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As filed with the Securities and Exchange Commission on December 9, 2022.

 

Registration No. 333-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   30-0869786

(State or other jurisdiction

of incorporation)

  

(IRS Employer

Identification No.)

 

7374

Primary Standard Industrial Classification Code Number

 

5200 Tennyson Pkwy, Suite 400

Plano, TX, 75024

(469) 304-9400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

John Thatch

Chief Executive Officer

5200 Tennyson Pkwy, Suite 400

Plano, TX, 75024

(469) 304-9400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

Darrin Ocasio, Esq.

Jay Yamamoto, Esq.

Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 31st Floor

New York, New York 10036

Tel: (212) 930-9700

Fax: (212) 930-9725

Mark E. Crone, Esq.

The Crone Law Group, P.C.

420 Lexington Avenue, Suite 2446

New York, NY 10170

Tel: 646-861-7891

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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 ☐ Non-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 7(a)(2)(B) of the Securities Act. ☐

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED DECEMBER 9, 2022

 

 

[●] Shares of Common Stock

 

This prospectus relates to a firm commitment public offering of Sharing Services Global Corporation, a Nevada corporation (the “Company”), for [●] shares of common stock, $0.0001 par value per share, at an assumed offering price of $[●] per share of common stock, based on the assumed public offering price of $[●] per share of common stock, the last reported bid price of our common stock on the OTCQB on [●], 2022.

 

Our common stock is currently traded on the OTCQB Marketplace (“OTCQB”) operated by the OTC Markets Group, Inc. under the symbol “SHRG.”

 

We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market. No assurance can be given that our application will be approved, and we will not consummate this offering unless our common stock is approved for listing on the Nasdaq Capital Market.

 

On December 8, 2022, the last reported sale price for our common stock was [*] per share. Quotes of stock trading prices on an over-the-counter marketplace may not be indicative of the market price on a national securities exchange.

 

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN OUR SECURITIES.

 

   Per Share of
Common Stock		   Total 
Assumed public offering price(1)        
Underwriting discounts and commissions(2)          
Proceeds to us, before expenses          

 

(1) Based on the last reported bid price of our common stock on the OTCQB on [●], 2022.
   
(2) Does not include the following additional compensation payable to the underwriters. In addition to the compensation referenced above, we have agreed to pay to EF Hutton, division of Benchmark Investments, LLC, the representative of the underwriters (the “Representative”), a non-accountable expense allowance one percent (1.0%) of the total proceeds raised and to reimburse the underwriters for certain expenses incurred relating to this offering. In addition, we will issue to the Representative warrants to purchase up to that number of shares of our common stock equal to five percent (5.0%) of the number of shares of common stock sold in this offering. The registration statement of which this prospectus forms a part also registers the issuance of the shares of common stock issuable upon exercise of the Representative’s warrants. See “Underwriting” for a description of compensation and other items of value payable to the underwriters.

 

We have granted to the underwriters a 45-day option, exercisable one or more times in whole or in part, to purchase up to an additional [●] shares of common stock (an amount equal to 15% of the common stock sold in the offering, assuming a total of [●] shares of common stock are sold at the public offering price per share of $[●] (which is the last reported closing price of our common stock, as reported on the OTCQB [●], 2022)) at the public offering price per share of common stock, less the underwriting discounts and commissions, to cover over-allotments, if any.

 

We have also agreed to issue to the Representative of the underwriters warrants to purchase up to an aggregate of [●] shares of our common stock. See “Underwriting” beginning on page 73 for additional information regarding these warrants and underwriting compensation generally.

 

The underwriters expect to deliver our common stock to purchasers in this offering on or about [●], 2022.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

Sole Book Running Manager

 

EF Hutton

 

division of Benchmark Investments, LLC

 

The date of this prospectus is _____________, 2022.

 

 
 

 

TABLE OF CONTENTS

 

  Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 4
INDUSTRY AND MARKET DATA 4
PROSPECTUS SUMMARY 5
THE OFFERING 7
SUMMARY FINANCIAL DATA 9
RISK FACTORS 10
USE OF PROCEEDS 25
DETERMINATION OF OFFERING PRICE 25
MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS 26
CAPITALIZATION 27
DILUTION 28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29
BUSINESS 42
MANAGEMENT 50
EXECUTIVE AND DIRECTOR COMPENSATION 57
RELATED PARTY TRANSACTIONS 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 63
DESCRIPTION OF SECURITIES 65
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES 67
SHARES ELIGIBLE FOR FUTURE SALE 67
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS 68
UNDERWRITING 73
LEGAL MATTERS 81
EXPERTS 81
INTERESTS OF NAMED EXPERTS AND COUNSEL 81
WHERE YOU CAN FIND MORE INFORMATION 81
INDEX TO FINANCIAL STATEMENTS F-1

 

Through and including [●], 2023, (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we or the underwriters may authorize to be delivered or made available to you. Neither we nor the underwriters have authorized anyone to provide you with different information. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, operating results and prospects may have changed since that date.

 

For investors outside of the United States: No action is being taken in any jurisdiction outside of the United States that would permit a public offering of the shares of our common stock or possession or distribution of this prospectus in any such jurisdiction. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 

In this prospectus, unless the context indicates otherwise, references to “Sharing Services,” “we,” the “Company,” “our,” and “us” refer to Sharing Services Global Corporation, a Nevada corporation, and references to the “Board” or the “Board of Directors” means the Board of Directors of Sharing Services Global Corporation.

 

3

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections of this prospectus entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

 

  ● our ability to continue as a going concern and our history of losses;
     
  ● our ability to obtain additional financing;
     
  ● our use of the net proceeds from this offering;
     
  ● the accuracy of our estimates regarding expenses, future revenues and capital requirements;
     
  ● the implementation of our business model and strategic plans for our business;
     
  ● our ability to retain key management personnel; and
     
  ● regulatory developments and our compliance with applicable laws.

 

Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Actual events or results may differ materially. Readers are cautioned not to place undue reliance on forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this prospectus or to conform them to actual results, new information, future events or otherwise.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.

 

You should read the risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

INDUSTRY AND MARKET DATA

 

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.

 

4

 

 

PROSPECTUS SUMMARY

 

The following summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. It does not contain all the information that may be important to you and your investment decision. You should carefully read this entire prospectus, including the matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes included elsewhere in this prospectus.

 

Unless otherwise expressly provided herein, all share and per share numbers set forth herein relating to our common stock assume no exercise of (a) any warrants and/or options, (b) the representatives’ common stock purchase warrants and/or (c) the representatives’ over-allotment option.

 

Company Overview 

 

Sharing Services Global Corporation (“Sharing Services,” “we,” “us,” or “our”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or acquiring businesses, products and technologies in the direct selling industry and other industries that augment the Company’s products and services portfolio, business competencies, and geographic reach. Our primary growth strategy is built on focused innovation and creativity positioned to capture profitable market share of diverse business models.

 

Our common stock is traded under the symbol “SHRG” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In connection with this change, Sharing Services decided not to restate the information reported for prior accounting periods, because: (a) our businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the consolidated financial statements included herein reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (365 days) compared to the eleven months ended March 31, 2021 (335 days).

 

Our History

 

Sharing Services was originally incorporated in the State of Nevada under the name Sharing Services, Inc. in April 2015. In December 2017, Sharing Services, through its U.S.-based subsidiaries, launched its Elevate brand of health and wellness products.

 

In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, we adopted the trading symbol SHRG effective April 4, 2019. Prior to this, our common stock was traded under the trading symbol SHRV.

 

In February 2021, we rebranded our product offerings under the new marketing banner, “The Happy Co TM,” to capitalize on its vision that Everyone Deserves to be Happy. As part of this business initiative, we updated our customer messaging to re-emphasize the Company’s core values, including, among others: “harnessing the power of happiness;” “offering products you love;” “achieving more together;” and “offering products by people, for people.”

 

In June 2021, we expanded our geographical footprint, and through our wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea).

 

5

 

 

Strategic Growth Initiatives

 

The Company intends to grow its business by pursuing a multipronged growth strategy, that includes expanding: (a) its product offerings, both within the health and wellness category and in new product categories, (b) its direct-to consumer geographic footprint (primarily in Asia), and (c) its 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.

 

Risk Factors  

 

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors,” beginning on page 10, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition, and results of operations. Such risks include, but are not limited to:

 

  ● We depend on our ability to successfully access the capital and financial markets. Any inability to access the capital or financial markets may limit our ability to fund our ongoing operations, execute our business plan or pursue investments that we may rely on for future growth.
     
  ● Our quarterly and annual operating and financial results and our revenue are likely to fluctuate significantly in future periods.
     
  ●

Our future profitability, overall financial condition, results of operations and cash flows.

 

  ● Our ability to operate as a going concern.
     
  ● We may be unable to find sources of funding if and when needed, resulting in the failure of our business.
     
  ● Our ability to raise sufficient capital to sustain or grow our business.
     
  ● Our ability to manage growth will have an impact on our business, financial condition, and results of operations.
     
  ● Certain of our executive officers and directors may be in a position of conflict of interest.
     
  ●

Compliance with the United States Food and Drug Administration (the “FDA”) regulations can be costly and time-consuming, and violations can lead to severe fines, administrative or judicial sanctions, and other penalties that could be disruptive to our business.  

     
  ● If we are ultimately unable to obtain any necessary or desirable FDA and comparable foreign regulatory authorities’ approvals or clearances, or if such approvals or clearances are significantly delayed, our business will be substantially harmed.
     
  ● We are exposed to foreign exchange fluctuations that   may adversely affect our costs, earnings and the value of some of our assets.
     
  ●

Our common stock price may be volatile. 

 

  ● The lack of liquidity in our common stock.
     
  ● We do not intend to pay regular future dividends   on our common stock and thus stockholders must look to appreciation of our common stock to realize a gain on their investments.
     
  ● We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing securities that would dilute your ownership.

 

6

 

 

Corporate Information

 

Our principal place of business is located at 5200 Tennyson Pkwy, Suite 400, Plano, TX, 75024. Our telephone number is 469-304-9400, and our website address is www.shrginc.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

 

Listing on a National Stock Exchange

 

We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market. No assurance can be given that our application will be approved, and we will not consummate this offering unless our common stock is approved for listing on the Nasdaq Capital Market.

 

THE OFFERING

 

Securities Offered:   [●] shares of common stock, assuming a public offering price of $[●] per share of common stock (the last reported sale price of our common stock on the OTCQB on [●], 2022).
     
Assumed Public Offering Price:   $[●] per share of common stock
     
Shares of Common Stock Outstanding before the Offering:   262,832,833 shares
     
Shares of Common Stock to be Outstanding after this Offering:   [●] shares (not including the possible sale of over-allotment shares).
     
Trading Symbol:   Our common stock is presently quoted on the OTCQB under the symbol “SHRG.” We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market.
     
Reverse Stock Split:   We intend to complete a reverse stock split, subject to approval by our Board and the holders of a majority of our outstanding voting securities, without further stockholder approval, to file a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State at any time before March 31, 2023, to effect the Reverse Stock Split by a ratio of not less than [1 for 100 and not more than 1 for 1,000], as determined by our Board. We expect the Reverse Stock Split to take effect prior to the consummation of this offering. See “Description of Securities” and “Risks Related to This Offering and The Reverse Stock Split” for additional information regarding the Reverse Stock Split and other matters related to our common stock.
     
    The purpose of the Reverse Stock Split is to allow us to meet the stock price threshold of the listing requirements of a national securities exchange. All option, share, and per share information in this prospectus does not give effect to the proposed Reverse Stock Split.
     
Over-Allotment Option:   We have granted to the underwriters a 45-day option to purchase from us up to an additional 15% of the shares of common stock sold in the offering, solely to cover over-allotments, if any, at the public offering price per share, less the underwriting discounts.
     
Use of Proceeds:   We estimate that we will receive net proceeds of approximately $[●] from our sale of common stock in this offering, after deducting underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for business development, working capital and general corporate purposes, and debt refinancing. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

7

 

 

Risk Factors:   Investing in our securities involves substantial risks. You should carefully review and consider the “Risk Factors” section of this prospectus beginning on page 10 and the other information in this prospectus for a discussion of the factors you should consider before you decide to invest in this offering.
     
Lock-up:   We, our directors, officers, and holders of 5% or more of the outstanding shares of our common stock have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for 180 days after the date of this prospectus.
     
Representative’s Warrant:   We will issue to EF Hutton, division of Benchmark Investments, LLC, as Sole Book Running Manager and Representative, at the closing of this offering warrants to purchase the number of shares of common stock equal to 5% of the aggregate number of common stock sold in this offering (the “Representative’s Warrants”). The Representative’s Warrants are exercisable at any time and from time to time, in whole or in part, during the four and a half year period commencing six months after the effective date of the registration statement of which this prospectus forms a part. The registration statement of which this prospectus forms a part also registers the issuance of the shares of common stock issuable upon exercise of the Representative’s Warrant. The exercise price of the Representative’s Warrant will equal 140% of the assumed public offering price per share of common stock. See “Underwriting.”

 

  The number of shares of our common stock outstanding after the completion of this offering is based on 262,832,833 shares of our common stock outstanding as of the date of this prospectus and excludes the following, as of the date of this prospectus:

 

  ● [*] shares of common stock issuable upon the exercise of outstanding options and warrants with a weighted average exercise price of $[*] per share and a weighted time to expiration of [*] years;
     
  ● [*] shares of common stock reserved for the future issuance of awards under our [*] Stock Incentive Plan;
     
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series A Preferred Stock; and
     
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series C Preferred Stock.

 

Except as otherwise indicated herein, all information in this prospectus assumes the following:

 

  ● no exercise of the outstanding warrants or conversion of the convertible preferred stock described above;
     
  ● no exercise by the underwriters of their option to purchase additional shares of common stock to cover over-allotments, if any; and
     
  ● no exercise of the Representative’s Warrants.

 

8

 

 

SUMMARY FINANCIAL DATA

 

The following table sets forth our selected financial data as of the dates and for the periods indicated. We have derived the statement of operations data for the years ended March 31, 2022, and March 30, 2021, from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the six months ended September 30, 2022, and 2021, and the balance sheet data as of September 30, 2022, have been derived from our unaudited financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. In the opinion of our management, the unaudited data reflects all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results as of and for these periods. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the section in this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not indicative of our future results, and our results for the six months ended September 30, 2022, and September 30, 2021, may not be indicative of our results for the year ending March 31, 2022, and March 31, 2021.

 

   Year Ended   Six Months Ended 
           (Unaudited) 
   March 31, 2022   March 30, 2021   September 30, 2022   September 30, 2021 
Statements of Operations and Comprehensive Loss Data:                    
Net sales  $34,424,314   $64,811,151   $9,491,770   $21,084,827 
Cost of goods sold   10,801,871    18,264,494    3,416,804    6,278,250 
Gross profit   23,622,443    46,546,657    6,074,966    14,806,577 
Operating expenses                    
Selling and marketing expenses   17,239,655    29,740,974    4,795,396    10,172,635 
General and administrative expenses   19,714,963    18,983,209    9,108,825    10,269,011 
Total operating expenses   36,954,618    48,724,183    13,904,221    20,441,646 
                     
Operating loss   (13,332,175)   (2,177,526)   (7,829,255)   (5,635,069)
                     
Total other income (expense), net   (6,810,312)   347,996    (12,803,590)   (1,133,948)
Earnings (loss) before income taxes   (20,142,487)   (1,829,530)   (20,632,845)   (6,769,017)
Income tax provision (benefit)   (3,035,990)   (594,509)   (893,932)   (506,245)
                     
Net loss  $(17,106,497)  $(1,235,021)  $(19,738,913)  $(6,262,772)
                     
Other comprehensive income(loss) (net of tax):                    
Currency translation adjustments   (65,109)   -    (408,017)   23,973 
Total other comprehensive income   (65,109)   -    (408,017)   23,973 
Comprehensive earnings (loss)   (17,171,606)   (1,235,021)   (20,146,930)   (6,238,799)
                     
Loss per share:                    
Basic and Diluted Shares  $(0.08)  $(0.01)  $(0.07)  $(0.03)
                     
Weighted average shares:                    
Basic and Diluted   206,211,711    172,046,517    270,531,857    186,009,840 

 

   As of September 30, 2022 
   Actual   Proforma (1)   Proforma as adjustment (2) 
   (Unaudited)   (Unaudited)   (Unaudited) 
Balance Sheet Data:               
Cash and cash equivalents  $6,458,865   $-   $- 
Current Assets   13,502,278    -    - 
Total Assets   33,276,916    -    - 
Current Liabilities   29,635,335    -    - 
Other noncurrent liabilities   413,587    -    - 
         -      
Additional paid in capital   81,913,495    -    - 
Accumulated other comprehensive loss   (473,126)   -    - 
Accumulated deficit   (77,625,249)   -    - 
Total Stockholders’ Equity (3)   3,227,994    -    - 
Non-Controlling interest   -    -    - 
Total Stockholders’ Equity   3,227,994    -    - 
Total liabilities and stockholder’s equity  $33,276,916   $-   $- 

 

(1) Pro forma bases giving effect to, as of the date of this prospectus,

 

(2) Pro forma as adjusted balance sheet data reflects the pro forma items described immediately above plus These unaudited pro forma adjustments are based upon available information and certain assumptions we believe are reasonable under the circumstances.

 

(3) All components to derive total liabilities and stockholders’ equity are not included. See Condensed Consolidated Financial Statements, presented further in this document, for all line items.

 

9

 

 

RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, and cash flows. If any of these events occurs, the market price of our Common Stock could decline, and you could experience the loss of all or a portion of the value of your investment in our Common Stock. You should not draw any inference about the relative magnitude or relevance of any particular risk from its position in the following discussion.

 

Risks Associated with the Direct Selling Business Model:

 

The dependence of some of our subsidiaries upon a direct selling business model to sell our products, and the highly competitive and dynamic nature of the direct selling industry.

 

Our subsidiaries operate in the direct selling industry market and distribute our products and services through a sales force of independent contractor distributors. The distribution of our products and services depends upon their continued efforts to recruit, train, and retain qualified and effective independent distributors. The success of their efforts to recruit and retain distributors may be affected by the competitive environment among direct-to-consumer companies, the conditions of the general labor market, including levels of employment, the occurrence of demographic and cultural changes in the workforce, and the extent to which their brand is recognized in the geographies in which they operate. There can be no assurance that our subsidiaries will be successful in recruiting and retaining enough independent distributors to grow their business worldwide.

 

The direct selling industry worldwide is highly competitive and dynamic, and generally there are few barriers to entering the industry. In addition, the sale of health and wellness products by direct selling industry participants, online resellers, and others is highly competitive. There are several companies, including many with more resources than the Company that offer competing health and wellness products. The primary competitive factors for health and wellness products are (a) price; (b) the quality, perceived value, brand recognition and package appeal of the product; (c) the skills and effectiveness of the independent distributor and customer service staff interacting with the customer or potential customer; and (d) the continuous availability of enough product to fulfill orders promptly. There can be no assurance that our subsidiaries will remain competitive or that competition in the industry will not intensify.

 

If our subsidiaries do not remain competitive and promptly and effectively respond to increased competition, including competition for independent distributors, and to marketplace changes in the future, future sales of our products and services could decline. This could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

10

 

 

Our subsidiaries’ ability to attract and retain independent distributors; the ability of a distributor to successfully perform his or her role; and the potential adverse impact of the loss of a high-level distributor or a significant number of distributors for causes out of our subsidiaries’ control.

 

Our subsidiaries operating in the direct selling industry depend on the skills and marketability of their independent distributors to promote their brand and to market and distribute our products and services. The direct selling industry generally experiences a relatively high rate of salesforce turnover and is very competitive. The success of our subsidiaries’ efforts to recruit and retain distributors may be affected by the competitive environment among direct-to-consumer companies, the conditions of the general labor market, including levels of employment, the occurrence of demographic and cultural changes in the workforce, and the extent to which our subsidiaries’ brand is recognized in the geographies in which they operate. Our subsidiaries’ inability to attract and retain qualified distributors in the future, the inability or failure of a distributor to fulfill his or her role, including his or her role to comply with all laws and regulations applicable to direct-to-consumer sales activities, the ineffectiveness of a distributor as a spokesperson for our subsidiaries’ brand and products, or the loss of a high-level distributor or a significant number of distributors for causes out of their control may adversely affect future sales of our products and services. This could have a material adverse effect on our consolidated financial condition, results of operations and cash flows.

 

Changes to our subsidiaries’ sales compensation plan could be negatively perceived by members of their independent sales force, could fail to achieve the desired long-term goals, and could adversely impact future sales.

 

Some of our subsidiaries operating in the direct selling industry modify aspects of their sales compensation plan from time to time in efforts to keep their sales compensation plan competitive and attractive to their existing and future sales force, to address changing market conditions, to provide incentives that they believe will help grow their business, and to ensure conformance with evolving government regulations, among other reasons. In addition, our subsidiaries may be required to modify their sales compensation plan from time to time to comply with existing or new regulations in the future, including in response to potential governmental enforcement action. Changes to our subsidiaries’ sales compensation plan, including changes perceived to reduce sales commissions earned by their independent sales force, could be negatively received by their sales force, could fail to achieve the desired long-term goals, and could adversely impact future sales. This, in turn, could adversely affect our consolidated business, financial condition, results of operations and cash flows.

 

Certain of our subsidiaries may be held responsible for certain taxes or assessments relating to the activities of their independent distributors.

 

The success of our subsidiaries operating in the direct selling industry depends on the effective use of an independent sales force to market and distribute our products and services. Our subsidiaries’ business activities and the activities of their independent distributors are subject to various local, state, and national laws and regulations and, in some instances, governmental agencies may seek to impose on our subsidiaries an obligation to collect taxes, such as sales or value-added tax, to maintain appropriate tax records, or to otherwise ensure compliance with local, state, or national laws and regulations by their distributors. In addition, some jurisdictions may challenge a company’s classification of its distributors as independent contractors and seek to make the company pay additional compensation to its distributors or seek to make the company responsible to withhold and remit payroll and similar taxes with respect to compensation paid to its distributors or with respect to the activities of its distributors. For example, in 2020, the State of California passed legislation which seeks to expand the classification of employees. Other states and other jurisdictions where we operate, now or in the future, may pass similar laws or interpret existing laws, rules, and regulations to expand the classification of employees. Although the California legislation provides an exemption for direct sellers, such as the Company’s subsidiaries operating in the direct selling industry, there can be no assurance that other jurisdictions where we operate now or in the future will provide a similar exemption or that judicial or regulatory authorities will not assert interpretations of law that would mandate that we change our classification. In the event that any governmental agency challenges the classification of our subsidiaries’ distributors as independent contractors or otherwise seeks to make our subsidiaries responsible to withhold and remit payroll or other taxes in connection with the activities of their independent distributors, we may incur significant costs and expenses to defend us and our subsidiaries from such actions, with no assurance that we will prevail, and our subsidiaries may ultimately be held responsible for such taxes in those jurisdictions in the future. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

11

 

 

Civil or governmental challenges to our subsidiaries’ direct selling system or independent distributor policies could harm our business.

 

The direct-to-consumer industry is subject to extensive governmental scrutiny, including as a result of various national, state, and local laws and regulations. For example, in the U.S., the FTC has actively warned several direct selling companies, and the industry as a whole, about certain business practices associated with direct selling and has entered into settlements with several direct selling companies that required those companies to modify their compensation plans and business models. Those settlements resulted from FTC enforcement actions involving a variety of alleged violations of consumer protection laws, including allegations of earnings potential misrepresentations and challenges about the legal validity of the distributor compensation plans and business models. Elements of the network marketing system or distributor policies of some of our subsidiaries may also be challenged by third parties, including their independent distributors, by competing direct-to-consumer companies, and by others.

