI’s rights pursuant to: (a) a certain Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 in favor of DSSI, and (b) a certain 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. The Company recognized the transaction with DSSI as a debt extinguishment in accordance with GAAP. Since DSSI is a related party, the difference between the fair value of the new equity instruments and the carrying value of the retired equity instruments, was recognized in additional paid in capital on the Company’s condensed consolidated balance sheet.

 

During the three months ended June 30, 2022, and June 30, 2021, interest expense in connection with the Company’s convertible notes was $143,086 and $2.9 million, respectively, excluding amortization of debt discount and deferred financing costs of $2.5 million and $1.7 million, respectively. These amounts are included in interest expense in our consolidated statements of operations.

 

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   21%   21%
Republic of Korea   21%   22%

 

Our consolidated effective income tax rate reconciliation is as follows:

 

           
   Three Months Ended June 30, 
   2022   2021 
Federal statutory rate   21.0%   21.0%
State and local income taxes   0.6   (0.7)
Change in valuation allowance for NOL carry-forwards   1.3    (51.1)
Stock warrant transactions and other items   (2.8)   4.1 
Effective income tax rate   20.1%   (26.7)%

 

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 $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 transaction is discussed more fully in Note 9 – Convertible Notes Payable, Related Parties.

  

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 26,091,136 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 $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. In the fiscal quarter ending June 30, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

 

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 (2,200,000,000) shares, $0.0001 par value per share, of which: (a) Two Billion (2,000,000,000) Shares of Common Stock having a par value of $0.0001 per share (“Common Stock”) and (b) Two Hundred Million (200,000,000) Shares of Preferred Stock comprised of Series A and Series C having a par value of $0.0001 per share or as authorized (“Preferred Stock”).

 

16

 

 

The Company’s Board of Directors has designated 10,000,000 shares of Class B Common Stock, par value 0.0001 per share. As of both: June 30, 2022, and March 31, 2022, there were 288,923,969 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 288,923,969 shares, respectively, net of 26,091,136 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 no 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 $3.0 million in the Company and the Company agreed to issue 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 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 30.0 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 $30.0 million loan to the Company in exchange for: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Stock Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Under the terms of the loan agreement, 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, with the number of shares to be calculated at the rate of $0.20 per share. In April 2021, Sharing Services issued 27.0 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of the loan origination fee and 12.0 million shares in prepayment of interest on a loan for the first year.

 

In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $3,000,000 in the Company in exchange for 50.0 million shares of Class A Common Stock (the “Shares”) and stock warrants (the “Stock Warrants”) to purchase up to 50.0 million shares of the Company’s Class A Common Stock. The Stock Warrants are fully vested, have a term of five (5) years and are exercisable at any time prior to expiration, at the option of DSSI, at a per share price equal to $0.063. On the effective date of the Stock Purchase and Share Subscription Agreement, the closing price for the Company’s common stock was $0.075 per share and the Company recognized a deemed dividend of $2.3 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 ($60,000) and DSS received a fully vested detachable Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock, at the exercise price of $0.0001 per share. On the effective date of the Consulting Agreement, the closing price of the Company’s common stock was $0.07 per share and the fair value of the Stock Warrant was $3.5 million. The fair value of the Stock Warrant is being recognized as consulting expense over the term of one year. During the three months ended June 30, 2022, the Company recognized consulting expense of $872,603, in connection with the Consulting Agreement. In February 2022, the Company issued 50.0 million shares of its Common Stock Class A to DSS in connection with exercise of the Stock Warrant.

 

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 $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 (the “Warrant”), at $0.033 per share, in exchange for the $27.0 million. 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.

 

17

 

 

In connection with the loan, the Company agreed to pay to DSSI a loan Origination Fee of $270,000. In addition, DSSI agreed to surrender to the Company all DSSI’s rights pursuant to: (a) a certain Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021 in favor of DSSI, and (b) a certain 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 of June 30, 2022, DSS and its affiliates owned, in the aggregate, 191.9 million shares of the Company’s Class A Common Stock, excluding 878.2 million shares issuable upon the exercise of warrants held by DSS and 818.2 million shares issuable upon conversion of the Note discussed in the third preceding paragraph. Heng Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of the Company, also serve on the Board of Directors of DSS. Mr. Chan serves as Chairman of the Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Board of Directors of the Company.

 

HWH International, Inc.

 

In October 2017, Sharing Services 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 became a Director of the Company in April 2020. 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 $78,635.62, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.

 

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 $261,835 in connection therewith. In fiscal year ended March 31, 2022, the Company recognized expense of $222,092 in connection this lease. As of March 31, 2022, accounts payable included payments due to HWH World under the lease of $213,742. In May 2022, the Company and HWH World amended the related sublease agreement to significantly reduce the space subleased by the Company and the related rent obligation. On June 30, 2022, the right-of-use asset and liability were written off and a new month-to-month rental agreement was entered into for the reduced space subleased by the Company. The company recognized $936 in rent expense in connection with the new lease.

 

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 $10,000. During the fiscal year ended March 31, 2022, the Company recognized consulting income of $76,700 in connection therewith. The Advisory Agreement was terminated during the three months ended June 30, 2022.

 

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 $111,414. During the three months ended June 30, 2022, the Company’s purchases of health and wellness products from Impact Biomedical, Inc., totaled $19,247.

 

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 $2.3 million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans. During the three months ended June 30, 2022, the Company purchased skin care products manufactured by K Beauty Research Lab in the amount of $643.

 

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 $151,509. No purchase orders were issued during the three months ended June 30, 2022.

 

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 22.7 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 15.6 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 38.3 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 26,091,136 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 $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. In the fiscal quarter ending June 30, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

 

The Company subleases warehouse and office space from Alchemist, until May 2022, a 10% shareholder of the Company. During the three months ended June 30, 2022, rent expense associated with such sublease agreement was $25,081.

 

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 $4,166. Mr. John “JT” Thatch, a director of the Company, also serves on the Board of Directors of American Premium. During the three months ended June 30, 2022, the Company recognized consulting fee income of $12,498.

 

Alset Title Company, Inc.

 

In December 2021, Sharing Services, through one of its subsidiaries, purchased an office building in Lindon, Utah for $8,942,640. In connection therewith, Alset Title Company, Inc. (“Alset Title”), a subsidiary of DSS, acted as escrow and closing agent for the transaction, at no cost. DSS, together with its subsidiaries, is a majority shareholder of the Company.

 

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 $5.7 million. The loan bears interest at the annual rate of 8% matures on June 1, 2024, is payable in equal monthly instalments of $43,897 commencing on July 1, 2022 (with the remainder due 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 on June 17, 2022. APB is a subsidiary of DSS. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB.

 

NOTE 13 – STOCK-BASED COMPENSATION

 

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 $3.0 million in the Company in exchange for 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 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 $50,000 to HWH International, Inc. (“HWH”) and a detachable stock warrant to purchase up to 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. The Note is convertible into 333,333 shares of the Company’s Common Stock and expires in October 2022. HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company.

 

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.

 

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During the three months ended June 30, 2022, and 2021, the Company recognized a compensatory gain of $114,960 and $1,134,170, respectively, in connection with grants with a variable exercise price after service is completed.

 

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 1 to 10 years on the remaining Leases. Leases with an initial term in excess of 12 months are recognized on the consolidated balance sheet based on the present value of future lease payments over the defined lease term at the lease commencement date. Future lease payments were discounted using an implicit rate of 10% to 12% in connection with most leases.

 

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  $527,492   $593,389 
Total lease assets     $527,492   $593,389 
              
Liabilities             
Operating leases  Accrued and other current liabilities  $68,477   $134,578 
Operating leases  Lease liability, long-term   461,515    461,515 
Total lease liabilities     $529,992   $596,093 

 

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  $23,178   $159,820 
Operating lease cost  Depreciation and amortization   -    - 
Operating lease cost  Interest expense, net   -    - 
Total lease cost     $23,178   $159,820 

 

The Company’s lease liabilities are payable as follows:

 

 

Twelve months ending June 30,  Amount 
2023  $102,897 
2024   52,128 
2025   60,500 
2026   69,746 
2027   79,713 
Thereafter   231,108 
Total remaining payments   596,092 
Less imputed interest   (66,100)
Total lease liability  $529,992 

 

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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)