 

In the countries where we operate, the direct selling industry relies on the implementation of distributor rules and policies designed to protect consumers, prevent inappropriate sales activities and marketing practices, and distinguish between legitimate direct selling distribution systems and unlawful pyramid schemes. We and our subsidiaries have adopted formal rules and policies that we believe are consistent with best domestic and global direct-to-consumer industry standards. The laws and regulations covering the direct selling industry, however, often involve a high level of subjectivity and are subject to judicial interpretation. Because of this, there can be no assurance that elements of our subsidiaries’ network marketing system, including representations made by their independent distributors, or elements of their distributor policies will not be challenged in civil or governmental actions, or that the application and interpretation of laws or regulations governing the direct-to-consumer industry in the future would not be harmful to our subsidiaries’ business. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Risks Associated with our Growing Business:

 

The success of our growth initiatives, including our efforts to attract new customers, build brand awareness, and expand into international areas, and our efforts to generate recurring customer orders, which we call “SmartShip” orders.

 

Our long-term success is dependent on our ability to achieve sustained growth. We are a developing company and had no significant sales history prior to December 2017, when our U.S.-based subsidiaries launched their Elevate health and wellness product line. During the period from December 2017 through October 2019, our consolidated sales increased at a fast pace. During the following three years, however, we have experienced sales declines or stagnation. In efforts to restore growth, in the fourth quarter of our fiscal year ended March 31, 2021, we launched a multipronged growth strategy intended to accelerate sales growth, including by: (a) expanding our product offerings in the U.S., (b) initiating operations in countries like South Korea, Singapore, Malaysia, Japan, Thailand, and the Philippines, among others, and (c) launching our previously announced membership-based consumer travel products line worldwide. In addition, we have made significant investments in developing and launching a new business brand, “The Happy Co.,” in February 2021, in the U.S. There can be no assurance that these strategic initiatives will result in the consolidated sales growth we anticipate, or any sales growth at all, which could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in several countries in a timely manner.

 

Our success depends in part on our ability to anticipate, evaluate, and respond in a timely manner to changes in consumer preferences and buying trends, particularly for health and wellness products, in the countries we operate. We anticipate that continuously changing consumer preferences and buying trends will affect future worldwide demand for health and wellness products, and other consumer products and services. If we do not effectively identify and respond in a timely manner to evolving consumer preferences and buying trends, including consumer demands for health and wellness products and services, our consolidated business, financial condition, results of operations and cash flows may be adversely affected.

 

12

 

 

Our ability to maintain a positive image and brand acceptance in the dynamic, highly competitive, and sometimes unpredictable marketplace, including the impact of social media.

 

In recent years, there has been a significant increase in the use by businesses of social media platforms, including informal blogs, social media websites, and other forms of internet-based communications. Social media can enable a business to reach a wide selection of consumers and other targeted audiences, generally in a more cost-effective way than more traditional forms of marketing and advertising. However, negative, inaccurate, or false information about a company or the products it sells may be circulated through social media quickly and may damage a company’s reputation and business. In addition, negative, inaccurate, or false information about a company or the products it sells may be circulated through more traditional communication means. Many consumers and independent distributors of direct-to-consumer companies value readily available information and often act on such information without further investigation. The harm caused by the circulation of negative, inaccurate, or false information about a company or its products may be immediate, and opportunities to redress and correct the information may be slow and costly. If we were the victim of allegations, or the dissemination of negative, inaccurate, or false information, circulated through social media or otherwise, this could adversely impact our reputation and business and could result in the loss of independent distributors and in a decline in our future sales.

 

The Company also uses social media platforms, including Facebook and Instagram, to communicate with existing and prospective customers, independent distributors, vendors, and employees, and to otherwise promote its products and services. Laws and regulations intended to govern the use of the Internet and social media platforms are complex and evolving. If we, our employees, our subsidiaries’ independent distributors, or other third parties acting on our behalf were found to be in violation of any of these laws and regulations, this could result in fines and enforcement actions and adversely impact our reputation and business.

 

The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

Our dependence on one merchant processor for a material portion of our sales proceeds.

 

The availability of merchant processing providers willing to serve smaller companies is limited. Substantially all our credit card sales in the U.S. are processed by one merchant processor. In addition, as of March 31, 2022, and 2021, our accounts receivable balance includes $1.5 million due from a single merchant processor. Any disruption in the operations of this merchant processor, as a result of organized labor disputes, natural disasters, acts of cyberterrorism or otherwise, could disrupt or substantially decrease our cash flows from operation. If this occurred, particularly for an extended period, we may not be able to meet our obligations, including servicing our debt now or in the future. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our long-term success depends on our ability to attract and retain talented employees and management, and to develop effective management succession plans.

 

As a growing business, our long-term success depends in large part on our ability to attract and retain talented employees and senior executives who have strong knowledge, experience, and managerial skills, including in the direct selling industry. From time to time, key employees may retire or otherwise leave our business, and we may experience delays or be unsuccessful in attracting and integrating the new staff required to grow and operate our business profitably. In addition, as a growing company with a relatively limited number of executives currently on staff, our ability to develop effective management succession plans is limited. Effective management succession planning is important to our long-term success because failure to effectively transfer knowledge and to complete a smooth management transition could hinder or disrupt our strategic planning initiatives and/or adversely affect future execution of those initiatives and our performance. The occurrence of any of these conditions could have a material adverse effect on our consolidated business, financial condition, results of operations and cash flows.

 

13

 

 

Our ability to effectively manage and control our operating expenses.

 

We are a growing company and have not achieved sustained growth and profitability. Our ability to consistently generate earnings from operations depends in large part on our ability to successfully control our operating costs and expenses, while we continue to invest in strategic initiatives intended to grow our sales volume and business infrastructure, including our international footprint. In furtherance of this goal, we have intensified our ongoing activities to control operating costs and expenses, including by strengthening our financial management processes. There can be no assurance that our strategic initiatives and cost control efforts will result in the levels of profitability and positive cash flows that we expect, if at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our quarterly and annual financial performance and potential fluctuations therein.

 

Our quarterly and annual financial performance may fluctuate and adversely affect the price of our Common Stock, often for causes outside of our control. For example, consumer demand for our products and services and, as a result, our quarterly and annual consolidated sales levels, may increase or decrease materially, among other things, because of changes in actual or anticipated levels of employment, changes in the interest rates applicable to consumer credit cards, inflation, national or local political uncertainty, increased competition, and changes in consumer sentiment in general in the countries where we operate. In addition, our results of operations and cash flows may decrease because of, among other things, potential increases in our product costs beyond that which we can pass along to our customers, changes in the willingness or ability of our suppliers to provide product to us in a timely manner, increases in labor costs and in payroll tax rates, and changes in the regulatory environment in the countries where we operate. The occurrence of any of these conditions could have a material adverse effect on our quarterly financial performance and adversely affect the price of our Common Stock.

 

Our ability to generate sustained positive cash flows from operations or to obtain additional financing, if needed, with which to fund our working capital needs, including servicing or refinancing our debt, now and in the future.

 

We are a developing company and have not consistently generated sustained positive cash flows from operations. We have experienced significant fluctuations in our operating cash flows, or have otherwise depended on the issuance of equity securities and debt, including convertible notes and short-term borrowings under financing arrangements, in order to meet our working capital needs. For example, during the fiscal year ended March 31, 2022, and 2021, our net cash used in operating activities was $15.1 million and $1.6 million, respectively. If the Company is unable to generate sustained positive cash flows from operations or to obtain additional equity or debt financing, if needed, this could inhibit the Company’s ability to implement its business strategies and to grow its business, service its debt, now or in the future, and otherwise meet its business goals. This could, in turn, have a material adverse effect on its financial condition, results of operations and cash flows.

 

Our financial performance could be adversely affected by economic downturns, particularly over an extended period.

 

Our results of operations may be materially impacted by changes in general economic conditions in the countries where our products are sold. The economies in such countries may be adversely affected by changes in government policy and/or by, among other things, changes in levels of employment, changes in tax laws, increases in energy costs, geopolitical conflict, natural disasters or acts of terrorism, widespread health crises, changes in consumer credit card interest rates, inflation, and changes in consumer sentiment in general. For example, as further discussed below, business activity in several sectors of the global economy were severely reduced because of the recent COVID pandemic. These conditions, in turn, resulted in significant economic contraction in countries where we operate. In the event of a significant economic downturn, particularly over an extended period of time, whether as a result of a similar health crisis or otherwise, consumer spending habits could be adversely affected over a longer term, and we could experience lower than expected sales. Any economic downturn could also adversely affect one or more of our key suppliers. The occurrence of any of these events could have a material adverse effect on our business, financial condition, and results of operations.

 

14

 

 

Our business and financial performance could be adversely affected by inflation.

 

In recent history, the inflation has generally been low in the geographies where we operate. However, at the time of this Registration Statement, the inflation rate in the United States has reached a 40-year high, primarily as a result of higher energy costs and global supply chain disruptions. In the event of a significant increase in consumer prices, particularly over an extended period of time, consumer demand for discretionary products, such as our health and wellness products, could be adversely affected, and we could experience lower than expected sales. In addition, if any of our suppliers implemented price increases, in response to higher raw material, labor, and energy costs or otherwise, we may not be able to pass along such price increases to our customers and our profitability may be reduced. The occurrence of any of these events could have a material adverse effect on our business, financial condition, and results of operations.

 

The success of our efforts to register our trademarks and to protect certain intellectual property rights.

 

We have applied for, or are in the process of applying for, trademark protection in the U.S. and in other jurisdictions where we market and distribute or intend to market and distribute our products. We have obtained 22 trademarks and have over 34 pending trademark applications in the U.S. We anticipate securing additional U.S. trademarks and foreign trademarks. Trademark protection is increasingly important to our business. If we fail to register or enforce our intellectual property rights or if our intellectual property rights are successfully challenged, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Several of our products are manufactured under formulations and processes owned by some of our key vendors. Some of our key vendors have registered or applied for patent registrations to maintain exclusivity over the ingredients, formulation and processes, and the integrated products they supply to us. Such existing or potential patents, the underlying ingredients, formulation and processes, and integrated products could be material to our business. The Company reserves the right to join in any actions to defend against any infringement on such vendor-owned patents that could adversely affect the products the Company sells. If we, and our vendors were unsuccessful in protecting such intellectual property rights, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Our potential unintended infringement on the intellectual property rights of others.

 

The health and wellness industry is competitive and characterized by the need for trademarks to protect intellectual property rights, and by claims of infringement or other violation of intellectual property rights. A third-party may assert that one or more of our products violates that party’s intellectual property rights. Any successful intellectual property claim against us in the future could result in significant financial liability and/or prevent us from selling the affected product afterwards. In addition, the resolution of infringement claims may require that we redesign our products, obtain licenses to use intellectual property belonging to a third party, or cease using the intellectual property altogether. Moreover, any intellectual property claim, regardless of its merits, could be expensive and time-consuming to defend against. As a result, claims based on allegations of infringement or other violations of intellectual property rights, regardless of the outcome, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

From time to time, we are a party to lawsuits and other claims that may result in adverse outcomes.

 

In recent years, we have been a party to several claims and lawsuits arising from a wide variety of business activities, including acquisition-related contingencies, disputes between the Company and certain former officers, disputes between the Company and certain shareholders, and disputes between the Company and former independent distributors. Litigation and other claims are subject to inherent uncertainties and management’s assessment of these uncertainties may change in the future, including as a result of new information. A material adverse impact to our consolidated financial position and results of operations could occur in a period in which an unfavorable outcome becomes probable and reasonably estimable, and a material adverse cash flow could occur in the period when these lawsuits or claims are settled.

 

15

 

 

Our efforts to expand into foreign markets will increasingly expose us to foreign currency exchange rate fluctuations, and other risks inherent to foreign operations.

 

During the fiscal year ended March 31, 2022, and 2021, 87% and 94%, respectively, of our sales have been to customers and independent distributors located in the United States. However, as part of our strategic growth initiatives, in recent years we initiated efforts to expand our operations in other countries, mainly in Asia. As a result, the amount of our reported consolidated sales, expenses, and cash flows may be significantly affected by fluctuations in the relevant foreign currency exchange rates, as we translate the financial statements of our foreign operations from their functional currency into our reporting currency, the U.S. Dollar. In addition, as a multinational consolidated group, we and some of our domestic or foreign affiliates may obtain and hold assets and liabilities denominated in a currency different from our or their functional currency, in the normal course of business. As a result, we and some of our affiliates may incur foreign currency transaction gains and losses in connection with such assets and liabilities.

 

Our business may also become exposed to more adverse economic, regulatory, and other conditions in the international areas to which we market and distribute our products now or in the future, compared to those in the U.S. For example, our future international operations may result in exposure to more restrictive consumer safety, product labeling and other consumer product regulations; more restrictive labor laws and regulations; more frequent or unexpected changes in the regulatory environments; more economic volatility; higher rates of inflation; or higher political instability, compared to the U.S. Furthermore, our international operations may expose us to higher consolidated income tax rates, import and export restrictions and tariffs, restrictions on the expatriation of cash to the U.S., and potentially adverse changes in trade agreements between the U.S. and a particular foreign country where we market and distribute our products now or in the future.

 

The occurrence of any of these conditions could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

 

Our ability to respond to any natural disasters, epidemics, and other health emergencies, or acts of violence or terrorism that may affect our customers and/or our business effectively and cost-efficiently.

 

The occurrence of natural disasters, epidemics or other health emergencies, or acts of violence or terrorism in the geographies we market and distribute our products now and in the future, could result in physical damage to our property, the temporary or long-term closure of a facility, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) to us, the temporary or long-term reduction in our ability to sell products and grow our business, and/or the temporary reduction in consumer demand for our products and services. In addition, if one or more natural disasters, epidemics, or other health emergencies, or acts of violence or terrorism were to impact our global business, our insurance costs may rise significantly afterwards. The occurrence of any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

 

Risks Associated with our Products, and with Product and Consumer Laws and Regulations:

 

Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.

 

We depend on one supplier for a significant portion of the products we sell. Any disruption or substantial decrease in the supply of product by this supplier, as a result of a shortage of raw materials, organized labor disputes, natural disasters, acts of cyberterrorism, or otherwise, could disrupt or substantially decrease our ability to fulfill customer orders. If this occurred, particularly for an extended period, we may not be able to continue to offer these or similar products and our future sales may decline. In such event, we may not be able to offset the decline in sales through substitution of product, price increases, or otherwise. In addition, if this supplier or any of our suppliers implemented unilateral price increases, we may not be able to pass along such price increases to our customers and our profitability may be reduced. Further, if this supplier or any of our suppliers fails to continue to supply product of adequate quality and in a timely fashion to us, this could adversely affect our future sales. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

16

 

 

Past or future reformulations of our products, including in response to potential governmental enforcement action, could be negatively received by our independent sales force and customers, and adversely impact future sales.

 

As part of our commitment to continuously improve our products, we introduce product reformulations and other product enhancements from time to time. In addition, we may be required to modify our product formulations from time to time to comply with existing or new regulations in the future, including in response to potential governmental enforcement action. Changes to our product formulations, whether as a result of potential governmental enforcement action or not, could be negatively received by our independent sales force and customers, and could adversely impact future sales, and our business, financial condition, results of operations and cash flows.

 

Potential product liability claims could harm our business.

 

Historically, product liability claims have not been material to our business. However, given the increase in product liability claim activity in recent years and the increased application of a “strict liability” legal standard to those claims particularly in the U.S., we purchase product liability insurance to minimize the financial risks associated with such claims or potential claims. The sources of product liability insurance coverage in the countries where we market and distribute our products are limited, product liability coverage is increasingly expensive, and product liability insurance policies contain many exclusions. We believe our product liability insurance policies significantly mitigate the potentially adverse financial impact to us resulting from most potential product liability claims. However, there can be no assurance that our product liability coverages are adequate to protect us sufficiently and against all potential claims. For example, if any of our products is found to have caused personal injury to a consumer, we might be subjected to liability substantially in excess of our insurance coverages. Any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Nutritional supplements are often supported only by limited available clinical studies.

 

Nutritional supplements, such as many of the Company’s health and wellness products, have a long history of human consumption. Some of our products may contain innovative ingredients or contain combinations of ingredients. Although we believe that all our products are safe when taken as directed, there is only limited data available about human consumption of certain of these product ingredients or combinations of ingredients in concentrated form. We and our key suppliers conduct research and test the formulation and production of our products, however, there are only limited, if any, conclusive clinical studies available about our products and similar product in the marketplace. Furthermore, because we are highly dependent on consumer perception of the efficacy, safety, and quality of our products, we could be adversely affected in the event that our products, or similar product in the marketplace, are proven or asserted to be ineffective or harmful to consumers or in the event of publicity associated with any adverse effects resulting from the use or misuse of our products, or similar products in the marketplace. Any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies in the United States and abroad, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil, criminal or monetary penalties.

 

Our operations are subject to regulation by different state and federal government agencies in the United States and other countries, as well as to the standards established by international standards bodies. If we fail to comply with those regulations or standards, we could be subject to fines, penalties, criminal prosecution or other sanctions. Some of our products are subject to regulation by the United States Food and Drug Administration and similar foreign and domestic agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with those regulations or standards, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution.

 

We are also subject to a variety of laws, regulations and standards that govern, among other things, the importation and exportation of products, the handling, transportation and manufacture of toxic or hazardous substances, the collection, storage, transfer, use, disclosure, retention and other processing of personal data, and our business practices in the United States and abroad such as anti-bribery, anti-corruption and competition laws. This requires that we devote substantial resources to maintaining our compliance with those laws, regulations and standards. A failure to do so could result in the imposition of civil, criminal or monetary penalties having a material adverse effect on our operations.

 

Our ability to comply with current consumer product laws and regulations or our becoming subject to new or more stringent consumer product laws and regulations in the future.

 

Our business and the products we sell are subject to several national, state, and local laws and regulations in the countries where we currently market and distribute or intend to market and distribute our products. These laws and regulations generally govern the composition, packaging, labeling and consumer safety of the products we sell, as well as the information we use to market these products. In addition, the laws and regulations applicable to us and our products may become more stringent in the future. For example, the State of California enforces recent legislation that requires that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we actively seek to comply with the requirements of this and all other laws and regulations applicable to our business and products, there can be no assurance our products would not be found to be defective in labeling or content, or that the labeling and content of our products will not be challenged in civil or enforcement actions in the future. Our continued compliance with existing or new consumer product laws and regulations could also require the review and possible reformulation or relabeling of our products, as well as the potential removal of some products from the marketplace. In addition, the existence of more stringent consumer product laws and regulation in countries where we intend to market and distribute our products, could hinder our ability to grow our business into such countries. If we were found to be in violation of existing or new consumer product laws or regulations in the future, this could result in significant fines or damages and other enforcement actions, in addition to significant costs and expenses to defend the resulting claims. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

17

 

 

Risks Associated with our System of Internal Controls, and with our Disclosure Controls:

 

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our securities.

 

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal control over financial reporting, and disclosure controls and procedures. Under Section 404(a) of the Sarbanes-Oxley Act, we are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This report must include disclosure of any material weaknesses identified by our management during its periodic assessment of our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. Our compliance with Section 404(a) of the Sarbanes-Oxley Act requires that we incur substantial accounting expense, and that our management spend significant time and efforts in its assessment of such internal control over financial reporting.

 

During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we would be required to implement remediation procedures aimed at mitigating the control weakness or weaknesses. Until such remediation procedures succeed in mitigating the control weakness or weaknesses, we would be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to timely and accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting in the future, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to enforcement actions by the SEC or other regulatory authorities. Any failure to promptly remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Securities Act, or the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and executed, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple human error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in any control system, misstatements, or insufficient disclosures due to error or fraud may occur and not be detected.

 

Risks Associated with our Information Technology Systems and with Cybersecurity:

 

We may be adversely affected by any disruption in our information technology systems.

 

We depend on our information technology systems to manage most of our major business functions, including sales order processing, independent sales force service and support, billings and collection, human resources and recordkeeping, and accounting and reporting. More specifically, we rely upon our information technology systems to procure and replenish inventory, to fulfill and ship customer orders, to coordinate our sales activities across several functional areas, to carry out our administrative activities, and to protect personal or sensitive information about our customers, independent distributors, employees, vendors, and other business partners that we received in the ordinary course of our business. A substantial disruption in our information technology systems could result in delays in receiving product and in filling customer orders, and adversely affect our relationships with our customers, independent distributors, employees, vendors, and other business partners, and damage our reputation and business.

 

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As our operations rapidly grow in both size and scope, we continuously need to scale and upgrade our systems and infrastructure to meet increased demand, while preserving their reliability and integrity. For example, we recently implemented an information system upgrade in the U.S. to better accommodate our current and anticipated growth. Any expansion or upgrade to our systems and infrastructure in the future will require us to commit substantial financial, operational, technical, and human resources before the volume of our business increases, with no assurance that the volume of business will increase to the extent we expect or at all. Also, there can be no assurance that any system expansion or upgrade will result in the anticipated benefits and efficiencies, or that the costs of such system expansion or upgrade will not outweigh the benefits and efficiencies derived.

 

Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

 

We may be adversely affected by potential acts of cyberterrorism.

 

The normal course of our business requires the collection, transmission, and retention of large volumes of confidential and proprietary information, including personal or confidential information of our customers, independent distributors, suppliers, and employees in the information technology systems that we maintain and in those maintained by certain third parties with which we do business. We operate in a global environment characterized by increasing threats of cyberterrorism. Information technology system threats can take a variety of forms. Individual hackers, groups of hackers, and sophisticated organizations, including state-sponsored organizations or nation-states, often commit cyberattacks that pose threats to government, military, educational, and business institutions, among others. These actors could use a wide variety of methods, which could include the development and deployment of malicious software or exploiting vulnerabilities in hardware, software, or other infrastructure in order to gain access to networks and data, potentially compromising sensitive customer, independent distributor, supplier, employee, or other information.

 

Cyber-threats are constantly evolving, making it increasingly difficult to prevent, detect and successfully defend against. A potential breach of our facilities, data systems or data security could disrupt the operations of our information technology systems and business, impair our ability to ship product or provide services to our customers, and potentially compromise the privacy of our data, including our confidential or technical business information. In addition, the risk of one or more cybersecurity incidents may be heightened as many of our employees work remotely, for example, as a result of the recent COVID crisis. Any of these things could harm our reputation or competitive position, require us to allocate more resources to improve our systems, technologies, and infrastructure, or otherwise adversely affect our business, financial condition, results of operations and cash flows.

 

Risks Associated with the COVID Pandemic and Economic Impact Thereof:

 

The recent COVID pandemic and actions to mitigate it have adversely impacted the economies in the countries where we our products are sold, and are likely to have adversely impacted our business.

 

In 2020, in response to the COVID pandemic, governments in the countries where we market and distribute our products 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 Registration Statement, 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 our products are sold, 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.

 

Risks Associated with our Common Stock, with our Preferred Shareholder Rights, and with the current concentration of the majority of our Common Stock under the control of a corporate shareholder:

 

Future sales and issuances of our Common Stock or rights to purchase our Common Stock, including issuances pursuant to convertible notes and stock warrants currently outstanding, will result in additional dilution of the percentage ownership by our existing stockholders and could cause our trading price to decline.

 

We expect that significant additional capital will be needed in the future to fund our planned growth, including our ongoing efforts to expand our footprint outside the U.S. To raise capital, we may sell substantial amounts of Common Stock or securities convertible into or exchangeable for Common Stock. Convertible notes and stock warrants currently held by DSS, Inc. and its affiliates may result in the issuance of up to 360,000,000 additional shares of our Common Stock. In addition, convertible notes and stock warrants currently held by HWH International, Inc. may result, in the aggregate, in the issuance of 666,666 or more additional shares of our Common Stock. DSS, Inc. and its affiliates, and HWH International, Inc. are affiliated with Heng Fai Ambrose Chan, the Executive Chairman of the Company’s Board of Directors. Future issuances of equity or equity-linked securities, together with future conversions of our Preferred Stock and exercises of stock warrants currently outstanding or granted in the future, and shares issued in connection with future acquisitions, if any, may result in material dilution to the equity interests of our existing investors. In addition, as a result of such future issuances, new investors could gain rights, preferences and privileges senior to those of the current holders of our Common Stock.

 

Our Board of Directors may adopt an equity compensation plan in the future to enhance our efforts to attract and reward employees, executives, and consultants with grants of equity-based awards. Future issuances of equity-based awards, including issuances under any such future equity compensation plan, may result in material dilution to the equity interests of our existing investors and have an adverse effect on the market price of our securities.

 

Certain corporate stockholders own a significant combined amount of our Common Stock, which could allow them to influence corporate transactions and other matters and could otherwise limit the potential growth in the price of our Common Stock.

 

As of the date of this filing, 191,879,003 shares representing 66% of our total issued and outstanding Common Stock were held by DSS, Inc. (“DSS”) and its affiliates and under the voting control of Heng Fai Ambrose Chan, the Executive Chairman of our Board of Directors. In addition, the CEO and Vice Chairman of the Board of Directors of the Company, and two additional Directors of the Company, including Mr. Chan, also serve on the Board of Directors of DSS. Further, as discussed above, convertible notes and stock warrants held by DSS and HWH International, Inc., both affiliated with Mr. Chan, may result in the issuance of a substantial additional Common Stock and in a substantial additional concentration of our Common Stock under the voting control of Mr. Chan. As a result, before or after the potential exercises or conversions of such convertible notes and stock warrants, DSS and its affiliates control the majority of the total voting rights of our Common Stock, which could affect the outcome of a shareholder vote, including, the election of directors, the adoption of employee stock option plans, the adoption of amendments to our articles of incorporation and bylaws, the approval of acquisitions, mergers and other corporate transactions, or the potential declaration and payment of dividends and distributions on our Common Stock.

 

The conditions discussed above may constitute a material limitation on the rights of our other Common Stockholders, including the right to receive dividends and other to distributions, if any, in the future and may limit the relative voting power of our other stockholders or otherwise limit the potential growth in the price of our Common Stock.

 

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Our Common Stock has historically had a limited market and high stock price volatility. If an active trading market for our Common Stock develops, trading prices for our stock may be more volatile.

 

The principal U.S. market for our Common Stock is the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc. Our Common Stock has historically had limited daily trading activity. In addition, the price of our stock has historically been volatile. For example, the 52-week trading price for our Common Stock has ranged from $0.023 to $0.229 per share. Many factors, some of which are beyond our control, may cause the price of our Common Stock to decline over the short-term or over a long-term, regardless of our operating results. These factors include, among others, fluctuations in our operating results; trends or adverse publicity related to our business, products, competitors or industry; the unwillingness of some stockbrokers to place trading orders in our stock and the resulting limitations in the number of stockbrokers willing to trade our stock; the concentration of a large number of shares of our Common Stock in one or a few stockholders, the sale of our Common Stock by one or more significant stockholders, changes in the economic conditions in the geographies where we operate, and a decline in the stock market in general. If an active market for our Common Stock develops, trading prices for our stock may be more volatile and expose our stockholders to a higher risk of loss of principal over the short-term or over a long-term.

 

Certain rights of our Preferred Stockholders may limit your rights as a Common Stockholder.

 

The Company’s authorized capital stock structure is comprised of multiple classes of Common Stock (Class A and Class B) as well as Preferred Stock ( Series A, B and C). As of the date of this filing, there are 288,923,969 shares of our Class A Common Stock and 6,320,000 shares of our convertible Preferred Stock (including the Series A and the Series C Preferred Stock) issued and outstanding. There are no shares of the Company’s Class B Common Stock or Series B Preferred Stock currently issued and outstanding.

 

The rights of the holders of Series A and C Preferred Stock are set out in a Certificate of Designation (for each such series) filed in the State of Nevada. Pursuant to such Certificates of Designation, each share of Series A and Series C Preferred Stock entitles the holder to one vote and is convertible into one share of our Class A Common Stock, at the option of the holder, subject to certain regulatory restrictions. In addition, pursuant to such Certificates of Designation, the affirmative vote of the holders of at least 86% of the shares of the Series A and the Series C Preferred Stock outstanding is required for the Board to declare and pay dividends and other distributions upon the shares of the Company’s Common Stock, unless, with respect to a cash dividend, the holders of the Company’s Preferred Stock (including the Series A and the Series C Preferred Stock) are to receive the same cash dividend as the Common Stock, on an if converted basis. Further, the shares of our Preferred Stock are senior to the shares of our Common Stock with regards to distributions in the event of dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary.

 

The preferred shareholder rights discussed above may constitute a material limitation on the rights of our Common Stockholders, including the right to receive dividends and other to distributions, if any.

 

Risks Related to This Offering and The Reverse Stock Split

 

Our stock price may be volatile, and you could lose all or part of your investment.

 

The trading price of our common stock following this offering may fluctuate substantially and may be higher or lower than the public offering price. This may be especially true for companies with a small public float. The trading price of our common stock following this offering will depend on several factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our securities since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our common stock include:

 

  ● changes to our industry, including demand and regulations;
     
  ● we may not be able to compete successfully against current and future competitors;
     
  ● competitive pricing pressures;

 

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  ● our ability to obtain working capital financing as required;
     
  ● additions or departures of key personnel;
     
  ● sales of our common stock;
     
  ● our ability to execute our business plan;
     
  ● operating results that fall below expectations;
     
  ● any major change in our management; and
     
  ● changes in accounting standards, procedures, guidelines, interpretations or principles.

 

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. If the market price of our common stock after this offering does not exceed the per share public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

 

Further, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

 

You will experience dilution as a result of future equity offerings.

 

We may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. Although no assurances can be given that we will consummate a future financing, in the event we do, or in the event we sell shares of common stock or other securities convertible into shares of our common stock in the future, additional and potentially substantial dilution will occur. In addition, investors purchasing shares or other securities in the future could have rights superior to investors in this offering.

 

We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment will likely be limited to the value of our common stock.

 

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

 

Since we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain.

 

We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain for the foreseeable future.

 

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We may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all. Furthermore, our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability to pay dividends.

 

To grow our business and remain competitive, we may require additional capital from time to time for our daily operation. In addition to the proceeds of this offering, we may continue to seek capital through private placement transactions. Our ability to obtain additional capital is subject to a variety of uncertainties, including:

 

  ● our market position and competitiveness in our industry;
     
  ● our future profitability, overall financial condition, results of operations and cash flows; and
     
  ● economic, political and other conditions in the U.S.

 

We may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. In addition, our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could dilute our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our stockholders.

 

Our existing stockholders have substantial influence over our Company and their interests may not be aligned with the interests of our other stockholders, which may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their securities.

 

As of the date of this prospectus, certain stockholders of management control approximately 83.8% of the voting power in us. As a result, these stockholders have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in our control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of any contemplated sale of our Company and may reduce the price of our common stock.

 

Investors in this offering will experience immediate and substantial dilution in net tangible book value.

 

The public offering price per share of common stock will be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors in this offering will incur immediate dilution of $[●] per share, based on the assumed public offering price of $[●] per share of common stock, the last reported bid price of our common stock on the OTCQB on [●], 2022. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

 

Our management will have broad discretion over the use of proceeds from this offering and may not use the proceeds effectively.

 

Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not improve our operating results or enhance the value of our securities.

 

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including amount of cash used in our operations, which can be highly uncertain, subject to substantial risks and can often change. Our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.

 

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The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

The proposed Reverse Stock Split could cause our stock price to decline relative to its value before the split and decrease the liquidity of shares of our common stock.

 

We plan to effect a Reverse Stock Split of our issued and outstanding common stock immediately following the effectiveness but prior to the closing of this offering in order to achieve a sufficient increase in our stock price to enable us to qualify for listing on the Nasdaq Capital Market. There is no assurance that the Reverse Stock Split will not cause an actual decline in the value of our outstanding common stock. The liquidity of the shares of our common stock may be affected adversely by the Reverse Stock Split given the reduced number of shares that will be outstanding following the Reverse Stock Split, especially if the market price of our common stock does not increase as a result of the Reverse Stock Split. In addition, the Reverse Stock Split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Following the proposed Reverse Stock Split, we cannot assure you that we will be able to continue to comply with listing standards of the Nasdaq Capital Market.

 

We have applied to list our common stock on the Nasdaq Capital Market in connection with this offering. Following the proposed Reverse Stock Split, we expect that our common stock will be eligible to be quoted on the Nasdaq Capital Market. For our common stock to be so listed, we must meet the current listing standards of the Nasdaq Capital Market, including the minimum bid price requirement. There can be no assurance that the market price of our common stock following the Reverse Stock Split will remain at the level required for continuing compliance with the minimum bid price requirement of the Nasdaq Capital Market. It is not uncommon for the market price of a company’s common stock to decline in the period following a Reverse Stock Split. If the market price of our common stock declines following the effectuation of the Reverse Stock Split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In addition, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain the minimum bid price requirement of the Nasdaq Capital Market. If we fail to comply with the minimum bid price requirement, our securities could be delisted.

 

In addition to the minimum bid price requirement for continuing compliance with the Nasdaq Capital Market continued listing standards, we cannot assure you that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our common stock on the Nasdaq Capital Market. For example, we may lose an independent director on our Audit Committee which we intend to form, who cannot readily be replaced. Our failure to meet these requirements may result in our common stock sold in this offering being delisted from the Nasdaq Capital Market, irrespective of our compliance with the minimum bid price requirement.

 

If our common stock were to be delisted from the Nasdaq Capital Market, our common stock could revert to trading on the OTCQB Market or another over-the-counter platform following any delisting from Nasdaq Capital Market. Any such delisting of our common stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, as we are seeking additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets.

 

Risks Related to Pandemics

 

A resurgence of the COVID-19 pandemic, or the emergence of a new pandemic, may adversely affect our business.

 

A resurgence of the COVID-19 pandemic, or the emergence of a new pandemic, may adversely affect our business. In the recent past, the spread of COVID-19 caused public health officials in the U.S. to recommend precautions to mitigate the spread of the virus, especially as to international travel. In addition, certain states and municipalities in both countries enacted quarantine and “shelter-in-place” regulations and at times required non-essential businesses to close. There is no certainty that a resurgence of COVID-19, or a new pandemic, will not occur with restrictions imposed again in response. It is unclear how such restrictions, if put in place again, would contribute to a general slowdown in the global economy and would affect our business.

 

Risks Related to Current World Events

 

An escalation of the current war in Ukraine, generalized conflict in Europe, or the emergence of conflict elsewhere, may adversely affect our business.

 

An escalation of the current war in Ukraine, generalized conflict in Europe, or the emergence of conflict elsewhere may adversely affect our business if the U.S. capital markets become risk averse for a prolonged period of time, and/or there is a general slowdown in the global economy.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of common stock in this offering will be approximately $[●], or approximately $[●] if the underwriters exercise in full their option to purchase additional shares of common stock, based on an assumed public offering price of $[●] per share, the last reported bid price of our common stock on the OTCQB as reported on [●], 2022, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed public offering price per share of common stock would increase (decrease) the net proceeds to us from this offering by approximately $[●], or approximately $[●] if the underwriters exercise their over-allotment option in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remain the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The expected use of net proceeds of this offering represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors. As a result, management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. We intend to use the net proceeds from this offering for business development, working capital and general corporate purposes, and debt refinancing.    We have presumed that we will receive aggregate gross proceeds of $[●] from this offering (excluding any proceeds received from exercise of the over-allotment by the underwriter, if any) and will incur $[●] in offering costs, commissions and fees.

 

The use of the proceeds represents management’s estimates based upon current business and economic conditions. We reserve the right to use the net proceeds we receive in the offering in any manner we consider to be appropriate. Although we do not contemplate changes in the proposed use of proceeds, to the extent we find that adjustment is required for other uses by reason of existing business conditions, the use of proceeds may be adjusted. The actual use of the proceeds of this offering could differ materially from those outlined above as a result of several factors including those set forth under “Risk Factors” and elsewhere in this prospectus.

 

Pending the use of the net proceeds of this offering, we intend to invest the net proceeds in short-term investment-grade, interest-bearing securities.

 

DETERMINATION OF OFFERING PRICE

 

Prior to this offering, there was a limited public market for our common stock. We and the underwriters will determine at what price we may sell the common stock offered by this prospectus. As of On December 8, 2022, the closing bid price for our common stock as reported on the OTCQB was $[*] per share. The principal factors to be considered when determining the public offering price include:

 

  ● our negotiation with the investors;
  ● the information set forth in this prospectus
  ● our history and prospects and the history and prospects for the industry in which we compete;
  ● our past and present financial performance;
  ● our prospects for future earnings and the present state of our development;
  ● the general condition of the securities market at the time of this offering;
  ● the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and
  ● other factors deemed relevant by the underwriters and us.

 

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MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS

 

Market and Other Information

 

Our common stock is traded in OCTQB under the symbol “SHRG” and quotations for our common stock are available on otcmarkets.com. The following table sets forth, for each of the quarterly periods indicated, the range of high and low sales prices, in U.S. dollars, for our common stock for each quarter in 2020, 2021, and for the applicable period in 2022.

 

   Year Ending 
   March 31, 2023 
   High   Low 
Quarters        
First (04/01 - 6/30)  $0.038   $0.023 
Second (07/01 - 09/30)  $0.0375   $0.022 

 

   Year Ended 
   March 31, 2022 
   High   Low 
Quarters          
First (04/01 - 6/30)  $0.2883   $0.125 
Second (07/01 - 09/30)  $0.168   $0.0863 
Third (10/01 - 12/31)  $0.1195   $0.061 
Fourth (01/01-03/31)  $0.1   $0.03 

 

   Year Ended 
   March 31, 2021 
   High   Low 
Quarters        
First (05/01 - 7/30)   $0.4255   $0.042 
Second (08/01 - 10/30)   $0.730   $0.15 
Third (11/01 - 1/31)    $ 0.264 0   $0.162 
Fourth (02/01-04/30)   $0.469   $0.177 

 

We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market. No assurance can be given that our application will be approved, and we will not consummate this offering unless our common stock is approved for listing on the Nasdaq Capital Market.

 

Dividend Policy

 

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash and capitalization as of September 30, 2022, on:

 

  ● an actual basis;
     
  ● on a pro forma as adjusted basis to reflect the sale by us of an assumed [●] shares of common stock at an assumed public offering price of $[●] per share, the last reported sale price of our common stock as reported on the OTCQB on [●], 2022, after deducting the underwriting discounts and commissions and estimated offering costs payable by us.

 

The pro forma as adjusted information in this table is unaudited and is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with the information contained in “Use of Proceeds,” “Summary Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” as well as the financial statements and the notes included elsewhere in this prospectus.

 

   September 30, 2022 
   Actual   Pro Forma   Pro Forma, as Adjusted (1) 
   (Unaudited)   (Unaudited)   (Unaudited) 
             
Cash  $6,458,865   $-   $- 
Note payable, related party, net of unamortized debt discount and unamortized deferred loan cost of$699,056 as of September 30, 2022   10,952,513    -    - 
Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of and $17,396,771 as of September 30, 2022, $20,151,230 as of March 31, 2022, respectively.   9,603,229    -    - 
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 September 30, 2022, and March 31, 2022, respectively   310    -    - 
Series B convertible preferred stock, $0.0001 par value,no shares issued and outstanding at September 30 and March 31   -    -    - 
Series C convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,220,000 shares issued and outstanding at September 30 and March 31, 2022, respectively   322    -    - 
Class A common stock, $0.0001 par value, 2,000,000,000               
Class A common stock, $0.0001 par value, 1,990,000,000 shares designated, 262,832,833 shares and 288,923,969 shares issued and outstanding at September 30 and March 31, 2022, respectively   26,283    -    - 
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   81,913,495    -    - 
Accumulated other comprehensive loss   (473,126)   -    - 
Shares to be issued   12,146    -    - 
Accumulated deficit   (77,625,249)   -    - 
Total Stockholders’ Equity   3,227,994    -    - 
Total liabilities and stockholders’ equity (2)  $33,276,916   $-   $- 

 

(1) All components to derive total liabilities and stockholders’ equity are not included. See Condensed Consolidated Financial Statements, presented further in this document, for all line items.

 

(2) Each $1.00 increase (decrease) in the assumed public offering price of [●] per share of common stock, the last reported bid price of our common stock as reported on the OTCQB on [●], 2022, would increase (decrease) each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $[●] million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of [●] shares of common stock offered by us would increase (decrease) each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $[●] million, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.

 

The number of shares of common stock that will be outstanding after this offering set forth above is based on shares of our common stock outstanding as of the date of this prospectus, does not give effect to the potential Reverse Stock Split, and excludes the following:

 

  ● [*] shares of common stock issuable upon the exercise of outstanding options and warrants with a weighted average exercise price of $[*] per share and weighted average time to expiration of [*] years;
  ● [*] shares of common stock reserved for the future issuance of awards under our [*] Stock Incentive Plan;
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series A Convertible Preferred Stock; and
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series C Convertible Preferred Stock.

 

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DILUTION

 

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the assumed public offering price per share of common stock in this offering and the as adjusted net tangible book value per share immediately after this offering. We calculate net tangible book value per share by dividing our net tangible book value, which is tangible assets less total liabilities less debt discounts, by the number of our outstanding common stock as of September 30, 2022. Our historical net tangible book value as of September 30, 2022, was $[*] or $[*] per share based upon shares of common stock outstanding on such date.

 

Our pro forma net tangible book value as of the date of this prospectus is $[*] or $[*] per share of common stock.

 

After giving effect to our receipt of approximately $[●] million of estimated net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, from our sale of common stock in this offering at an assumed public offering price of  $[●] per share of common stock, the last reported bid price of our common stock as reported on the OTCQB on [●], 2022, our pro forma as adjusted net tangible book value as of March 31, 2021, would have been approximately $[●] million, or $[●] per share. This amount represents an immediate increase in net pro forma tangible book value of $[●] per share of our common stock to existing stockholders and an immediate dilution in the pro forma net tangible book value of $[●] per share of our common stock to new investors purchasing shares of common stock in this offering.

 

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed public offering price       $ 
           
Historical net tangible book value (deficit) per share as of September 30, 2022   $0.00      
           
Pro forma increase in net tangible book value per share attributable to the adjustments described above   $–      
Pro forma net tangible book value as of September 30, 2022   $0.00      
           
Increase in pro forma net tangible book value per share attributable to investors participating in this offering   $            
           
Pro forma as adjusted net tangible book per share value immediately after this offering        $     
           
Dilution per share to net investors in this offering        $    

 

The dilution information discussed above is illustrative only and will change based on the actual public offering price and other terms of this offering to be determined at pricing. Each $1.00 increase (decrease) in the assumed public offering price of $[●] per share, the last reported bid price of our common stock as reported on the OTCQB on [●], 2022, would increase (decrease) the pro forma net tangible book value per share by approximately $[●] million, or by approximately $[●] per share, assuming the number of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of [●] in the number of shares offered by us would increase (decrease) the pro forma net tangible book value per share by approximately $[●] million, or approximately $[●] per share, assuming the assumed public offering price remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

If the underwriters exercise their option to purchase additional shares of common stock in full in this offering, the net tangible book value after this offering would be approximately $[●] million, or approximately $[●] per share, the increase in net tangible book value to existing stockholders would be $[●] per share, and the dilution per share to new investors would be $[●] per share, in each case based on an assumed public offering price of $[●] per share, the last reported bid price of our common stock as reported on the OTCQB on [●], 2022.

 

The number of shares of common stock that will be outstanding after this offering set forth above is based on shares of our common stock outstanding as of the date of this prospectus, does not give effect to the potential Reverse Stock Split, and excludes the following:

 

  ● [*] shares of common stock issuable upon the exercise of outstanding options and warrants with a weighted average exercise price of $[*] per share and weighted average time to expiration of [*] years;
  ● [*] shares of common stock reserved for the future issuance of awards under our [*] Stock Incentive Plan;
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series A Convertible Preferred Stock; and
  ● [*] shares of common stock issuable upon the conversion of our outstanding Series C Convertible Preferred Stock.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this prospectus.

 

This prospectus contains forward-looking statements. Forward-looking statements for Sharing Services reflect current expectations, as of the date of this prospectus, and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward- looking statements as a result of various factors.

 

In March 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. This section reflects management’s views of the consolidated financial condition as of March 31, 2022, and 2021, and the consolidated results of operations and changes in financial condition for the fiscal year ended March 31, 2022 (a 12-month period) and the fiscal year ended March 31, 2021 (an 11-month period) of Sharing Services Global Corporation and consolidated subsidiaries. This section should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in this Registration Statement. We believe the recent COVID pandemic is likely to have had and continues to have a material adverse impact on our business, financial condition, cash flows, and results of operations. See Overview - “Continuing Uncertainty Regarding the Recent COVID Pandemic” below. This section may contain forward-looking statements. Please see “Cautionary Notice Regarding Forward-Looking Statements.” located at the front of this Registration Statement.

 

Summary Results of Operations:

 

   Three Months Ended   Six Months Ended 
   September 30, 2022   September 30, 2021   Increase (Decrease)   % Change   September 30 ,2022   September 30, 2021   Increase (Decrease)   % Change 
Net sales  $4,188,152   $9,873,300   $(5,685,148)   -57.6%  $9,491,770   $21,084,827   $(11,593,057)   -55.0%
Gross profit   2,428,376    6,948,861    (4,520,485)   -65.1%   6,074,966    14,806,577    (8,731,611)   -59.0%
Operating expenses   (6,595,518)   (10,562,861)   (3,967,343)   -37.6%   (13,904,221)   (20,441,646)   (6,537,425)   -32.0%
Operating loss   (4,167,142)   (3,614,000)   553,142    15.3%   (7,829,255)   (5,635,069)   2,194,186    38.9%
Net non-operating expenses   (14,772,836)   (354,899)   14,417,937    406.3%   (12,803,590)   (1,133,948)   11,669,642    102.9%
Loss before income taxes   (18,939,978)   (3,968,899)   14,971,079    377.2%   (20,632,845)   (6,769,017)   13,863,828    204.8%
Income tax benefit   (554,075)   (1,254,134)   (700,059)   -55.8%   (893,932)   (506,245)   387,687    76.6%
Net loss  $(18,385,903)  $(2,714,765)  $15,671,138    577.3%  $(19,738,913)  $(6,262,772)  $13,476,141    215.2%

 

Highlights for the Three months ended September 30, 2022:

 

  ● For the three months ended September 30, 2022, our consolidated net sales decreased $5.7 million, or 57.6%, to $4.2 million, compared to the three months ended September 30, 2021.
     
  ● For the three months ended September 30, 2022, our consolidated gross profit decreased $4.5 million, or 65.1%, to $2.4 million, compared to the three months ended September 30, 2021. Our consolidated gross margin was 66.3% for the three months ended September 30, 2022, compared to 70.4% for the three months ended September 30, 2021.

 

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  ● For the three months ended September 30, 2022, our consolidated operating expenses decreased $4.0 million, or 37.6%, to $6.6 million, compared to the three months ended September 30, 2021.
     
  ● For the three months ended September 30, 2022, our consolidated operating loss was $4.2 million, compared to $3.6 million for the three months ended September 30, 2021.
     
  ● For the three months ended September 30, 2022, our consolidated net non-operating expense was $14.8 million, compared to net non-operating expenses of $0.4 million for the three months ended September 30, 2021.
     
  ● For the three months ended September 30, 2022, our consolidated net loss was $18.4 million compared to net loss of $2.7 million for the three months ended September 30, 2021. For the three months ended September 30, 2022, and September 30, 2021, our diluted losses per share were $0.07 and $0.01, respectively.
  ● For the six months ended September 30, 2022, our consolidated net cash used by operating activities was $5.4 million compared to $10.2 million for the six months ended September 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.
     
  ● In August 2022, the Company entered into a revolving credit promissory note (“the Note”) with APB, pursuant to which the Company has access to advances with a maximum principal balance, not to exceed the principal sum of $10.0 million. 

 

   Fiscal Year Ended March 31,   Increase   %  
   2022   2021   (Decrease)   Change 
Net sales  $34,424,314   $64,811,151   $(30,386,836)   -46.9%
Gross profit   23,622,443    46,546,657    (22,924,214)   -49.2%
Operating expenses   (36,954,618)   (48,724,183)   (11,769,565)   -24.2%
Operating loss   (13,332,175)   (2,177,526)   11,154,649    512%
Non-operating income (loss), net   (6,810,312)   347,996    7,158,308    2057%
Loss before income taxes   (20,142,487)   (1,829,530)   18,312,957    966%
Income tax benefit   (3,035,990)   (594,509)   2,441,481    411%
Net loss  $(17,106,497)  $(1,235,021)  $15,871,476    1285%

 

Highlights for the Fiscal Year Ended March 31, 2022:

 

  ● For the fiscal year ended March 31, 2022, our consolidated net sales decreased by $30.4 million, to $34.4 million, compared to $64.8 million for the fiscal year ended March 31, 2021.

 

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  ● For the fiscal year ended March 31, 2022, our consolidated gross profit decreased by $22.9 million, to $23.6 million, compared to $46.5 million for the fiscal year ended March 31, 2021, and our consolidated gross margin was 69.1% and 71.8%, respectively.
     
  ● For the fiscal year ended March 31, 2022, our consolidated operating loss was $13.3 million compared to $2.2 million for the fiscal year ended March 31, 2021.
     
  ● For the fiscal year ended March 31, 2022, our consolidated net non-operating expenses were $6.8 million compared to a net non-operating income of $347,996 for the fiscal year ended March 31, 2021.
     
  ● For the fiscal year ended March 31, 2022, our consolidated net loss was $17.1 million, compared to $1.2 million for the fiscal year ended March 31, 2021. Our diluted loss per share was $0.08 for the fiscal year ended March 31, 2022, compared $0.01 for the fiscal year ended March 31, 2021.
     
  ● For the fiscal year ended March 31, 2022, our consolidated net cash used in operating activities was $15.2 million compared to $1.6 million for the fiscal year ended March 31, 2021.
     
  ● In April 2021, Sharing Services borrowed $30.0 million from Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, a majority shareholder of the Company.
     
  ● In April 2021, Sharing Services issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of a loan origination fee of $3.0 million and 12,000,000 shares in prepayment of $2.4 million in interest in connection with the DSSI loan discussed in the preceding item.
     
  ● In September 2021, Sharing Services invested $1.4 million in Stemtech Corporation and $1.5 million in MojiLife, LLC, both emerging growth businesses.
     
  ● In December 2021, Sharing Services, through a subsidiary, purchased a 25,800 square feet office building in Lindon, Utah for $8.9 million.
     
  ● In December 2021, DSSI invested $3.0 million in Sharing Services in exchange for 50,000,000 shares of Sharing Services’ Class A Common Stock and a stock Warrant to purchase up to 50,000,000 shares of Class A Common Stock.
     
  ● In January 2022, DSS agreed to provide certain consulting services to Sharing Services in exchange for a monthly fee of $60,000 and a fully vested detachable stock warrant to purchase up to 50,000,000 shares of its Class A Common Stock. The stock warrant may be exercised at the exercise price of $0.0001 per share.
     
  ● In February 2022, Sharing Services issued 50,000,000 shares of Class A Common Stock to DSS upon exercise of the Warrant discussed in the preceding item.
     
  ● In March 2022, the Company entered into a 7-year lease, for its new Corporate Headquarters located in Plano, Texas. The Company intends to relocate to its new headquarters in the first half of its fiscal year 2023.

 

Overview

 

Summary Description of Business

 

Sharing Services aims to build shareholder value by developing or acquiring businesses and technologies in the direct selling industry and other industries that augment the Company’s product and services portfolio, business competencies, and geographic reach. Currently, the Company operates two business segments and generates its revenues from the sale of health and wellness products using a direct selling business model and delivery of subscription-based travel services.

 

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Health and Wellness Products - The Company markets its health and wellness products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” using its proprietary websites www.thehappyco.com. Currently, The Happy Co.TM markets and distributes its products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. Sharing Services also markets 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 (“Hapi Travel”), the Company delivers subscription-based travel services. The Hapi Travel services are designed to offer the deepest discounts for travel relating to airfare, cruises, hotels, resorts, time shares and rental cars for destinations throughout the world for people of all ages, demographics, and economic backgrounds. Hapi Travel will also provide entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.

 

Most recently, the Company has broadened its business model to include:

 

Company-Owned and Franchised Cafes – Based on a Master Franchise Agreement (“MFA”) that was executed in – 2021, the Company has acquired 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. Under the MFA, Sharing Services, directly or through its subsidiaries, will operate no less than five corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores. Each corporate-owned or franchised Hapi CaféTM store will allow customers and Brand Partners seeking a healthier lifestyle access to: (a) functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) physical fitness, nutrition management and personal workout print and video content, and (d) the Company’s proprietary travel services.

 

Equity Investment in Targeted Businesses – 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.

 

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.

 

Corporate Name Change

 

Sharing Services Global Corporation was originally incorporated under the name Sharing Services, Inc. In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this the Company’s Common Stock traded under the trading symbol SHRV.

 

Change of Fiscal Year

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In connection with this change, the Company decided not to restate the information reported for prior accounting periods, because: (a) the Company’s businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the consolidated financial statements included herein reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (365 days) compared to the eleven months ended March 31, 2021 (335 days).

 

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Strategic Growth Initiatives

 

The Company has grown its business by pursuing a multipronged growth strategy, that includes: (a) expansion of its product offerings, both within the health and wellness category and in new product categories, (b) broadening of its direct-to-consumer geographic footprint (primarily in Asia), (c) expansion of its membership-based consumer travel services to Asia; (d) target launch of company-owned and franchise cafes; and (e) formalization of its shared service platform for companies in the direct sales market segment. 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 Registration Statement, we believe these necessary, temporary measurements are likely to have had an adverse impact on our business.

 

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 this Registration Statement, 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

 

Three months ended September 30, 2022 Compared to Three months ended September 30, 2021

 

Net Sales

 

For the three months ended September 30, 2022, our consolidated net sales decreased by $5.7 million, or 57.6%, to $4.2 million, compared to the three months ended September 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.

 

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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.

 

The $5.7 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 September 30, 2021, of approximately $1.2 million.

 

During the three months ended September 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 September 30, 2022, approximately 62% of our net sales were to customers (including approximately 39% to recurring customers, which we refer to as “SmartShip” sales, and approximately 23% were to new customers) and approximately 38% of our net sales were to our independent distributors.

 

Gross Profit

 

For the three months ended September 30, 2022, our consolidated gross profit decreased by $4.5 million, or 65.1%, to $2.4 million, compared to the three months ended September 30, 2021, and our consolidated gross margins were 58.0% and 70.0%, respectively. For the three months ended September 30, 2022, gross margin was affected by an increase in shipping expenses and promotional pricing, as a percentage of sales.

 

Selling and Marketing Expenses

 

For the three months ended September 30, 2022, our consolidated selling and marketing expenses decreased by $3.0 million, to $2.0 million, or 49% of net sales compared to $5.0 million, or 51% of net sales for the three months ended September 30, 2021. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $6.0 million (which reflects decrease in our consolidated net sales discussed above) partially offset by higher sales convention expenses of approximately $742,814 (as we resumed holding some in-person conventions).

 

General and Administrative Expenses

 

For the three months ended September 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 $982,780 to $4.6 million, or 109% of consolidated net sales compared to $5.5 million, or 56.1% of consolidated net sales, for the three months ended September 30, 2021. The increase in consolidated general and administrative expenses was primarily driven by higher professional, consulting and legal expenses.

 

Interest Expense

 

For the three months ended September 30, 2022, our consolidated interest expense was 3.3 million, including amortization of debt discount and deferred financing costs, interest income, and other expenses associated with borrowings from “DSSI” and related parties.

 

For the three months ended September 30, 2021, our consolidated interest expense was $3.1 including amortization of debt discount and deferred financing costs, interest income, and other expenses associated with borrowings from “DSSI” and related parties.

 

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Net Other Non-operating Expenses

 

For the three months ended September 30, 2022, we had net consolidated non-operating expenses of approximately $14.8 million. For the three months ended September 30, 2021, our consolidated non-operating income was approximately $0.4 million.

 

Unrealized Gain (Loss) on Investments in Unconsolidated Entities and Marketable Securities

 

For the three months ended September 30, 2022, net unrealized losses, before income tax, in connection with our investments in unconsolidated entities and marketable securities was $11.6 million.

 

For the three months ended September 30, 2021, net unrealized gains, before income tax, in connection with our investment in unconsolidated entities were $2.1 million.

 

Gain (Loss) on Employee Warrants Liability

 

For the three months ended September 30, 2022, we recognized a compensatory gain of $52,875, compared to $646,930 for the three months ended September 30, 2021, in connection with employee warrants with a variable exercise price after service was completed.

 

Income Tax Benefit

 

Income tax benefit includes 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 September 30, 2022, the Company had a state and local tax benefit of $3,294 and a provision for deferred federal income taxes of $550,781.

 

Net Loss and Loss per Share

 

As a result of the foregoing, for the three months ended September 30, 2022, our consolidated net loss was $18.4 million, compared to $2.7 million for the three months ended September 30, 2021. For the three months ended September 30, 2022, and September 30, 2021, our diluted loss per share was $0.07 and $0.01, respectively.

 

Six months ended September 30, 2022 Compared to the Six months ended September 30, 2021

 

Net Sales

 

For the six months ended September 30, 2022, our consolidated net sales decreased by $11.6 million, or 55.0%, to $9.5 million, compared to the six months ended September 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.

 

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The $11.6 million decrease in consolidated net sales primarily reflects a decrease in the number of comparable product units sold, partially offset by sales of products introduced since September 30, 2021, of approximately $190,000.

 

During the six months ended September 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 six months ended September 30, 2022, approximately 63% of our net sales were to customers (including approximately 38% to recurring customers, which we refer to as “SmartShip” sales, and approximately 25% were to new customers) and approximately 37% of our net sales were to our independent distributors.

 

Gross Profit

 

For the six months ended September 30, 2022, our consolidated gross profit decreased by $8.7 million, or 59%, to $6.1 million, compared to the three months ended September 30, 2021, and our consolidated gross margins were 64% and 70%, respectively. For the six months ended September 30, 2022, gross margin was affected by an increase in shipping expenses and promotional pricing, as a percentage of sales.

 

Selling and Marketing Expenses

 

For the six months ended September 30, 2022, our consolidated selling and marketing expenses decreased by $5.4 million, to $4.8 million, or 50.5% of net sales compared to $10.2 million, or 48.2% of net sales for the six months ended September 30, 2021. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $3.9 million (which reflects decrease in our consolidated net sales discussed above) partially offset by higher sales convention expenses of approximately $742,814 (as we resumed holding some in-person conventions).

 

General and Administrative Expenses

 

For the six months ended September 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 $1.2 million to $9.1 million, or 96% of consolidated net sales compared to $10.3 million, or 48.7% of consolidated net sales, for the six months ended September 30, 2021. The decrease in consolidated general and administrative expenses was primarily driven by higher professional and legal expenses increasing.

 

Interest Expense

 

For the six months ended September 30, 2022, our consolidated interest expense was $6.4 million, including amortization of debt discount and deferred financing costs, interest income, and other expenses associated with borrowings from “DSSI” and related parties.

 

For the six months ended September 30, 2021, consolidated interest expense was $6.1 million, including amortization of debt discount and deferred financing cost, interest income, and other expenses associated with borrowings from “DSSI” and related parties.

 

Other Non-operating Income/Expenses

 

For the six months ended September 30, 2022, our net consolidated non-operating income, includes litigation settlements and other non-operating income of $139,798. For the six months ended September 30, 2021, consolidated other non-operating expenses (including litigation settlements) were $14,046.

 

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Gain (loss) on employee warrants liability

 

For the six months ended September 30, 2022, we recognized a compensatory gain of $167,835, compared to $1.8 million for the six months ended September 30, 2021, in connection with employee warrants with a variable exercise price after service was completed.

 

Gain on Extinguishment of Debt

 

For the six-month ended September 31, 2022, no amounts were incurred related to extinguishment of debt. In September 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

 

During the six months ended September 30, 2022, the Company recognized a deferred tax benefit of approximately $880,000 and a state and local tax benefit of $12,904.

 

During the six months ended September 30, 2021, the Company recognized a consolidated provision for current federal income taxes of $940,117, net of a valuation allowance recognized of $1,866,779, a consolidated provision for state and local taxes of $67,310, and a consolidated deferred income tax benefit of $1,513,672.

 

Net Loss and Loss per Share

 

As a result of the foregoing, for the six months ended September 30, 2022, our consolidated net loss was $19.7 million, compared to $6.3 million for the six months ended September 30, 2021. For the six months ended September 30, 2022, and September 30, 2021, our diluted loss per share was $0.07 and $0.03, respectively.

 

The Fiscal Year Ended March 31, 2022, Compared to the Fiscal Year Ended March 31, 2021

 

Net Sales

 

For the fiscal year ended March 31, 2022 (a 12-month period), our consolidated net sales decreased by $30.4 million, to $34.4 million, compared to the fiscal year ended March 31, 2021 (an 11-month period). 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 COVID pandemic and actions taken to help mitigate the spread of the virus in the U.S. and Canada. In efforts to restore sales growth, in the past several months, we have developed and launched our new business brand, “The Happy Co TM,” 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 reach new consumers, including through the continued introduction of new products. This decrease was partially mitigated by sales (approximately $1.4 million) of our new operations in Asia and sales (approximately $5.2 million) of health and wellness products introduced in the U.S. since March 31, 2021.

 

We believe there has been and 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 - “Continuing Uncertainty Regarding the Recent COVID Pandemic” above.

 

The decrease of $30.4 million in consolidated net sales reflects a decrease in number of comparable product units sold (26%) and a decrease in average unit sales prices (74%).

 

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During the fiscal year ended March 31, 2022, and 2021, the Company derived approximately 87% and 99%, respectively, of its consolidated net sales from the sale of its health and wellness product line.

 

During the fiscal year ended March 31, 2022, approximately 66% of consolidated net sales were to consumers (including approximately 32% to recurring customers, which we refer to as “SmartShip” sales, and approximately 34% were to new customers) and approximately 34% of consolidated net sales were to independent distributors. During the fiscal year ended March 31, 2021, approximately 71% of our net sales were to customers (including approximately 43% to recurring customers and approximately 28% were to new customers) and approximately 29% of our net sales were to our independent distributors.

 

Gross Profit

 

For the fiscal year ended March 31, 2022, our consolidated gross profit decreased by $22.9 million, to $23.6 million, compared to the fiscal year ended March 31, 2021, and our consolidated gross margin was 68.6% and 71.8%, respectively. During the fiscal year ended March 31, 2022, gross margin was adversely affected by aggressive product pricing and a shift in product sales mix (to lower margin products) in the normal course of business, partially offset by a decrease in our provision for expiring, damaged or excess (slow-moving) inventory of $399,050.

 

Selling and Marketing Expenses

 

For the fiscal year ended March 31, 2022, our consolidated selling and marketing expenses decreased to $17.2 million, or 50.1% of consolidated net sales, compared to $29.7 million, or 45.9% of consolidated net sales for the fiscal year ended March 31, 2021. The decrease of $12.5 million in consolidated selling and marketing expenses is primarily due to lower sales commissions of $13.1 million (which reflects decrease in consolidated net sales discussed above), partially offset by higher sales convention expenses of $417,369 (as we resumed holding some in-person conventions in 2022) and higher marketing expense of $159,124.

 

General and Administrative Expenses

 

For the fiscal year ended March 31, 2022, our general and administrative expenses (which include corporate employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) increased to $19.7 million, or 57.3% of consolidated net sales compared to $19.0 million, or 29.3% of consolidated net sales, for the fiscal year ended March 31, 2021. The increase in general and administrative expenses was due to higher consulting and professional fees of $3.0 million (including consulting fees of $766,415 in connection with a Consulting Agreement with DSS), higher loss on impairment of notes receivable and other assets of $543,042, higher depreciation and amortization expenses of $492,019, and higher other general corporate administrative expenses (other than consulting and professional fees, and bad debt expense) of $78,387, partially offset by lower stock-based compensation expense of $3.4 million.

 

Interest Expense, Net

 

For the fiscal year ended March 31, 2022, interest expense was $2.4 million, excluding amortization of debt discount of $8.9 million, amortization of deferred financing costs of $985,401, and interest income of $83,356. Interest expense of $2.4 million reflects mainly interest associated with borrowings under the $30.0 million loan from “DSSI.”

 

For the fiscal year ended March 31, 2021, our consolidated interest expense was $42,932, excluding amortization of debt discount of $18,647 and interest income of $13,966. Consolidated interest expense of $42,932 includes $37,425 associated with borrowings under short-term financing arrangements and $5,507 associated with our convertible notes.

 

Gain (loss) on Employee Warrants Liability

 

For the fiscal year ended March 31, 2022, 2021, gains in connection with employee warrants with a variable exercise price after service was completed were $2.5 million and $530,335, respectively.

 

Gain on Extinguishment of Debt

 

In June 2021, Sharing Services’ 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 approximately $1,040,400 in connection therewith.

 

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Unrealized Gains (Losses) on Investment in Unconsolidated Entities

 

For the fiscal year ended March 31, 2022, net unrealized gains in connection with our investment in equity instruments of unconsolidated entities were $3.6 million. See Note 9 of the Notes to Consolidated Financial Statements for more details.

 

Impairment Losses on Assets

 

For the fiscal year ended March 31, 2022, impairment losses, before income tax, in connection with our investment in unconsolidated entities and in connection with long-lived assets, in the aggregate, were $1.6 million.

 

Other Non-operating Income/Expense, net

 

For the fiscal year ended March 31, 2022, other non-operating expense was $211,035, consisting primarily of foreign currency transaction losses of approximately $170,000 and litigation settlement expenses of approximately $26,000. For the fiscal year ended March 31, 2021, consolidated other non-operating expense (consisting of litigation settlement expenses) were $134,726.

 

Income Tax Benefit

 

During the fiscal year ended March 31, 2022, the Company recognized a current federal income tax benefit of $2.1 million, including a valuation allowance of $2.1 million placed on certain deferred tax assets being carried forward or projected to reverse in future years due to the uncertainty of the Company generating sufficient taxable income in the foreseeable future to make realization probable, a deferred income tax benefit of $1.0 million, and a provision for state and local taxes of $100,569. During the fiscal year ended March 31, 2021, the Company recognized a current federal income tax benefit of $326,121, a deferred income tax benefit of $536,861, and a provision for state and local taxes of $268,473 million. See Note 2 - “SIGNIFICANT ACCOUNTING POLICIES” of the Notes to Consolidated Financial Statements contained elsewhere in this Registration Statement for information about the Company’s accounting policies regarding accounting for income taxes.

 

Net Earnings (Loss) and Earnings (Loss) per Share

 

As a result of the foregoing, for the fiscal year ended March 31, 2022, and 2021, our consolidated net loss was $17.1 million and $1.2 million, respectively. For the fiscal year ended March 31, 2022, and 2021, our diluted loss per share was $0.08 and $0.01, 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 a negative $16.1 million and $7.4 million as of September 30, 2022, and March 31, 2022, respectively,

 

As of September 30, 2022, our cash and cash equivalents were $6.5 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.

 

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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 six months ended September 30, 2022, compared to the six months ended September 30, 2021:

 

   Six Months Ended September 30, 
   2022   2021   Change 
Net cash used in operating activities  $(5,436,809)  $(10,160,196)   4,723,387 
Net cash used in investing activities   (11,504,734)   (3,188,679)   (8,316,055)
Net cash provided by financing activities   6,527,264    30,034,625    (23,507,361)
Impact of currency rate changes in cash   (150,122)   11,124    (161,246)
Net (decrease) increase in cash and cash equivalents  $(10,564,401)  $16,696,874   $(27,261,275)

 

Net Cash Used in Operating Activities

 

For the six months ended September 30, 2022, net cash used in operating activities was $5.4 million, compared to net cash used in operating activities of $10.2 million for the six months ended September 30, 2021. The $4.7 million change was due to a decline in profitability, excluding non-cash items, such as depreciation and amortization, stock-based compensation gain, provision for obsolete inventory losses, amortization of debt discount, losses on impairment of investments in unconsolidated entities, a note receivable, and the gain on extinguishment of debt. In addition, the change in net cash used in operating activities reflects a change in operating assets and liabilities of $109,611.

 

Net Cash Used in Investing Activities

 

For the six months ended September 30, 2022, net cash used in investing activities was $11.5 million, compared to $3.2 million for the six months ended September 30, 2021. The $8.3 million change was due primarily to cash paid for marketable securities of $9.5 million and capitalizable costs related to upgrades to our operating systems.

 

Net Cash Provided by Financing Activities

 

For the six months ended September 30, 2022, net cash provided by financing activities decreased by $23.5 million, to $6.5 million, compared to $30.0 million for the six months ended September 30, 2021, primarily due to refinancing of the June 2022 DSSI loan.

 

Impact of currency rate changes in cash

 

For the six months ended September 30, 2022, the impact of currency rate changes in cash was negative $150,122 compared to $11,124 for the six months ended September 30, 2021.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our financial instruments consist of cash and cash equivalents, loans to a related party, accrued expenses, and an amount due to a director. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is incorrect at September 30, 2022, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.

 

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Recent Accounting Pronouncements

 

Our consolidated financial statements are prepared in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us.

 

Critical Accounting Estimates

 

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at each balance sheet date, reported amount of revenues and expenses for each reporting period presented, and related disclosures of contingent liabilities. Actual results may differ from these estimates. We believe the Company’s estimates and assumptions are reasonable.

 

Our critical accounting estimates relate to the valuation of inventory, the assessment of long-lived assets for impairment, the valuation of share-based compensation awards, the assessment of loss contingencies, and income taxes.

 

Valuation of Inventory - Our inventory is stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. Determining the net realizable value of inventory involves the use of judgment. In assessing the net realizable value of inventory, we consider factors including estimates of the future demand for our products, historical turn-over rates, and the age and sales history of the inventory. When necessary, we adjust the carrying value of inventory for estimated inventory shrinkage and damage. We estimate inventory shrinkage between physical counts and product damage based upon our historical experience. Actual results differing from these estimates could significantly affect our inventory and cost of products sold. We take physical counts of inventory on hand, at least annually and adjust our financial statements to match actual quantities counted.

 

Assessment of Long-Lived Assets for Impairment - Long-lived assets, such as office furniture, fixtures and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds the sum of its undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

 

Valuation of Share-Based Compensation Awards - The Company uses the Black Scholes option pricing model to calculate the fair value of share-based compensation awards (such as stock options and warrants). The Black Scholes pricing model requires six data inputs: (1) the contractual exercise or strike price, (2) the expected life (in years), (3) the risk-free interest rate, (4) the current stock price, (5) the expected volatility for the Company’s Common Stock, and (6) the expected dividend yield. Changes to these data inputs could result in a significantly higher or lower fair value measurement.

 

Loss Contingencies - From time to time, we are involved in legal proceedings. We record a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable. We also perform an assessment of the materiality of loss contingencies where a loss is either not probable or it is reasonably possible that a loss could be incurred in excess of amounts accrued. If a loss or an additional loss has at least a reasonable possibility of occurring and the impact on the financial statements would be material, we provide disclosure of the loss contingency in the notes to our consolidated financial statements. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or the range of the loss can be made. An adverse judgment or negotiated resolution in any of these matters could have a material adverse effect on our business, financial position, results of operations or cash flows.

 

Income Taxes - Income taxes have a significant effect on our net earnings. As of March 31, 2022, we are subject to income taxes primarily in the U.S and Republic of Korea. The determination of our provision for income taxes requires judgment, the use of estimates in certain cases and the interpretation and application of complex tax laws and regulations. Our effective income tax rate is affected by many factors, including changes in our assessment of certain tax contingencies, increases and decreases in valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items, and may fluctuate as a result.

 

The benefits of uncertain tax positions are recorded in our financial statements only after determining a more likely than not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. We account for uncertain tax positions by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This determination requires the use of judgment in evaluating our tax positions and assessing the timing and amounts of deductible and taxable items.

 

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent that a portion is not more likely than not to be realized. Many factors are considered when assessing whether it is more likely than not that the deferred tax assets will be realized, including recent cumulative earnings, expectations of future taxable income, carryforward periods and other relevant quantitative and qualitative factors. The recoverability of the deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. This evaluation relies on estimates.

 

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BUSINESS

 

Overview

 

Sharing Services Global Corporation (“Sharing Services, “we,” “us,” or “our”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or acquiring businesses, products and technologies in the direct selling industry and other industries that augment the Company’s products and services portfolio, business competencies, and geographic reach. Our primary growth strategy is built on focused innovation and creativity positioned to capture profitable market share of diverse business models.

 

The Company was incorporated in the State of Nevada in April 2015. Our Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. In connection with this change, the Company decided not to restate the information reported for prior accounting periods, because: (a) the Company’s businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the consolidated financial statements included herein reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (365 days) compared to the eleven months ended March 31, 2021 (335 days).

 

Our History

 

Sharing Services was originally incorporated in the State of Nevada under the name Sharing Services, Inc. in April 2015. In December 2017, the Company, through its U.S.-based subsidiaries, launched its Elevate brand of health and wellness products.

 

In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this, the Company’s Common Stock traded under the trading symbol SHRV.

 

In February 2021, the Company rebranded its product offerings under the new marketing banner, “The Happy Co TM,” to capitalize on its vision that Everyone Deserves to be Happy. As part of this business initiative, the Company updated its customer messaging to re-emphasize the Company’s core values, including, among others: “harnessing the power of happiness;” “offering products you love;” “achieving more together;” and “offering products by people, for people.”

 

In June 2021, the Company expanded its geographical footprint, and through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Strategic 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 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.

 

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Key Global Industry and Business Trends

 

We believe the following industry and business trends will provide opportunities for the Company to grow its business in a sustained manner in the future:

 

  ● The Global direct selling industry is strong. According to the World Federation of Direct Selling Associations (“WFDSA”), worldwide industry sales exceeded $179 billion in 2020, with the Americas and Asia accounting for more than $141 billion in sales.
     
  ● Global interest in direct selling is strong. According to the WFDSA, the worldwide direct selling industry salesforce has grown from 114 million in 2016 to 125 million in 2020, an increase of 10%.
     
  ● The U.S. direct selling industry is growing strongly. For example, total industry sales in the U.S. grew from $28.6 billion in 2010 to $40.1 billion in 2020, an increase of 40%, according to the U.S.-based Direct Selling Association (“DSA”).
     
  ● Interest in direct selling in the U.S. has grown in recent years. The number of direct sellers in the U.S. grew from 6.2 million in 2018 to 7.7 million in 2020, an increase of 24%, according to the DSA.
     
  ● Consumer attitudes to direct selling continue to be favorable. The results of a consumer attitude survey released by the DSA show that 80% of consumers consistently gave the direct selling industry a positive rating during the past 10 years.
     
  ● The level of interest in the direct selling industry is high among younger sectors of the population. Over 70% of the people involved in direct selling, in the U.S. and worldwide, were between the ages of 20 and 54, according to the WFDSA and the DSA. By comparison, the U.S. Census Bureau estimates that persons in this age group make up about 46% of the overall 2020 U.S. population.
     
  ● Participation in the industry by women is high. For example, women made up approximately 74% of the people involved in direct selling in 2020, in the U.S. and worldwide, according to the WFDSA and the DSA. By comparison, the U.S. Census Bureau estimates that women make up about 51% of the overall 2020 U.S. population.
     
  ● Wellness products are the largest sector in the industry. Wellness products (such as our Elevate product line), accounted for over 36% of the industry’s sales in 2020, in the U.S. and worldwide, according to the WFDSA and the DSA.
     
  ● The initial costs and business risks in direct selling are relatively lower. According to “2020 Consumer Attitudes & Entrepreneurship Study,” published by the DSA, the required start-up costs and business risks associated with direct selling in the U.S. are lower than those for most competing entrepreneurial business opportunities.

 

Business Segments, Geographic Area Information and Seasonality

 

The Company currently operates in two business segments: (a) the sale of health and wellness products through an independent sales force and (b) the sale of other products and services, including third-party skincare products, and services sold on a subscription basis. During the fiscal years ended March 31, 2022, and 2021, substantially all and approximately 97%, respectively, of the Company’s consolidated sales were from its health and wellness products.

 

During the fiscal years ended March 31, 2022, and 2021, 87% and 94%, respectively, of the Company’s consolidated sales were made to customers and independent contractor distributors located in the United States (the “U.S.”). See Note 19 - “BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION” of the Notes to Consolidated Financial Statements contained in this Registration Statement for more details.

 

While the Company’s business generally is not highly seasonal, sales activity is normally slower during November and December, when many customers and independent contractor distributors in the U.S. traditionally take a holiday break.

 

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Competition

 

The health and wellness products industry is highly competitive and growing, and there are few barriers to entering the industry. Our competitors include a wide range of retailers, including traditional retail stores that offer their products in “brick and mortar” outlets and/or online, and e-commerce-based retailers. These retailers include, among other, CVS Health Corporation (Pharmacies), GNC Holdings (a specialty retailer), Target Corporation, The Vitamin Shoppe, Walgreens Boots Alliance (Pharmacies) and Walmart.

 

The direct selling industry is highly fragmented and competitive, and there are few barriers to entering the industry. We compete with other direct selling businesses, including many that have a longer operating history, higher visibility and name recognition, and more financial resources than we do. Among others, these network marketing companies include Amway Corporation, Avon Products, Herbalife Nutrition, Mary Kay, Nature’s Sunshine Products, The Body Shop, Nu Skin Enterprises and Youngevity International.

 

We compete in these marketplaces by emphasizing differentiators such as our access to exclusive products and ingredients, the quality and efficacy of our product offerings, the reliability and convenience of our distribution system, and a personalized customer service experience. We offer products and services that aim to improve the health and happiness of our customers and distributors. In addition, our direct selling business model, provides our independent contractor distributors the opportunity to build wealth by growing and operating of their own distribution business.

 

We also compete with other direct selling organizations in our efforts to attract and retain our independent contractor distributors by emphasizing the strengths of our product line, entrepreneurship and leadership training, a comprehensive sales compensation plan, a strong marketing focus, positive corporate values, and strong management leadership.

 

Competitive Strengths

 

We believe the following competitive strengths differentiate us from our competitors and will help drive our future growth:

 

  ● A strong management team consisting of senior and middle management professionals with significant direct selling industry and global business experience.
     
  ● A strong financial foundation, including cash and cash equivalents of $17.0 million and $12.1 million as of March 31, 2022, and 2021, respectively.
     
  ● An exclusive line of Nootropic products sourced through one or more exclusive strategic partnerships and not available through traditional sales channels.
     
  ● Best in class marketing process that focuses on the nutritional value and/or other health benefits of our health and wellness products.
     
  ● Our ability to offer our industry-exclusive brands directly to consumers using a friendly, highly trained entrepreneurial sales force.
     
  ● Our 30-day, “full customer satisfaction or your money back” product return policy.

 

International Reach

 

During our fiscal year ended March 31, 2022, sales to customers and independent contractor distributors located in the U.S. accounted for approximately 87% of consolidated sales and sales to customers located in Korea were approximately 5%. In addition, the Company distributes its products from the U.S. to customers located in Canada, Australia, New Zealand and other countries.

 

In June 2021, the Company, through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea). During our fiscal year ended March 31, 2022, 95% of our net revenues were denominated in U.S. dollars. Prior to our fiscal year ended March 31, 2022, substantially all the Company’s sales to customers were denominated in U.S. dollars.

 

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Our Health and Wellness Product Line

 

The Company launched its current health and wellness product line, under the name Elevate, in 2017. In 2021, we rebranded our products under The Happy Co trademark. The Company’s health and wellness product line consists of Nootropics, natural products aimed at improving the health and happiness of its customers and distributors. We aim to grow health and wellness product offerings by developing, acquiring, and introducing new products and services. In each of the fiscal years ended March 31, 2022, and 2021, substantially all and approximately 97%, respectively, of the Company’s consolidated sales were from its health and wellness products.

 

Key Products

 

We purchase our proprietary and non-proprietary products from independent formulators and manufacturers who specialize in wellness and skincare products. We take pride in our commitment to offer the finest products in the industry, including, but not limited to:

 

Health & Wellness Products

 

Elevate MAX® Happy Coffee - A delicious 100% Arabica coffee drink with a combination of at least five powerful mood-enhancing ingredients and a non-stimulant thermogenic agent, p-synephrine, known to increase the breakdown of fats. When combined with XanthoMax®, Elevate MAX® coffee completes the set of four hormones that are associated with happiness.

 

XanthoMax® Happy Caps - An encapsulated wellness supplement designed to deliver Xanthohumol, a powerful antioxidant, and Turmeric. Xanthohumol is a natural ingredient that helps the body release elevated amounts of Oxytocin, commonly referred to as the “hormone of happiness.” When combined with any of the Company’s functional beverages XanthoMax® completes the set of four hormones that are associated with happiness.

 

Elevate NITRO® Bold Coffee - A delicious 100% Colombian Arabica coffee drink that blooms with a bold, aromatic body and promotes energy, focus, motivation and muscle-pumping nitric oxide using naturally extracted polyphenols. When combined with XanthoMax®, Elevate NITRO® coffee completes the set of four hormones that are associated with happiness.

 

Elevate Smart Coffee™ - A delicious micro-ground, functional coffee drink that contains a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory and energy. This beverage provides neuro-transmitter hormone creators for three of the hormones associated with happiness. When combined with XanthoMax®, Elevate Smart Coffee™ completes the set of four hormones that are associated with happiness.

 

KetoCre® Keto Creamer- A delicious Ketogenic creamer designed to support a healthy Keto diet, and a great addition to any weight management program.

 

Choclevate® Happy Chocolate - A delicious, Nootropic-infused hot chocolate drink designed to assist in the elevation of mood, mental focus and energy. A unique combination of natural nootropics delivers the kind of “happy” that doesn’t stop after the delicious taste goes away. When combined with XanthoMax®, Choclevate® completes the set of four hormones that are associated with happiness.

 

Elevate ZEST® Happy + Lemonade - A refreshing, potent Nootropic blend with a smooth lemonade twist and a proprietary blend of natural Nootropic ingredients designed to assist with mental clarity, memory, and energy. When combined with XanthoMax®, Elevate ZEST® completes the set of four hormones that are associated with happiness.

 

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ElevaciTea® Georgia Peach - A flavorful, Southern-style tea that delivers natural Georgia Peach flavor in every sip. ElevaciTea® Georgia Peach is a perfect afternoon pick-me-up with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy.

 

ElevaciTea® Vanilla Chai - A flavorful afternoon pick-me-up, ElevaciTea® Vanilla Chai is a creamy, spiced black tea with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy.

 

Fit & Happy Shake™ - A high-protein, delicious instant shake available in two flavors: vanilla and mocha. Fit & Happy Shake™ combines vitamins with pre and probiotics and is a great way to optimize your weight management regiment.

 

All-in-One Happy Shake™ - A birthday cake-flavored shake that combines nutrient-dense fruit and veggies with high-quality protein, antioxidants and plant fiber. This Keto-friendly shake has everything you need to feel great and complement your weight loss regiment.

 

Optimal Probiotic 8™ - A healthy dietary supplement containing eight different strains of beneficial probiotics, prebiotics and postbiotics. A healthy microbiome is essential for weight loss, good mood, deep sleep, productive energy, healthy skin, and a balanced immune system.

 

Extreme Energy Patch™ - An easy application patch designed to sustain a clear, focused stream of energy throughout the day.

 

Skincare Products

 

Age-Defying Intensive Repair Serum™ - An age-defying serum that can help you restore the appearance of healthy and glowing skin. Our proprietary Synchronized Peptide ComplexTM has been stabilized through a patented process to deliver outstanding results. This potent serum locks in moisture to help restore the skin’s youthful look.

 

Ultimate Revitalizing Cream™ - A rich, anti-aging cream that helps illuminate and firm up the skin. Our proprietary Synchronized Peptide ComplexTM has been stabilized through a patented process to deliver outstanding results. This luxurious cream helps the skin retain moisture and improve skin texture, for a firm and radiant looking skin.

 

Sales and Marketing

 

We rely on a direct selling model consisting of independent contractor distributors and on customer referrals to promote and sell a majority of our products. We believe this is an effective selling model since our independent contractor distributors can educate consumers about our products in person, provide testimonials, and provide higher levels of customer support, compared to more traditional selling models. The Company also markets and sells its products and services using its proprietary websites, including: www.elevacity.com and www.thehappyco.com.

 

We provide support to our independent contractor distributors with marketing content, websites, events, and technology. We offer our products online and provide our independent distributors with a virtual online Back Office website. This website is where independent distributors can manage, monitor, and operate their businesses 24 hours a day from any location. In addition, we actively communicate with our independent distributors about new products, price changes, policy changes, recruiting opportunities, sales promotions, and other important matters via electronic mail, by phone and during our sales conventions. Sales conventions are currently held once or twice a year and are attended or viewed digitally by a significant number of our current independent distributors and prospective independent distributors. Each sales convention includes the participation of one or more key personalities, including social media influencers, engaged in promoting our products and services. In addition, each sales convention is attended by members of our executive team, providing an opportunity for our sales force to learn about new business initiatives, new products, and other matters relevant to their businesses.

 

As part of our efforts to protect our customers, distributors, employees, and other business partners during the recent COVID pandemic, in 2020, the Company transitioned its sales conventions to a digital format only. In 2022, the Company resumed holding in-person sales events and conventions when it is safe to do so. The Company anticipates resuming the use of all sales conventions in person in the foreseeable future, as the threat of the health emergency fully subsides.

 

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Product Distribution

 

Currently, distribution and delivery of our products in the U.S., Canada, and the southern Pacific region is handled primarily by our distribution center in Addison, Texas. On the other hand, sales, distribution, and delivery of our products in Asia is handled by our South Korean subsidiary.

 

We intend to grow, in part, by also offering and distributing our products to customers in additional geographic areas outside the U.S. As product sales reach critical mass levels, we anticipate expanding distribution of our products by facilities, including facilities operated by independent logistics partners located outside the U.S.

 

Retail Customers and Independent Contractor Distributors

 

The Company distributes its products through two distribution channels: (1) sales to our retail customers - consumers that buy our products from a distributor or through one of our websites, for personal use and (2) sales to our independent contractor distributors that buy product for resale or for personal use. The Company’s goal is to monitor and grow both sales channels using different strategies. To grow our retail customer base, we offer high-quality, unique products. Our strategy for growing our sales force of independent distributors includes providing a meaningful business opportunity to them, a competitive sales compensation plan, sales incentives, and volume-based bonuses, as further discussed below.

 

Any person may join the Company as a distributor, or Brand Partner, by purchasing a Virtual Business System (“VBS”) for $49.00. This kit includes the training and basic marketing materials which better enables our sales force to sell our products and build their organization. Independent distributors may then purchase products for personal use or to build their sales organization. No product purchases are required upon enrollment.

 

Distributor Agreement and Compensation

 

Our distributors are independent contractors, and the Company does not direct or control their efforts. However, the Company requires its distributors to abide by its policies and procedures, and to comply with all applicable laws and regulations. To become a distributor an individual must affirmatively accept our standard Distributor Agreement as well as our Distributor Policies and Procedures. These documents govern the relationship between the Company and each independent distributor. The Distributor Policies and Procedures outline the scope of permissible marketing activities, and the Distributor Agreement defines the relationship between the distributor and the Company. Our policies and procedures require that our distributors present our products, as well as the business opportunity, both ethically and professionally.

 

We believe that our compensation plan offers our independent distributors an exciting and effective way to earn commissions. All our distributors can earn commissions when they sell our products to their retail customers or their downline independent distributors. Additionally, they can earn commissions when their own personally sponsored distributors (or downline) sell products to end users. There is no limit as to the number of personally enrolled distributors or retail customers that an independent distributor may have.

 

Each distributor begins by purchasing a VBS. The VBS includes the training and basic marketing materials which better enables our sales force to sell our products and build their organization. No commissions or bonuses are paid for enrolling other distributors.

 

Additionally, each month, our top producing distributors may also earn commission based on the sales levels achieved by such distributor and his/her downline. This bonus commission is designed to compensate them for mentoring, training, and developing the distributors in their downline.

 

The Company’s compensation plan is designed to promote customer acquisition and retention. The Company provides a back-office website for our independent distributors to use in their ecommerce sales, but an affiliate may also sell directly to their customers.

 

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We rely upon our independent distributors to create customer demand and sales. We believe our plan is successful in helping to attract and motivate our sales force and key industry leaders. Please see - “RISK FACTORS” - “The dependence of some of our subsidiaries upon a direct selling business model to sell our products, and the highly competitive and dynamic nature of the direct selling industry” and “Our subsidiaries’ ability to attract and retain independent distributors; the ability of a distributor to successfully perform his or her role; and the potential adverse impact of the loss of a high-level distributor or a significant number of distributors for causes out of our subsidiaries’ control” below for more information.

 

Full Customer Satisfaction Product Return Policy

 

If a consumer is not completely satisfied with the products they purchased, we offer a full refund, or exchange of the product, for items returned within 30 days from the date of purchase. For products purchased by our independent distributors, we also offer a generous product return policy that allows our distributors to get full credit for unopened and resalable items returned for up to 30 days from the date of purchase, generally subject to a customary restocking fee.

 

Trademarks and Other Intellectual Property

 

We have obtained 22 trademark registrations issued by the United States Patent and Trademark Office. We anticipate obtaining additional U.S. trademark registrations in the future, in connection with the 34 applications presently pending.

 

In addition, we intend to file for trademark protection in jurisdictions outside the U.S. where we market and distribute or intend to market and distribute our products, including, among others, in Canada, Australia, New Zealand, South Korea, Singapore, Malaysia, Japan, Thailand, and the Philippines. Trademark protection is increasingly important to our growing business.

 

Several of our products are manufactured under formulations and processes owned by some of our key vendors. Some of our key vendors have registered or applied for patent registrations to maintain exclusivity over the ingredients, formulation and processes, and the integrated products they supply to us. Such potential patents, the underlying ingredients, formulation and processes, and integrated products are material to the Company’s business. The Company reserves the right to join in any future actions to defend against any infringement on such patents that could adversely affect the products the Company sells. If our vendors and us were unsuccessful in protecting such intellectual property rights, this could have a material adverse effect on our business. Please see - “RISK FACTORS” - “Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers” below for more information.

 

To protect our own intellectual property and proprietary processes that are material to the long-term health and profitability of the Company, we maintain disciplined business practices to manage trade secrets and use various forms of confidentiality and non-disclosure agreements. We consider trademark protection to be very important to our business and utilize an internal compliance team to closely monitor the usage of our intellectual property. Please see “RISK FACTORS” - “The success of our efforts to register our trademarks and to protect certain intellectual property rights” for more information.

 

Strategic Supply Chain Partnerships

 

We strive to maintain positive relationships with key business partners to ensure the continuous manufacturing, supply, and quality of our products. In the fiscal year ended March 31, 2022, and 2021, product purchases from one supplier accounted for 64% and 99%, respectively, of our product purchases. Please see - “RISK FACTORS” - “Our dependence on one supplier for a substantial portion of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.”

 

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We intend to grow, in part, by also offering and distributing our products to customers in geographic areas outside the U.S. As product sales reach critical mass levels, we anticipate expanding manufacturing and distribution of our products by facilities, including facilities operated by independent logistics partners located outside the U.S.

 

Regulatory Environment

 

Our business is regulated by various federal, state, and local governmental agencies in the U.S. and by similar agencies in Canada and other jurisdictions in which we market and sell our products. These laws and regulations are related to: (a) the manufacturing, labeling, distribution, and sale of our products; (b) product claims and advertising; and (c) our network marketing program.

 

Regulation of Direct Selling Activities

 

In the United States, direct selling programs are subject to a variety of federal and state regulations governed by the United States Federal Trade Commission (the “FTC”) or a similar state agency. These regulations are generally intended to protect consumers from fraudulent or deceptive sales practices. They also ensure that product sales are made to the ultimate consumers and that compensation within the organization is made based upon actual sales transactions, rather than upon recruitment into the organization.

 

The Company monitors and, if necessary, responds to regulatory developments that may adversely affect its network marketing program. We believe the Company is in material compliance with all applicable laws and regulations relating to direct selling activities in the United States and other countries where we operate.

 

Regulation of Personal Care and Nutritional Food Products

 

Personal care and nutritional food products (including the products we sell) and certain related marketing and advertising practices are subject to governmental regulation by various federal, state, and local government agencies and other authorities in the U.S., Canada, and other jurisdictions where we market and distribute or intend to market and distribute our products in the future. These agencies and authorities include the U.S. Food and Drug Administration (the “FDA”), the FTC, the Consumer Product Safety Commission, the U.S. Department of Agriculture, and various similar state and Canadian regulatory agencies. To date, we have not experienced any governmental actions related to health or safety, or food and drug regulations regarding our products.

 

The FDA regulates both finished dietary supplement products (including health and wellness products such as ours) and dietary ingredients. Dietary supplements are specifically regulated under the Dietary Supplement Health and Education Act of 1994 (the DSHEA). Under the DSHEA, manufacturers and distributors of dietary supplements are prohibited from marketing products that are adulterated or misbranded. Generally, such regulations apply prior to a product reaching the market. Once a product reaches the market, the FDA is responsible for taking enforcement action against any product found to be an adulterated or misbranded dietary supplement. Unlike medications, dietary supplements and dietary ingredients, such as those sold by the Company, do not require FDA approval before such products can be marketed and sold.

 

The FTC, which enforces consumer protection laws regarding truth in advertising, and similar state and foreign agencies regulate how we advertise and market our products. The U.S. Consumer Product Safety Commission, and similar state and foreign agencies, seek to protect the public from unreasonable risks of injuries or death associated with consumer products. In the U.S., Canada and other jurisdictions where we operate, our products are also subject to laws and regulations concerning product formulation, labeling and packaging. These laws and regulations often require us to, among other things, conform product labeling to local language and content description requirements, register or qualify the products with the applicable government authorities, or obtain approvals or file required notifications prior to marketing such products within certain jurisdictions. Many of the jurisdictions where we operate also regulate product capability claims and advertising content. These regulations control the type of claims and representations that can be made regarding the capabilities of products. For example, in the United States, it is unlawful to make claims that nutritional supplements will help diagnose, cure, mitigate, treat, or prevent disease. Please see - “RISK FACTORS” - “Our ability to comply with current consumer product laws and regulations or our becoming subject to new or more stringent consumer product laws and regulations in the future” below for more information.

 

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Employees  

 

As of March 31, 2022, and 2021, the Company employed 68 and 76 persons, respectively, as follows:

 

Location  2022   2021 
United States   58    68 
Asia   10    8 
Total   68    76 

 

The amounts above do not include the Company’s approximately 13,000 distributors who are independent contractors. Our employees are not represented by labor unions. We believe that our relationship with our employees is positive, and we do not expect a shortage in qualified personnel to continue our business growth.

 

Access to Public Filings

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, are available to any person, without charge, upon written request to our Investor Relations Department at 5200 Tennyson Pkwy, Suite 400, Plano, TX, 75024. You may also access copies of such reports, and other information about the Company, by visiting our corporate website: www.shrginc.com.

 

In addition, the SEC maintains a website that contains any reports and other information that we file with the SEC: www.sec.gov.

 

MANAGEMENT

 

The following table sets forth certain information as of September 30, 2022, concerning our directors and executive officers:

 

Name   Age   Position
John (“JT”) Thatch   60   Chief Executive Officer and Vice Chairman of the Board of Directors
Anthony S. Chan   58   Chief Financial Officer
Catherine J. McCain   47   General Counsel and Corporate Secretary
Heng Fai Ambrose Chan   78   Executive Chairman of the Board of Directors
David K. Keene   65   Director
Frank D. Heuszel   66   Director
Castel B. Hibbert   63   Director
Robert H. Trapp   67   Director
Christian Zimmerman   44   Director

 

John (“JT”) Thatch served as Chief Executive Officer and Director from March 2018 to April 2020, served as President, Chief Executive Officer and Director from April 2020 to October 2020, served as President, Chief Executive Officer and Interim Chairman of the Board from October 2020 to July 2021, and has served as President, Chief Executive Officer and Vice Chairman of the Board since July 2021. Mr. Thatch was elected at the Company’s Annual Meeting of Shareholders in 2018 to serve as a Class I Director until the 2022 Annual Meeting. Mr. Thatch is an accomplished, energetic, entrepreneur-minded executive with the vision and knowledge to create growth and shareholder value for an organization. Mr. Thatch has successfully started, owned and operated several sized businesses in various industries that include service companies, retail, wholesale, on-line learning, finance, real estate management and technology. From 2009 to 2016, Mr. Thatch served as Chief Executive Officer of Universal Education Group and, from 2016 to present, is a minority member of Superior Wine and Spirits, LLC, a Florida-based wholesale distributor of wine and spirits. Prior to 2005, Mr. Thatch served as CEO of Orbital Energy Group, Inc. (“OEG”), a NASDAQ-listed company formerly known as OnScreen Technologies, Inc. Mr. Thatch serves on the Board of Directors and is the lead independent director of DSS, Inc (formerly Document Security Systems, Inc.) (NYSE American: DSS), a majority shareholder of the Company.

 

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Anthony S. Chan has served as the Company’s Chief Financial Officer since his appointment by the Board in November 2021. Mr. Chan also serves as Chief Operating Officer of Alset Inc. (NASDAQ:AEI). Prior to his appointment by the Company’s Board, Mr. Chan has served, since 2014, as President and Co-founder of CA Global Consulting, Inc. and, since 2020, as Director of Assurance and Advisory Services of Wei, Wei & Co., LLP, a PCAOB-registered public accounting firm with offices in Queens, New York, Los Angeles, California, and Beijing, China. Prior to that, Mr. Chan served as Chief Financial Officer of several public companies, including Sino-Global Shipping America, Ltd (NASDAQ:SINO), Helo Corp. (OTC:HLOC) and SPI Energy Company, Ltd. (NASDAQ:SPI). Mr. Chan is certified public accountant registered with the State of New York.

 

Catherine J. McCain has served as the Company’s Corporate Secretary since March 2021, as General Counsel since June 2019, and, since August 2018, as Executive Vice President and General Counsel of Elevacity Holdings, LLC and Elepreneurs Holdings, LLC, each a wholly owned subsidiary of the Company. From 2012 to 2019, Ms. McCain was employed at Deloitte Transactions and Business Analytics LLP as a Discovery Management Specialist, primarily supporting federal government clients. Ms. McCain’s career experience spans complex tax, criminal, and commercial litigation matters, liaising with the federal government, and managing advanced analytics in litigation support. Ms. McCain earned a Juris Doctor at Georgetown University Law Center, in Washington, D.C. and is a member of the Washington State Bar Association since 2003.

 

Heng Fai Ambrose Chan was appointed by the Board in April 2020 as a Class II Director, to serve until the Annual Meeting of Shareholders in 2023, or until his successor is elected and qualified, and, in July 2021, was appointed by the Board to serve as Executive Chairman of the Board. Mr. Chan also serves, without compensation, on the Board of Managers of Elevacity Holdings, LLC, Elepreneurs Holdings, LLC. Mr. Chan is an accomplished global business leader with over 40 years of experience and specializes in financial restructurings and corporate transformations of emerging growth businesses. Some of the companies that he has founded, rescued, or transformed include American Pacific Bank (USA), and China Gas Holdings Limited and Heng Fai Enterprises Limited (both listed on the Hong Kong Stock Exchange), Global Med Technologies, Inc. (a private U.S. medical software company), and Singhaiyi Group Ltd (listed on the Singapore Stock Exchange). Mr. Chan also serves on the board of directors of OptimumBank Holdings, Inc. (NASDAQ:OPHC), a commercial bank holding company. In addition, Mr. Chan serves as Chief Executive Officer and Chairman of the board of directors of Alset eHome International, Inc. (NASDAQ:AEI). Mr. Chan also serves, since June 2017, as Executive Chairman of the board of directors and, since April 2014, as Group Chief Executive Officer of Alset International Limited, a multinational holding company listed on the “Catalist Board” of the Singapore Exchange that is involved in international real estate development, biomedical sciences, asset management, health and wellness products, and information technology-related businesses. Mr. Chan also serves as Chairman of the board of directors of DSS, Inc. (formerly, Document Security Systems, Inc.) (NYSE American: DSS), a majority shareholder of the Company.

 

David K. Keene was appointed by the Board in June 2021 as a Class II Director, to serve until the Annual Meeting of Shareholders in 2023, or until his successor is elected and qualified. Mr. Keene is a senior level banker with over 40 years of commercial banking experience in both community and regional banking environments. Since 2018, Mr. Keene has served as a Loan Portfolio Quality Manager and, from 2016 to 2018, as a Loan Review Manager of Community Bank of Texas, N.A., in Houston, Texas. From 2009 to 2015, Mr. Keene served as Senior Vice President and Senior Credit Risk Officer of Veritex Community Bank (formerly, Patriot Bank), in Houston, Texas. Mr. Keene earned a Bachelor of Business Administration in Finance and Economics from Baylor University.

 

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Frank D. Heuszel was appointed by the Board in September 2020 as a Class II Director, to serve until the Annual Meeting of Shareholders in 2023, or until his successor is elected and qualified. In addition, Mr. Heuszel serves, without compensation, on the Board of Managers of Elevacity Holdings, LLC, Elepreneurs Holdings, LLC, and certain other wholly owned domestic subsidiaries of the Company. Mr. Heuszel currently serves as Chief Executive Officer and a director of DSS, Inc. (formerly, Document Security Systems, Inc.) (NYSE:DSS), a majority shareholder of the Company. Heuszel has extensive expertise in a wide array of strategic, business, turnaround, and regulatory matters across several industries as a result of his executive management, educational, and operational experience. Prior to joining DSS, Mr. Heuszel had a very successful career in commercial banking and business turnaround management. For over 35 years, Heuszel served in many senior executive roles with major US and international banking organizations. As a banker Mr. Heuszel has served as General Counsel, Director of Special Assets, Credit Officer, Chief Financial Officer and Auditor. Mr. Heuszel has also operated a successful law practice which was focused on the regulation and operation of banks, management of bank litigation, corporate restructures, and merger and acquisitions. In addition to being an attorney and executive manager, Mr. Heuszel is a Certified Public Accountant (retired), and a Certified Internal Auditor. Mr. Heuszel is also a member of the Texas State Bar, the Houston Bar Association, Association of Corporate Counsel, Texas Society of Certified Public Accountants, and the State Bar of Texas Bankruptcy Section. Mr. Heuszel graduated from The University of Texas at Austin and from The South Texas College of Law in Houston.

 

Castel B. Hibbert was appointed by the Board in June 2021 as a Class III Director, to serve until the Annual Meeting of Shareholders in 2024, or until his successor is elected and qualified. Mr. Hibbert is an accomplished banking senior executive. Since 2011, Mr. Hibbert has served as Executive Vice President, Commercial Banking of Veritex Community Bank (formerly, Patriot Bank), in Houston, Texas. Mr. Hibbert earned an M.B.A. in Finance and Accounting from the University of Texas, and a B.A. in Employee Relations from Michigan State University.

 

Robert H. Trapp was appointed by the Board in November 2020 as a Class I Director, to serve until the Annual Meeting of Shareholders in 2022, or until his successor is elected and qualified. Mr. Trapp is a highly accomplished senior executive with 36 years of cross-cultural business experience with both publicly owned and private companies and a diverse background of experience in industries such as hospitality, finance, real estate, mining, software, biotech and consumer goods. More specifically, Mr. Trapp’s experience includes over 35 years of demonstrated achievements as a Director, President, CEO, Managing Director, CFO, Treasurer and Corporate Secretary of numerous companies operating in Japan, Hong Kong, Canada, and the United States. Mr. Trapp earned a Bachelor of Applied Arts – Hospitality & Tourism Management degree from Ryerson University (Toronto) in Ontario, Canada, and a Bachelor of Commerce degree from the University of Calgary in Alberta, Canada.

 

Christian Zimmerman was appointed by the Board in June 2021 as a Class III Director, to serve until the Annual Meeting of Shareholders in 2024, or until his successor is elected and qualified. Mr. Zimmerman is an accomplished senior finance executive and currently serves as Chief Financial Officer of Keystone Bank, SSB, in Austin, Texas. From 2015 to 2019, Mr. Zimmerman served as Controller of Community Bank of Texas, N.A., in Houston, Texas. Mr. Zimmerman earned a master’s degree in Professional Accounting and a Bachelor of Business Administration from the University of Texas. Mr. Zimmerman is a Certified Public Accountant.

 

Board Composition

 

Our Board of Directors is composed of six members, Heng Fai Ambrose Chan, John (“JT”) Thatch, David K. Keene, Frank D. Heuszel, Castel B. Hibbert, Robert H. Trapp, and Christian Zimmerman. We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of the Company’s Board of Directors. However, the Company intends to form an audit committee in the near future.

 

There are no family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan, or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current Board of Directors.

 

Our directors and executive officers have not, during the past ten years:

 

● had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time,
   
● been convicted in a criminal proceeding and is not subject to a pending criminal proceeding,

 

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● been subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently, or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business, securities, futures, commodities, or banking activities; or
   
● been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission, or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Overview of Corporate Governance

 

We are committed to conducting our business in a way that reflects best practices and high standards of legal and ethical conduct. To that end, our Board has approved and oversees the implementation of (i) a Code of Business Conduct and Ethics and (ii) a Conflicts of Interest Policy (collectively, the “Governance Conduct Standards”), as further discussed below. The policies contained in our Governance Conduct Standards embody the principles, policies, processes and practices followed by our Board, executive officers and employees in governing us. Directorships and

 

Common Directorships

 

Messrs. Chan, Heuszel, and Thatch, each a Director of the Company, also serve on the board of directors of DSS, Inc., formerly Document Security Systems, Inc. (“DSS”) (NYSE:DSS). DSS, together with its subsidiary, Decentralized Sharing Systems, Inc., is a majority shareholder of the Company.

 

In addition, Mr. Chan serves on the board of directors of OptimumBank Holdings, Inc. (NASDAQ:OPHC), and served on the board of directors of RSI International Systems, Inc. (TSXV:RSY.H) until 2019, and of Global Medical REIT, Inc. (NYSE:GMRE) until 2015.

 

Mr. Trapp, a Director of the Company, also serves on the board of directors of American Premium Water Corporation (OTC:HIPH) and Theralink Technologies, Inc. (OTC:OBMP)(formerly AVANT Diagnostics Inc.), and served on the board of directors of Amarantus Bioscience Holdings Inc. (OTCM:AMBS) until 2017, and of GigWorld Inc. (formerly HotApp Blockchain Inc., formerly HotApp International Inc.)(OTC:GIGW) until 2015. In addition, Mr. Trapp served as Chief Financial Officer of GigWorld Inc. during the dates indicated.

 

Director Compensation

 

During the fiscal year ended March 31, 2022, the Company’s Board of Directors established a compensation program for its independent Directors. Under the program, each independent Director receives $2,083.33 per Board meeting attended, for up to twelve (12) meetings during a year (up to $25,000 in compensation annually). In addition, independent Directors receive $5,000 per each additional meeting after twelve (12) meetings. During the fiscal year ended March 31, 2022, Messrs. Keene, Hibbert and Zimmerman each received an aggregate compensation of $8,333 for their services as Directors. During the fiscal year ended March 31, 2022, the Company’s Directors received no other compensation for their services as Directors. During the fiscal year ended March 31, 2021, none of the Company’s Directors received compensation for their services as Directors.

 

Election of Directors and Officers

 

The Company’s Board of Directors consists of three (3) classes as indicated below. Directors hold office until the Company’s Annual Meeting of Shareholders in the year specified when each Director is elected or until the election/qualification of their respective successors. Our By-Laws permit our Board to fill any Board vacancy and such appointed Director may serve until the next Annual Meeting of Shareholders in which his/her director class is up for election, or until the election/qualification of their successor. Officers are elected annually by the Board and hold office at the discretion of the Board.

 

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Board of Directors Classes

 

The following directors serve on the Board and are expected to serve until his/her director class is up for election or until the election/qualification of their respective successors:

 

Class I – John (“JT”) Thatch, elected at the 2018 Annual Meeting of Shareholders, and Robert H. Trapp, appointed by the Board in November 2020, each re-elected at the 2022 Annual Meeting of Shareholders to serve until the 2026 Annual Meeting of Shareholders.

 

Class II – Heng Fai Ambrose Chan, appointed by the Board in April 2020, Frank D. Heuszel, appointed by the Board in September 2020, and David K. Keene, appointed by the Board in June 2021, each to serve until the Annual Meeting of Shareholders in 2023.

 

Class III – Castel B. Hibbert and Christian Zimmerman, each appointed by the Board in June 2021, each to serve until the Annual Meeting of Shareholders in 2024.

 

Legal Proceedings

 

Except as otherwise indicated below, to the knowledge of the Company after reasonable inquiry, no current Director or executive officer of the Company during the past ten years, has (i) been convicted in a criminal proceeding (excluding traffic violations or other minor offenses), (ii) been a party to any judicial or administrative proceeding (except for any matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws, (iii) filed a petition under federal bankruptcy laws or any state insolvency laws or has had a receiver appointed for the person’s property or (iv) been subject to any judgment, decree or final order enjoining, suspending or otherwise limiting for more than 60 days, the person from engaging in any type of business practice, acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity or engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, (v) been found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated, (vi) been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated, (vii) been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, or (viii) been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

In December 2020, three purported investors in Four Oceans Global, LLC, currently a subsidiary of the Company, filed a lawsuit against the Company, its affiliated entities, and other persons and entities related to an investment made by the three purported 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. This matter, 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, remains pending in the United States District Court for the Eastern District of Texas as of the date of this Proxy Statement.

 

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No current Director or executive officer of the Company is a party adverse to the Company or any of its subsidiaries in any legal proceeding.

 

Board Leadership and Role in Risk Oversight

 

Our Board recognizes that selecting the optimal executive leadership structure and the proper combination or separation of roles, such as the Chief Executive Officer and Chairman roles, must closely consider and be driven by the needs of the Company at any point in time. The Board has not formally adopted an overall policy requiring combination or separation of leadership roles and our governing documents do not mandate a particular executive management structure. The Board reserves the right to modify the leadership structure as needed to best meet the changing needs of the Company from time to time.

 

The Board oversees our shareholders’ interest in the long-term health and the overall success of the Company and its financial strengths. The full Board is actively involved in overseeing risk management for the Company. It does so in part through discussion and review of our business, financial and corporate governance practices and procedures. The Board, as a whole, reviews the risks confronted by the Company with respect to its operations and financial condition, establishes limits of risk tolerance with respect to the Company’s activities and ensures adequate property and liability insurance coverage.

 

Director Independence

 

We currently have four independent directors on our Board of Directors. We use the definition of “independence” found in the Listing Rules of the Nasdaq Stock Market (“Nasdaq”) to make this determination. Nasdaq provides that an “independent director” is a person other than an executive officer or employee of a company or any other individual having a relationship with which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The rules provide that a director cannot be considered independent if:

 

  ● the director is, or at any time during the past three years was, an employee of the Company;
     
  ● the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exemptions, including, among other things, compensation for board or board committee service);
     
  ● the director is a family member of an individual who is, or at any time during the past three years was, employed by the Company as an executive officer;
     
  ● the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officer of the Company served on the compensation committee of such other entity;
     
  ● the director or a family member of the director is a partner in, controlling shareholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exemptions); or
     
  ● the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit.

 

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Under such definitions, our Board of Directors has undertaken a review of the independence of each director and will review the independence of any new directors based on information provided by each director concerning their background, employment, and affiliations, in order to make a determination of independence. Our Board of Directors has determined that the following four directors are independent:

 

1. David K. Keene
   
2. Castel B. Hibbert
   
3. Robert H. Trapp
   
4. Christian Zimmerman

 

Committees of the Board of Directors

 

We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of the Company’s Board of Directors. The Company intends to form an audit committee in the near future. Our Board does not believe that it is practical due to the limited number of directors currently serving, nor necessary to establish a nominating committee at this point because it believes the functions of such committee can be adequately performed by the Board as a whole. A compensation committee made up of members of management, including non-independent Board members, has been commissioned by the Board and is chartered and operating to assist the Board with executive compensation-related matters.

 

We have not adopted procedures by which security holders may recommend nominees to our Board.

 

Audit Committee Financial Expert  

 

The Board does not currently have an Audit Committee. The Company intends to form an audit committee in the near future. The duties of members of an Audit Committee are currently carried out by the Board as a whole.

 

Code of Business Conduct and Ethics

 

Our Board of Directors has adopted (i) a Code of Business Conduct and Ethics and (ii) a Conflicts of Interest Policy that apply to our directors, officers, and employees. Copies of these documents are available in print to any person, without charge, upon written request to our Investor Relations Department at 15200 Tennyson Pkwy, Suite 400, Plano, Texas 75075.

 

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Meetings of the Board of Directors

 

No director has attended fewer than 75% of the meetings of our Board. It is the policy of our Board that all directors should attend the annual meeting of shareholders unless unavoidably prevented from doing so by unforeseen circumstances.

 

Compensation Committee Interlocks and Insider Participation

 

At no time have any of the members of our Compensation Committee been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or Compensation Committee of any other entity that has one or more executive officers on our Board of Directors or Compensation Committee.

 

EXECUTIVE AND DIRECTOR COMPENSATION

 

Director Compensation

 

During the fiscal year ended March 31, 2022, the Company’s Board of Directors established a compensation program for its independent Directors. Under the program, each independent Director receives $2,083.33 per Board meeting attended, for up to twelve (12) meetings during a year (up to $25,000 in compensation annually). In addition, independent Directors receive $5,000 per each additional meeting after twelve (12) meetings. During the fiscal year ended March 31, 2022, Messrs. Keene, Hibbert and Zimmerman each received an aggregate compensation of $8,333 for their services as Directors. During the fiscal year ended March 31, 2022, the Company’s Directors received no other compensation for their services as Directors. During the fiscal year ended March 31, 2021, none of the Company’s Directors received compensation for their services as Directors.

 

Management Compensation

 

The table below   summarizes all compensation awarded to, earned by, or paid to the named executive officers for all services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended March 31, 2022, and 2021:

 

Name and Principal Position  Fiscal Year   Salary
($)		   Cash
Bonus
($)		   Stock
Warrant Awards
($)		   Non-Equity
Incentive
Plan
Compensation ($)		   All
Other
Compensation
($)		   Total
($)		 
John (“JT”) Thatch   2022    360,006    -    -    -    72,947    432,953 
President, Chief Executive Officer and Director (principal executive officer)   2021    346,200    -    -    -    61,991    408,191 
Anthony S. Chan (1)   2022    93,482    -    -    -    8,656    102,093 
Chief Financial Officer (principal financial officer)   2021    -    -    -    -    -    - 
Catherine J. McCain   2022    350,045    -    -    -    62,079    412,124 
General Counsel and Corporate Secretary   2021    336,579    -    411,375    67,147    66,983    882,084 

 

(1) Anthony S. Chan has served as Chief Financial Officer of the Company since his appointment by the Board November 2021.

 

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Narrative Disclosure to Summary Compensation Table

 

Mr. Thatch served as Chief Executive Officer and Director from March 2018 to April 2020, served as President, Chief Executive Officer and Director from April 2020 to October 2020, served as President, Chief Executive Officer and Interim Chairman of the Board from October 2020 to July 2021, and has served as President, Chief Executive Officer and Vice Chairman of the Board since July 2021. Under the terms of Mr. Thatch’s employment agreement, Mr. Thatch may earn an incentive bonus subject to the achievement of certain consolidated operating performance goals by the Company during each fiscal quarterly measurement period. Amounts reported under “All Other Compensation” above represents, cell phone allowance, employer contribution to 401(k) Plan, and reimbursement of health care insurance premiums for Mr. Thatch’s family, and reimbursement of country club membership dues, pursuant to Mr. Thatch’s employment agreement. References to Mr. Thatch’s employment agreement are to the Amended and Restated Executive Employment Agreement between the Company and Mr. Thatch effective May 16, 2019, which agreement has an initial term of five (5) years. The Summary Compensation Table above does not reflect $12,000 and $11,000 reimbursed to Mr. Thatch in the fiscal year 2022 and 2021, respectively, for costs associated with his office in Florida.

 

Mr. Anthony S. Chan has served as Chief Financial Officer of the Company since his appointment by the Board in November 2021. Amounts reported under “All Other Compensation” above represents cell phone allowance, employer contribution to 401(k) Plan, and reimbursement of health care insurance premiums for Mr. Chan’s family, pursuant to Mr. Chan’s employment agreement, which agreement has an initial term of three (3) years.

 

Ms. McCain serves as the Company’s General Counsel and Corporate Secretary and is employed pursuant to a General Counsel Employment Agreement between Ms. McCain and Sharing Services Global Corporation effective June 1, 2019, and an Amended and Restated Executive Employment Agreement between Ms. McCain and Elepreneurs Holdings, LLC, Elepreneurs U.S., LLC, Elevacity Holdings, LLC, and Elevacity U.S., LLC, each a consolidated subsidiary of the Company, effective May 15, 2019 (the “May 2019 Employment Agreement”). The May 2019 Agreement has an initial term of five (5) years. Under the terms of the May 2019 Employment Agreement, Ms. McCain may earn a cash bonus and an incentive bonus, with such incentive bonus being subject to the achievement of certain consolidated operating performance goals by the Company during each fiscal quarterly measurement period. In addition, pursuant to the terms of the May 2019 Employment Agreement, in May 2020, Ms. McCain was awarded a fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of such common stock and, in May 2021, Ms. McCain was awarded a fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of such common stock. Further, subject to continuation of employment, at each of the next two anniversaries of the May 2019 Employment Agreement effective date, Ms. McCain would be awarded an additional fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of such common stock. Amounts reported under “All Other Compensation” above represents car allowance, cell phone allowance, employer contribution to 401(k) Plan, and reimbursement of health care insurance premiums for Ms. McCain’s family, reimbursement of professional membership dues, continuing professional education expenses, reimbursement of tennis membership dues, and fees paid to third party professionals for income tax return preparation, and financial, tax and estate planning services, pursuant to the May 2019 Employment Agreement. In the fiscal year 2022, the Summary Compensation Table above does not reflect income of $337,693 recognized in accordance with U.S. generally accepted accounting principles in connection with Ms. McCain’s stock-based award.

 

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Outstanding Equity Awards

 

The Board has not adopted a formal stock-based compensation plan. Prior to the date of this prospectus, the Board granted awards of equity instruments to Ms. McCain and to Mr. Thatch in connection with their respective employment agreements. Except as indicated below, all such equity instruments have been exercised as of the date of this prospectus.

 

The table below summarizes all unexercised options or warrants, vested and not vested, and any other equity-type awards for each named executive officer outstanding as of March 31, 2022:

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION or WARRANT AWARDS  STOCK AWARDS 
Name   

Number of

Securities

Underlying

Unexercised

Options or Warrants

(#)

Exercisable

    

Number of

Securities

Underlying

Unexercised

Options or Warrants

(#)

Un-exercisable

    

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

    

Option or Warrant

Exercise

Price

($)

   Option or Warrant
Expiration
Date		  Number
of
Shares
or Units
of
Stock That
Have
Not
Vested
(#)		   

Market

Value

of

Shares

or

Units

of

Stock

That

Have

Not

Vested

($)

    

Equity

Incentive

Plan

Awards:

Number

of

Unearned

Shares,

Units or

Other

Rights

That Have

Not

Vested

(#)

    

Equity

Incentive

Plan

Awards:

Market or

Payout

Value of

Unearned

Shares,

Units or

Other

Rights

That

Have Not

Vested

($)

 
Catherine J. McCain (1)   3,750,000    -    3,750,000   $0.0198   5-15-2024  -   -    -    - 

 

(1) Under the terms of the May 2019 Agreement, in May 2020, the Company awarded Ms. McCain a fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of the Company’s Class A Common Stock and, in May 2021, the Company awarded to Ms. McCain a fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of the Company’s Class A Common Stock. In addition, subject to continuation of employment, at each of the next two anniversaries of the employment effective date, the Company has agreed to award to Ms. McCain an additional fully vested warrant to purchase up to 1,875,000 shares of the Company’s Class A Common Stock at an exercise price per share indexed to the price of such common stock. All such warrants expire on May 15, 2024.

 

Compensation Discussion and Analysis

 

The Company is a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, has omitted certain information required in this prospectus pursuant to the applicable scaled disclosure rules.

 

Additional Narrative Disclosure

 

Under the terms of Mr. Thatch’s employment agreement, upon termination of employment within one year of a change in control event, as defined in the employment agreement, or otherwise upon termination of employment by the Company for any reason other than cause, as defined in the employment agreement, or upon the executive’s resignation for good reason, as defined in the employment agreement, the Company is obligated to pay the executive an amount equal to three years’ base salary and a pro-rata portion of the incentive pay that the executive would have earned in the year of termination, except for the fact that such termination occurred.

 

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Under the terms of Mr. Chan’s employment agreement, upon termination of employment by the Company for any reason, or by the executive for any reason, the Company is obligated to pay the executive an amount equal to six months’ base salary.

 

Under the terms of Ms. McCain’s employment agreement, upon termination of employment within one year of a change in control event, as defined in the employment agreement, or otherwise upon termination of employment by the Company for any reason other than cause, as defined in the employment agreement, or upon the executive’s resignation for good reason, as defined in the employment agreement, the Company is obligated to pay the executive: (a) an amount equal to 36 months’ base salary base salary, (b) a pro-rata portion of the incentive pay that the executive would have earned in the year of termination, except for the fact that such termination occurred, (c) an amount equal to the Company’s cost for 24 months’ of customary employee benefits for which the executive qualified for at the time of termination, grossed up so that the after tax value of the payment equals the value of such benefits to the executive at the time of termination, and (d) an amount equal to the present value of the contributions to a retirement plan that the Company would have made for the executive’s benefit during the 24 months following termination, except for the fact that such termination occurred, grossed up so that the after tax value of the payment equals the present value of the retirement benefit to the executive at the time of termination.

 

RELATED PARTY TRANSACTIONS

 

Transactions with Related Persons

 

SEC regulations require that we disclose any transaction, arrangement, or relationship in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in which a “related person” had or will have a direct or indirect material interest. For this purpose, a related person is: (i) a director, an executive officer, or a director nominee in this Proxy Statement, (ii) a beneficial owner of more than 5% of any class of the Company’s voting securities, (iii) an immediate family member of a director, an executive officer, a director nominee in this Proxy Statement, or a beneficial owner of more than 5% of any class of the Company’s voting securities, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial ownership interest.

 

DSS, Inc. (formerly Document Security Systems, Inc.) and Subsidiaries

 

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 (a) 30.0 million shares of the Company’s Class A Common Stock and (b) 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. Simultaneously with the SPA Agreement, Mr. Chan and Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (“DSS”), and, together with DSS, a majority 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 shares of its Class A Common Stock to DSS, an “accredited investor,” as defined in the Securities Act, 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 the Company issued, to DSSI: (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 $30.0 million to the Company (the “April 2021 Financing Agreement”). The Note bears interest at the annual rate of 8% and matures on April 5, 2024. Interest on the Note is prepayable 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 is prepayable in shares of the Company’s Class A Common Stock, calculated at the rate of $0.20 per share. 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 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. The detachable Warrant confers the right to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, is fully vested and may be exercised at any time on or before April 5, 2026, at the exercise price of $0.22 per share. Under the terms of the Securities Purchase 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, calculated at the rate of $0.20 per share. Accordingly, upon funding of the loan, 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, as discussed above. This April 2021 Financing Agreement was replaced by the June 2022 Refinancing Agreement described below.

 

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Proceeds from the April 2021 Financing Agreement were deposited in a special purpose bank account and are intended primarily to fund the Company’s domestic and international growth initiatives. The Company’s Board of Directors retained oversight and delegated control responsibility to a specified Company Director, who also holds an executive position with DSS. The Company’s Board of Directors has stipulated that authority to disburse funds from the designated bank account is delegated to: (a) the specified Director acting together with (b) the Company’s Chief Executive Officer or the Company’s Chief Financial Officer.

 

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 and a detachable stock warrant 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.

 

In January 2022, the Company and DSS entered into a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which the 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 and 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. 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 DSSI entered into an agreement pursuant to which the Company issued, to DSSI: (a) a two-year Secured Advancing 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 at the exercise price of $0.033 per share (the “June 2022 Refinancing Agreement”). 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 June 2022 Refinancing Agreement, the Company agreed to pay to DSSI a loan origination fee of $270,000. In addition, under the terms of the June 2022 Refinancing Agreement, DSSI surrendered to the Company all DSSI’s rights pursuant to: (a) the Convertible Promissory Note in the principal amount of $30.0 million issued by the Company in April 2021, as discussed above, and (b) the detachable Stock 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 above.

 

As of June 30, 2022, DSS, directly and through its subsidiary, DSSI, holds 191,879,003 shares, or approximately 73% of the Company’s Class A common stock outstanding, over which Mr. Chan, a director of the Company, maintains voting control. In addition, DSS may acquire 818,181,819 shares of the Company’s Class A Common Stock issuable upon conversion of the 2022 Note discussed in the preceding paragraph, and 878,181,819 shares of the Company’s Class A Common Stock issuable upon the exercise of all stock warrants held by DSS, directly and through DSSI, including the Stock Warrant discussed in the preceding paragraph.

 

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 to the Company for 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. Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB.

 

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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.

 

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. As of the date of this Quarterly Report, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

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. 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 includes 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.

 

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.

 

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.

 

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.

 

Premier Packaging Corporation

 

In the fiscal year ended March 31, 2022, 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 $155,693.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

As of September 30, 2022,   there were 262,832,833 shares of the Company’s Class A Common Stock; 3,100,000 shares of its Series A Preferred Stock; and 3,220,000 shares of its Series C Preferred Stock issued and outstanding, excluding shares that any named person has the right to acquire pursuant to convertible instruments. Each outstanding share of Class A Common Stock; Series A Preferred Stock; and Series C Preferred Stock entitles the holder to one (1) vote. In addition, each outstanding share of Series A Preferred Stock and Series C Preferred Stock is convertible into one share of the Company’s Class A Common Stock.

 

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this disclosure, a person or group of persons is deemed to have “beneficial ownership” of any shares of our Class A Common Stock that such person or group of persons owns or has the right to acquire within 60 days of the date of this prospectus, except as discussed below. For purposes of computing the percentage of the outstanding shares of our Class A Common Stock held by a named person, any shares that such person has the right to acquire within 60 days of the date of this Proxy Statement are deemed to be outstanding, but such shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. For purposes of computing the percentage of the outstanding shares of our Class A Common Stock held by all executive officers and/or directors as a group (12 persons), any shares that such group of persons has the right to acquire within 60 days of the date of this Proxy Statement are deemed to be outstanding, but such shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

 

As discussed above, on June 15, 2022, the Company and DSSI entered into an agreement pursuant to which the Company issued, to DSSI: (a) a two-year Secured Advancing Convertible Promissory Note in the principal amount of $27.0 million (the “June 2022 Note”) in favor of DSSI and (b) a detachable Warrant (the “June 2022 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 “June 2022 Refinancing Agreement”). 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. If Proposal 2 is approved at the Annual Meeting, the Company’s Third Amended and Restated Articles of Incorporation will, among other things, ensure that the number of authorized shares of the Company’s Class A Common Stock is sufficient for the potential conversion of 100% of the June 2022 Note and the potential exercise of 100% of the June 2022 Warrant. For purposes of the disclosure below, the Company has excluded the impact of the potential conversion of the June 2022 Note and the potential exercise of the June 2022 Warrant.

 

The following table sets forth certain information regarding the ownership of our capital stock, as of September 30, 2022, by: (i) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of all voting classes of our stock, (ii) each executive officer and director of the Company, and (iii) all our executive officers and/or directors as a group. The table reflects the number of shares held, the percent of ownership of each voting class held, and the percent of ownership of all voting classes held by each listed person or group of persons. No person beneficially owns more than 5% of the shares of our Series C Preferred Stock outstanding. Unless otherwise noted, the address for each of the shareholders listed below is 5200 Tennyson Pkwy, Suite 400, Plano, TX, 75024.

 

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Title of Class  Name of Beneficial Owner [1] 

Amount and Nature of Beneficial

Ownership

   Percent of Class [2]  

Percent of All

Voting Classes [3]

 
Class A Common Stock  Heng Fai Ambrose Chan [4]   252,545,669    78.1%   76.6%
   Frank D. Heuszel [5]   251,930,758    78.0%   76.5%
                   
   John (“JT”) Thatch [6]   18,470,620    7.0%   6.9%
                   
   David K. Keene   -    -    - 
                   
   Castel B. Hibbert   25,000    0.0%   0.0%
                   
   Robert H. Trapp   -    -    - 
                   
   Christian Zimmerman   -    -    - 
                   
   Anthony S. Chan   -    -    - 
                   
   Catherine J. McCain [7]   8,314,074    3.1%   3.0%
                   
   All Officers and/or Directors as a Group – 9 persons   279,407,118    85.4%   83.8%
                   
Series A Preferred Stock  Research & Referral BZ [8]
11 Hibiscus Street
Ladyville, Belize		   2,900,000    93.5%   1.1%
                   
   All Officers and/or Directors as a Group - 9 persons   -    -    - 
                   
Series C Preferred Stock  All Officers and/or Directors as a Group - 9 persons   -    -    - 

 

  [1] Each person named above may be deemed to be a “parent” and “promoter” of the Company, within the meaning of such terms under the Securities Act of 1933, as amended, by virtue of their direct and indirect stock holdings.
     
  [2] Calculated based on the total shares of each respective class of voting equity securities issued and outstanding as of June 30, 2022, as follows: Class A Common Stock: 262,832,833 shares; Series A Preferred Stock: 3,100,000 shares; and Series C Preferred Stock: 3,220,000 shares.
     
  [3] Calculated based upon the aggregate Voting Power of all shares of all classes of stock held by the named person compared to the aggregate Voting Power of all shares of all classes of voting securities issued and outstanding. Assuming the conversion of all shares of all classes of convertible stock issued and outstanding, the total number of shares of our Common Stock outstanding and entitled to vote at the Annual Meeting would be 269,152,833 shares (with each share entitled to one vote).
     
  [4] Reflects shares held by DSS, Inc. and its subsidiaries (collectively, “DSS”); 60,000,000 shares issuable upon exercise of stock warrants held by DSS; 333,333 shares issuable upon the conversion of a convertible note held by HWH; and 333,333 shares issuable upon exercise of detachable stock warrants held by HWH, over which Mr. Chan maintains voting control. Does not include 878,181,819 shares issuable upon exercise of stock warrants held by DSS, as discussed above, or 818,181,819 shares issuable upon the conversion of the June 2022 Note discussed above.
     
  [5] Reflects shares held by Mr. Heuszel and a member of Mr. Heuszel’s family, shares held by Document Security Systems, Inc. and its subsidiaries (collectively, “DSS”); and 60,000,000 shares issuable upon exercise of fully vested warrants held by DSS, over which Mr. Heuszel maintains voting control. Does not include 878,181,819 shares issuable upon exercise of stock warrants held by DSS, as discussed above, or 818,181,819 shares issuable upon the conversion of the June 2022 Note discussed above.
     
  [6] Reflects shares held by the Thatch Family Trust and shares held by members of Mr. Thatch’s family, over which Mr. Thatch maintains voting control.

 

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  [7] Reflects shares held by The McCain Revocable Trust and 3,750,000 shares issuable upon exercise of fully vested compensatory warrants held by Ms. McCain, over which Ms. McCain maintains voting control.
     
  [8] Represents shares purportedly held by Research & Referral BZ. As disclosed in the notes to our consolidated financial statements for the fiscal year ended April 30, 2020, in the fiscal year 2019, the Company filed suit against Research & Referral BZ and two other parties concerning breach of contract, fraud, and statutory fraud in a stock transaction, violations of state securities laws and alter ego relating to a stock exchange/transfer transaction, involving the Company’s stock. In April 2020, the court issued a Final Default Judgment in favor of the Company finding Research and Referral, BZ liable for the Company’s claims of fraud in the inducement and statutory fraud in a stock transaction. Further, the court ordered that the stock transaction be rescinded, and the Company’s stock be returned to the Company, and the matter has been dismissed with prejudice.

 

DESCRIPTION OF SECURITIES

 

General

 

The following description summarizes the most important terms of our capital stock, as they will be in effect upon the closing of this offering. Because it is only a summary, it does not contain all of the information that may be important to you. For a complete description of the matters set forth in this “Description of Capital Stock,” you should refer to our Articles of Incorporation and Amended and Restated Bylaws, to be effective immediately prior to the closing of this offering, and the registration rights agreements, each of which will be included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Nevada law.

 

Immediately prior to the closing of this offering, our authorized capital stock will consist of 2,000,000,000 shares of common stock, $0.0001 par value per share, and 200,000,000 shares of preferred stock, $0.0001 par value per share.

 

As of the date of this prospectus, 288,923,969 shares of our Class A common stock, 3,100,000 shares of our Series A Convertible Preferred Stock, 3,220,000 shares of our Series C Convertible Preferred Stock, were issued and outstanding.

 

Common Stock

 

Each share of our common stock entitles the holder to receive notice of and to attend all meetings of our stockholders with the entitlement to one vote. Holders of common stock are entitled, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the common stock, to receive any dividend declared by the Board of Directors. If we are voluntarily or involuntarily liquidated, dissolved or wound-up, the holders of common stock will be entitled to receive, after distribution in full of the preferential amounts, if any, all of the remaining assets available for distribution ratably in proportion to the number of shares of common stock held by them. Holders of common stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

 

We intend to complete a reverse stock split, subject to approval by our Board and the holders of a majority of our outstanding voting securities, without further stockholder approval, to file a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State at any time before March 31, 2023, to effect the Reverse Stock Split by a ratio of not less than [1 for 100 and not more than 1 for 1,000], as determined by our Board. We expect the Reverse Stock Split to take effect prior to the consummation of this offering.

 

Preferred Stock

 

We are authorized to issue 200,000,000 shares of Preferred Stock, par value $0.0001 per share, in one or more series. Each holder of shares of a series of Preferred Stock shall be entitled to such preferences and rights and be subject to such limitations as our Board of Directors shall determine.

 

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Series A Convertible Preferred Stock

 

The Board has authorized the issuance of up to 100,000,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). Shares of our Series A Preferred Stock are senior in rank to shares of our Series C Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series A Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series A Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of our Series A Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to shares of our Series A Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of our Series A Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock ranking junior to the Series A Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series A Preferred Stock may elect to convert each share of the Series A Preferred Stock into one share of the Company’s Common Stock. Each share of our Series A Preferred Stock is entitled to one vote when voting as a class or together with the shares of our Common Stock.

 

Series B Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series B Convertible Preferred Stock (the Series B Preferred Stock”). Issued and outstanding shares of our Series B Preferred Stock, if any, are senior in rank to shares of our Series A and Series C Preferred Stock.

 

Series C Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock”). Shares of our Series C Preferred Stock are junior in rank to the Series A and Series B Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series C Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series C Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of Series C Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to our Series C Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of the Series C Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series C Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock of the Company ranking junior to the Series C Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series C Preferred Stock may elect to convert each share of Series C Preferred Stock into one share of the Company’s Common Stock. Each share of our Series C Preferred Stock is entitled to one vote when voting as a class or together with shares of our Common Stock.

 

Undesignated Preferred Stock

 

As of the date of this prospectus, our Board of Directors has the authority to issue up to 193,680,000 additional shares of preferred stock in one or more series and fix the number of shares constituting any such series, the voting powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights, dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the stockholders. For example, the Board of Directors is authorized to issue preferred stock that would have the right to vote, separately or with any other stockholder of preferred stock, on any proposed amendment to our certificate of incorporation, or on any other proposed corporate action, including business combinations and other transactions.

 

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We will not offer preferred stock unless the offering is approved by a majority of our independent directors. The independent directors will have access, at our expense, to our counsel or independent counsel.

 

Options and Warrants

 

As of the date of this prospectus, warrants to purchase up to 226,688,333 shares of our common stock were issued and outstanding, with a weighted-average time of exercise of 2.22 years, and a weighted-average exercise price of $0.5650, subject to adjustments. Of this total number, warrants to purchase up to 44,500,000 shares of our common stock may only be exercised on a cash basis, whereas the remaining warrants may also be exercised on a cashless basis if at any time following the issuance date of such warrants there is no registration statement registering for resale the shares of common stock issuable upon exercise of such warrants.

 

Registration and Piggyback Rights

 

Certain holders of our common stock may be contractually entitled to certain “piggyback” registration rights. The piggyback registration rights are not applicable to certain shares that may be sold pursuant to Rule 144 of the Securities Act and shares that are subject to an effective registration statement. The piggyback registration rights are subject to customary underwriter cutbacks applicable to all holders of registration rights, pursuant to which the underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in such registration statement.

 

Transfer Agent

 

The transfer agent and registrar for our common stock is VStock Transfer, LLC.

 

Exchange Listing

 

Our common stock is currently quoted on the OTCQB under the symbol “SHRG.” We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market. No assurance can be given that our application will be approved, and we will not consummate this offering unless our common stock is approved for listing on the Nasdaq Capital Market.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES

 

We have entered into indemnification agreements with each of our directors, executive officers and other key employees. The indemnification agreements will require us to indemnify our directors to the fullest extent permitted by Nevada law. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

SHARES ELIGIBLE FOR FUTURE SALE

 

Future sales of substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, or upon debt conversion, or the anticipation of these sales, could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of equity securities.

 

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Upon completion of this offering we estimate that we will have [●] outstanding shares of our common stock, calculated as of [●], 2022, assuming no further conversions of preferred stock, no exercise of outstanding options or warrants, and no sale of shares reserved for the underwriters for over-allotment allocation, if any.

 

Sale of Restricted Securities

 

The shares of our common stock sold pursuant to this offering will be registered under the Securities Act, and therefore freely transferable, except for our affiliates. Our affiliates will be deemed to own “control” securities that are not registered for resale under the registration statement covering this prospectus. Individuals who may be considered our affiliates after this offering include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates are not permitted to resell their shares of our common stock unless such shares are separately registered under an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act is available, such as Rule 144.

 

Rule 144

 

In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns “restricted securities” (i.e., securities that are not registered by an effective registration statement) of a “reporting company” may not sell these securities until the person has beneficially owned them for at least six months. Thereafter, affiliates may not sell within any three-month period a number of shares in excess of the greater of: (i) 1% of the then outstanding shares of common stock as shown by the most recent report or statement published by the issuer; and (ii) the average weekly reported trading volume in such securities during the four preceding calendar weeks.

 

Sales under Rule 144 by our affiliates will also be subject to restrictions relating to manner of sale, notice and the availability of current public information about us and may be affected only through unsolicited brokers’ transactions.

 

Persons not deemed to be affiliates who have beneficially owned “restricted securities” for at least six months but for less than one year may sell these securities, provided that current public information about us is “available,” which means that, on the date of sale, we have been subject to the reporting requirements of the Exchange Act for at least 90 days and are current in our Exchange Act filings. After beneficially owning “restricted securities” for one year, our non-affiliates may engage in unlimited re-sales of such securities.

 

Shares received by our affiliates in this offering or upon exercise of stock options or upon vesting of other equity-linked awards may be “control securities” rather than “restricted securities.” “Control securities” are subject to the same volume limitations as “restricted securities” but are not subject to holding period requirements.

 

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our common stock purchased in this offering, which we refer to as our securities, but is for general information purposes only and does not purport to be a complete analysis of all the potential tax considerations. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income and estate tax consequences different from those set forth below. There can be no assurance that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, and do not intend to obtain, an opinion of counsel or ruling from the IRS with respect to the U.S. federal income tax considerations relating to the purchase, ownership or disposition of our securities.

 

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This summary does not address any alternative minimum tax considerations, any considerations regarding the tax on net investment income, or the tax considerations arising under the laws of any state, local or non-U.S. jurisdiction, or under any non-income tax laws, including U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this summary does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

 

  ● banks, insurance companies or other financial institutions;
  ● tax-exempt organizations or governmental organizations;
  ● regulated investment companies and real estate investment trusts;
  ● controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax;
  ● brokers or dealers in securities or currencies;
  ● traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
  ● persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below);
  ● tax-qualified retirement plans;
  ● certain former citizens or long-term residents of the United States;
  ● partnerships or entities or arrangements classified as partnerships for U.S. federal income tax purposes and other pass-through entities (and investors therein);
  ● persons who hold our securities as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated investment;
  ● persons who do not hold our securities as a capital asset within the meaning of Section 1221 of the Code; or
  ● persons deemed to sell our securities under the constructive sale provisions of the Code.

 

In addition, if a partnership (or entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our securities, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our securities, and partners in such partnerships, should consult their tax advisors.

 

You are urged to consult your own tax advisors with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our securities arising under the U.S. federal estate or gift tax laws or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.

 

Consequences to U.S. Holders

 

The following is a summary of the U.S. federal income tax consequences that will apply to a U.S. holder of our securities. For purposes of this discussion, you are a U.S. holder if, for U.S. federal income tax purposes, you are a beneficial owner of our securities, other than a partnership, that is:

 

  ● an individual citizen or resident of the United States;
  ● a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;
  ● an estate whose income is subject to U.S. federal income tax regardless of its source; or
  ● a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a “United States person.”

 

Distributions

 

As described in the section titled “Market for Our Common Stock - Dividend Policy,” we have never declared or paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under “-Sale, Exchange or Other Taxable Disposition of Common Stock.”

 

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Dividend income may be taxed to an individual U.S. holder at rates applicable to long-term capital gains, provided that a minimum holding period and other limitations and requirements are satisfied. Any dividends that we pay to a U.S. holder that is a corporation will qualify for a deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations equal to a portion of any dividends received, subject to generally applicable limitations on that deduction. U.S. holders should consult their own tax advisors regarding the holding period and other requirements that must be satisfied in order to qualify for the reduced tax rate on dividends or the dividends-received deduction.

 

Sale, Exchange or Other Taxable Disposition of Common Stock

 

A U.S. holder will generally recognize capital gain or loss on the sale, exchange or other taxable disposition of our common stock. The amount of gain or loss will equal the difference between the amount realized on the sale and such U.S. holder’s tax basis in such common stock. The amount realized will include the amount of any cash and the fair market value of any other property received in exchange for such common stock. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the common stock for more than one year. Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility of capital losses is subject to certain limitations.

 

Consequences to Non-U.S. Holders

 

The following is a summary of the U.S. federal income tax consequences that will apply to a non-U.S. holder of our securities. A “non-U.S. holder” is a beneficial owner of our securities (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not a U.S. holder.

 

Distributions

 

Subject to the discussion below regarding effectively connected income, any dividend paid to a non-U.S. holder generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E or other applicable IRS Form W-8 properly certifying qualification for the reduced rate. These forms must be updated periodically. A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If a non-U.S. holder holds our securities through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then may be required to provide certification to us or our paying agent, either directly or through other intermediaries.

 

Dividends received by a non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States) are generally exempt from such withholding tax if the non-U.S. holder satisfies certain certification and disclosure requirements. In order to obtain this exemption, the non-U.S. holder must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated U.S. federal income tax rates applicable to U.S. holders, net of certain deductions and credits. In addition, dividends received by a corporate non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their own tax advisors regarding any applicable tax treaties that may provide for different rules.

 

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Gain on Sale, Exchange, or other Taxable Disposition of Common Stock

 

Subject to the discussion below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be required to pay U.S. federal income tax on any gain realized upon the sale, exchange or other taxable disposition of our common stock unless:

 

  ● the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States);
  ● the non-U.S. holder is a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
  ● shares of our common stock constitute U.S. real property interests by reason of our status as a “United States real property holding corporation” (a USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non- U.S. holder’s holding period for, our common stock.

 

We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non-U.S. holder’s holding period for, our common stock.

 

If the non-U.S. holder is described in the first bullet above, it will be required to pay tax on the net gain derived from the sale, exchange or other taxable disposition under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a rate of 30%, or such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet above will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, exchange or other taxable disposition, which gain may be offset by U.S. source capital losses for the year (provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses). Non-U.S. holders should consult their own tax advisors regarding any applicable income tax or other treaties that may provide for different rules.

 

Federal Estate Tax

 

Common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.

 

Backup Withholding and Information Reporting

 

Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.

 

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Payments of dividends on or of proceeds from the disposition of our securities made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E or other applicable IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.

 

Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

 

Foreign Account Tax Compliance

 

The Foreign Account Tax Compliance Act (“FATCA”) generally imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of our securities paid to a “foreign financial institution” (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of our securities paid to a “non-financial foreign entity” (as specially defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends (including constructive dividends) on our common stock. The Treasury Secretary has issued proposed regulations providing that the withholding provisions under FATCA do not apply with respect to payment of gross proceeds from a sale or other disposition of our common stock, which may be relied upon by taxpayers until final regulations are issued. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our securities.

 

Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, owning and disposing of our securities, including the consequences of any proposed changes in applicable laws.

 

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UNDERWRITING

 

EF Hutton, division of Benchmark Investments, LLC (the “Representative”), is acting as representative of the underwriters of the offering. We have entered into an underwriting agreement dated as of [●], 2023 with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

 

Name of Underwriter  Number of Shares 
EF Hutton    
      
Total     

 

The underwriters are committed to purchase all of the shares of common stock offered by this prospectus if they purchase any shares of common stock. The underwriters are not obligated to purchase the shares of common stock covered by the underwriters’ over-allotment option described below. The underwriters are offering the shares of common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. A copy of the form of underwriting agreement has been filed as an exhibit to the registration statement of which this prospectus is part. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

Over-Allotment Option

 

We have granted to the underwriters an option, exercisable no later than 45 calendar days after the date of the underwriting agreement, to purchase up to [●] additional shares of common stock (an amount equal to 15% of the shares sold in the offering, assuming a total of [●] shares of common stock are sold at the public offering price per share of $[●] (which is the last reported closing price of our common stock, as reported on the OTCQB [●], 2022)) at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments, if any, made in connection with this offering. To the extent the option is exercised and the conditions of the underwriting agreement are satisfied, we will be obligated to sell to the underwriters, and the underwriters will be obligated to purchase, these additional shares of common stock. The underwriters will offer these additional shares of common stock on the same terms as those on which the other shares of common stock are being offered hereby.

 

Discounts, Commissions, and Representative’s Warrants

 

We have agreed to sell the common stock to the underwriters at a discount equal to seven percent (7.0%) of the aggregate gross proceeds raised in this offering. We have also agreed to (i) grant to the Representative or its designee warrants to purchase a number of shares equal to five percent (5.0%) of the total number of shares of common stock sold in this offering at an exercise price equal to 140% of the public offering price in this offering. The Representative’s Warrants will be non-exercisable for six months after the date of the commencement of sales in this offering, and will expire four and a half years after such date of the commencement of sales in this offering, in accordance with Financial Industry Regulatory Authority (“FINRA”) Rule 5110(e)(1), as more specifically set forth in the following paragraph. The Representative’s Warrants will contain provisions for unlimited piggyback registration rights for a period of seven (7) years after the date of the commencement of sales in this in this offering, at our expense, in compliance with FINRA Rule 5110(g)(8)(D). The number of shares subject to Representative’s Warrants outstanding, and the exercise price of those securities, will be adjusted proportionately, as permitted by FINRA Rule 5110(g)(8)(E).

 

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The Representative’s Warrants and the shares of common stock underlying the Representative’s Warrants have been deemed compensation by FINRA, and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e)(1). The Representative, or permitted assignees under such rule, may not sell, transfer, assign, pledge, or hypothecate the Representative’s Warrants or the securities underlying the Representative’s Warrants, nor will the Representative engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Representative’s Warrants or the underlying shares for a period of 180 days from the date of commencement of sales in this offering. Additionally, the Representative’s Warrants may not be sold transferred, assigned, pledged or hypothecated for a 180-day period following the date of commencement of sales in this offering, except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. The Representative’s Warrants will provide for adjustment in the number and price of the Representative’s Warrants and the shares of common stock underlying such Representative’s Warrants in the event of recapitalization, merger, stock split or other structural transaction, or a future financing undertaken by us.

 

The underwriters have advised us that they propose to offer the common stock directly to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of up to $[●] per share. After this offering to the public, the offering price and other selling terms may be changed by the underwriters without changing our proceeds from the underwriter’s purchase of the common stock.

 

The following table summarizes the public offering price, underwriting commissions, non-accountable expense allowance and proceeds before actual expenses to us assuming both no exercise and full exercise of the underwriter’s option to purchase additional shares of common stock. The underwriting discount is equal to the public offering price per share less the amount per share the underwriters pay us for the common stock.

 

   Per Share of Common Stock(1)    Total Without Over Allotment   Total With Over Allotment 
             
Public offering price  $              $               $                         
Underwriting discounts and commissions  $          
Non-accountable expense allowance (1.0%)(2)  $           
Proceeds, before expenses, to us  $           

 

  (1) The fees shown do not include the warrant to purchase shares of common stock issuable to the Representative at closing.
     
  (2) We have agreed to pay a non-accountable expense allowance to the Representative equal to 1.0% of the gross proceeds received in this offering (excluding the over-allotment option).

 

We have paid an expense deposit of $25,000 to (or on behalf of) the Representative, which will be applied against the actual out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering, as more particularly set forth below, and will be reimbursed to us to the extent not incurred.

 

In addition, we have also agreed to pay the following actual expenses of the underwriters relating to the offering (“Accountable Expenses”): (a) all fees and expenses relating to the registration of the common stock with the U.S. Securities and Exchange Commission; (b) all fees and expenses relating to the listing of the common stock on a national exchange; (c) all fees, expenses, and disbursements relating to the registration or qualification of the common stock under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company’s “blue sky” counsel, which will be the Representative’s counsel) unless such filings are not required in connection with the Company’s proposed listing on a national exchange; (d) all fees, expenses, and disbursements relating to the registration, qualification, or exemption of the common stock under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (e) the costs of mailing and printing the offering materials; (f) transfer and/or stamp taxes, if any, payable upon the transfer of the common stock from the Company to the Representative; (g) all fees and expenses of the Company’s accountants; (h) all filing fees and communication expenses associated with the review of the offing by FINRA; (i) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $15,000 in the aggregate; (j) up to $20,000 of the Representative’s actual accountable road show expenses for the offering; (k) $29,500 for the underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; (l) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones not to exceed $5,000; and (m) the fees and expenses of the Representatives’ legal counsel incurred in connection with this offering in an amount up to $125,000.

 

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Right of First Refusal

 

The Representative has been granted an irrevocable right of first refusal (the “Right of First Refusal”), for a period of twelve (12) months following the closing of the offering, to act as sole investment banker, sole book-runner and/or sole placement agent, at the Representative’s sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twelve (12) month period for the Company, or any successor to or subsidiary of the Company, on terms and conditions agreed to by both the Company and the Representative in good faith. The Representative shall have the sole right to determine whether or not any other broker dealer shall have the right to participate in a Subject Transaction and the economic terms of such participation.

 

Tail Fee

 

We have also agreed to pay the Representative, subject to certain exceptions, a cash fee equal to seven percent (7.0%) of the gross proceeds received by the Company from the sale of any equity, debt and/or equity derivative instruments to any investor actually introduced by the Representative to the Company during the period from the date the Representative was engaged until the final closing of this offering (the “Engagement Period”), in connection with any public or private financing or capital raise (each a “Tail Financing”), and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the expiration or termination of the Engagement Period (the “Tail Period”), provided that such Tail Financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party’s participation. The right to receive a fee in connection with the Tail Financing shall be subject to FINRA Rule 5110(g), and the Company shall have a right of termination for cause, which includes that the Company may terminate the Representative’s engagement upon the Representative’s material failure to provide the underwriting services required by the underwriting agreement. The Company’s exercise of the right of termination for cause will eliminate any obligations with respect to the payment of any termination fee or provision of any tail financing fee, including the tail financing set forth above.

 

Lock-Up Agreements

 

We and each of our officers, directors, affiliates and certain existing stockholders aggregating at least 5.0% of our outstanding shares have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after this offering is completed without the prior written consent of the Representative.

 

Indemnification

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

 

Listing of our Common Stock

 

Our common stock is presently quoted on the OTCQB marketplace under the symbol “SHRG.” We have applied to list our common stock under the symbol “SHRG” on the Nasdaq Capital Market. No assurance can be given that our application will be approved, and we will not consummate this offering unless our common stock is approved for listing on the Nasdaq Capital Market.

 

Price Stabilization, Short Positions, and Penalty Bids

 

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares than are set forth on the cover page of this prospectus. This creates a short position in our common stock for the underwriters’ own accounts. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares of common stock over-allotted by the underwriters is not greater than the number of shares of common stock that they may purchase in the over-allotment option. In a naked short position, the number of shares of common stock involved is greater than the number of shares of common stock in the over-allotment option. To close out a short position, the underwriters may elect to exercise all or part of the over-allotment option. The underwriters may also elect to stabilize the price of our common stock or reduce any short position by bidding for, and purchasing, common stock in the open market.

 

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriters repurchase that security in stabilizing or short covering transactions.

 

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Finally, the underwriters may bid for, and purchase, shares of our common stock in market making transactions, including “passive” market making transactions as described below.

 

These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice.

 

In connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market making transactions in our common stock immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

 

  ● a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers;
  ● net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and
  ● passive market making bids must be identified as such.

 

Electronic Distribution

 

A prospectus in electronic format may be made available on websites maintained by one or more of the underwriters or selling group members. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters to underwriters that may make Internet distributions on the same basis as other allocations. In connection with this offering, the underwriters or syndicate members may distribute prospectuses electronically.

 

The underwriters have informed us that they do not expect to confirm sales of shares offered by this prospectus to accounts over which they exercise discretionary authority.

 

Other than the prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other website maintained by the underwriters is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.

 

Certain Relationships

 

The underwriters and their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters have in the past, and may in the future, engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The underwriters have in the past, and may in the future, receive customary fees and commissions for these transactions.

 

In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that it acquires, long and/or short positions in such securities and instruments.

 

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Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Australia

 

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.

 

Canada

 

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

China

 

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (the “PRC”) (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

 

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European Economic Area — Belgium, Germany, Luxembourg, and Netherlands

 

The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

 

An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

 

  ● to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
     
  ● to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
     
  ● to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of our Company or any underwriter for any such offer; or
     
  ● in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by our Company of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

France

 

This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1, et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

 

This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

 

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs non-qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

 

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

 

Ireland

 

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold, or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

 

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Israel

 

The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the “ISA”), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals, or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

 

Italy

 

The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societá e la Borsa, “CONSOB”) pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

 

  ● to Italian qualified investors, as defined in Article 100 of Decree No. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 11971”) as amended (“Qualified Investors”); and
     
  ● in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

 

Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

 

  ● made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
     
  ● in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

 

Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.

 

Japan

 

The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”), pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.

 

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Portugal

 

This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales, and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it, or the information contained in it to any other person.

 

Sweden

 

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it, or the information contained in it to any other person.

 

Switzerland

 

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

 

Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.

 

This document is personal to the recipient only and not for general circulation in Switzerland.

 

United Arab Emirates

 

Neither this document nor the securities have been approved, disapproved, or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by our Company.

 

No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.

 

United Kingdom

 

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter, or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published, or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

 

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to our company.

 

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

80

 

 

LEGAL MATTERS

 

The validity of the issuance of the shares of common stock covered by this prospectus will be passed upon for us by Sichenzia Ross Ference LLP, New York, NY. The Crone Law Group P.C. is acting as counsel for the underwriters in this offering.

 

EXPERTS

 

Our condensed consolidated financial statements as of and for the year ended March 31, 2022, and March 31, 2021, appearing in this prospectus, have been audited by Ankit Consulting Services, Inc., an independent registered public accounting firm, as set forth in such reports thereon, included herein. Such financial statements are included herein in reliance in reliance upon the authority of said firm as experts in auditing and accounting in giving said report.

 

INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant. Nor was any such person connected with the registrant as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 (File No. 333-[*]) under the Securities Act, with respect to the securities offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved. You may read registration statements and certain other filings made with the SEC electronically are publicly available through the SEC’s website at https://www.sec.gov.

 

We file periodic reports, proxy statements, and other information with the SEC in accordance with requirements of the Exchange Act. These periodic reports, proxy statements, and other information are available at the SEC’s website address referred to above. In addition, you may request a copy of any of our periodic reports filed with the SEC at no cost, by writing or telephoning us at the following address:

 

Sharing Services Global Corporation

5200 Tennyson Pkwy, Suite 400

Plano, TX, 75024

 

Information contained on our website is not a prospectus and does not constitute a part of this prospectus.

 

You should rely only on the information contained in or incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume the information in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

81

 

 

SHARING SERVICES GLOBAL CORPORATION

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm (PCAOB No. 6121) F-2
   
Consolidated Balance Sheets as of March 31, 2022, and 2021 F-4
   
Consolidated Statements of Operations and Comprehensive Loss for the Fiscal Years ended March 31, 2022, and 2021 F-5
   
Consolidated Statements of Cash Flows for the Fiscal Years ended March 31, 2022, and 2021 F-6
   
Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years ended March 31, 2022, and 2021 F-7
   
Notes to the Consolidated Financial Statements F-8
   
Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and March 31, 2022 F-34
   
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended September 30, 2022 and 2021 (Unaudited) F-35
   
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended September 30, 2022 and 2021 (Unaudited) F-36
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021 (Unaudited) F-37
   
Notes to the Condensed Consolidated Financial Statements (Unaudited) F-38

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Sharing Services Global Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Sharing Services Global Corporation, formerly Sharing Services, Inc. (the “Company”) as of March 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, cash flows and changes in stockholders’ equity, for the each of the two fiscal years in the 23-month period ended March 31, 2022 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two fiscal years in the 23-month period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Board of Directors and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Employee Stock Warrants

 

As described in Note 2 and Note 17 to the consolidated financial statements, the Company granted warrants to its employees and officers in connection with multi-year employment agreements which are exercisable at a variable exercise price.

 

The principal considerations for our determination that performing procedures relating to the valuation of employee stock warrants is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the warrants due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of employee stock warrants included, but was not limited to, the following procedures:

 

  ● understanding of controls relating to stock warrants granted;
  ● examining original employment agreements;
  ● reviewing management’s assumptions used in the valuation and revaluation of the fair value;
  ● reviewing management’s criteria of allocation of expenses between compensatory expense and non-operating expense;
  ● reviewing the fair value computations of the warrants at each revaluation date;
  ● obtaining technical guidance from third party experts on the accounting treatment;
  ● evaluating the sufficiency of the Company’s disclosures relating to share- based payments.

 

F-2
 

 

Investment in Unconsolidated Entities

 

As described in Note 9 to the consolidated financial statements, the Company made investments in certain unconsolidated entities.

 

The principal considerations for our determination that performing procedures relating to the valuation of the investments is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the investments due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of investment in unconsolidated entities included, but was not limited to, the following procedures:

 

  ● understanding of controls relating to investments made;
  ● examining original investment agreements;
  ● reviewing management’s assumptions used in the valuation and revaluation of the fair value of the investment;
  ● reviewing management’s criteria of allocation of fair value between components of investment;
  ● obtaining technical guidance from third party experts on the accounting treatment;
  ● reviewing management’s assumptions for impairment of investment;
  ● evaluating the valuation and presentation of the unrealized gain/loss on investments;
  ● evaluating the adequacy of the Company’s disclosures relating to investment in unconsolidated entities;

 

Related Party Convertible Note Payable

 

As described in Note 9 to the consolidated financial statements, the Company entered into a securities purchase agreement with a related party pursuant to which a convertible note was issued with detached warrants.

 

The principal considerations for our determination that performing procedures relating to the accounting treatment of the transaction is a critical audit matter were (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the transaction due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimates.

 

Our audit of the valuation of the convertible notes payable and attached warrants included, but was not limited to, the following procedures:

 

  ● understanding of controls relating to the loan raised;
  ● examining original convertible note and warrants agreements;
  ● reviewing management’s assumptions used in the valuation of the note, warrants and related interest and fee;
  ● reviewing management’s criteria of allocation of fair value allocation between note and warrants;
  ● obtaining technical guidance from third party experts on the accounting treatment;
  ● reviewing management’s assumptions for accounting treatment of the whole transaction;
  ● evaluating the adequacy of the Company’s disclosures relating to the loan raised from related party;

 

Income Taxes

 

As described in Note 2 and Note 14 to the consolidated financial statements, the Company uses the asset and liability method in accounting for income taxes. The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (“temporary differences”).

 

The principal considerations for our determination that auditing income tax matters is a critical audit matter included the significant judgment made by management when considering factors in assessing the more-likely-than-not tax position. In turn, such management’s assessment led to challenging and subjective auditor judgment in performing our audit procedures.

 

Our audit of income tax matters included, but was not limited to, the following procedures:

 

  ● understanding of controls relating to management assessment of the tax positions;
  ● reviewing management’s tax computations, testing the completeness and accuracy of data used in computations;
  ● evaluating the appropriateness of the tax positions.

 

/s/ Ankit Consulting Services, Inc.

 

We have served as the Company’s auditor since September 2017.

Rancho Santa Margarita, California

June 20, 2022

 

F-3
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

           
   As of March 31, 
   2022   2021 
ASSETS          
Current Assets          
Cash and cash equivalents  $17,023,266   $12,144,409 
Trade accounts receivable   1,682,958    1,514,359 
Income taxes receivable   300,000    1,011,740 
Notes receivable, net   -    94,600 
Inventory, net   4,374,236    2,471,310 
Other current assets, net   3,511,282    2,403,634 
Total Current Assets   26,891,742    19,640,052 
Property and equipment, net   9,585,141    887,950 
Right-of-use assets, net   593,389    428,075 
Deferred income taxes, net   

81,205

    1,873,170 
Investment in unconsolidated entities   5,063,940    - 
Intangible assets, net   688,670    188,567 
Other assets   260,637    219,142 
TOTAL ASSETS  $43,164,724   $23,236,956 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $985,139   $1,295,174 
Accrued sales commission payable   3,745,481    4,713,777 
Employee stock warrants liability   452,050    3,132,161 
State and local taxes payable   1,339,366    1,048,717 
Note payable   -    1,040,400 
Accrued and other current liabilities   3,079,782    4,827,414 
Convertible notes payable, net of unamortized debt discount of $18,136,631 and unamortized deferred financing costs of $2,014,599 in 2022 and unamortized debt discount of $369 in 2021   9,898,770    99,631 
Total Current Liabilities   19,500,588    16,157,274 
Convertible notes payable, net of unamortized debt discount of $15,238 in 2021   -    34,762 
Settlement liability, long-term   373,677    808,071 
Lease liability, long-term   461,515    77,810 
TOTAL LIABILITIES   20,335,780    17,077,917 
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 and 5,100,000 shares issued and outstanding in 2022 and 2021, respectively   310    510 
Series B convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding   -    - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares and 3,230,000 shares issued and outstanding in 2022 and 2021, respectively   322    323 
Common Stock, $0.0001 par value, 500,000,000 Class A shares authorized, 288,923,969 shares and 160,100,769 shares issued and outstanding in 2022 and 2021, respectively   28,892    16,010 
Common Stock, $0.0001 par value, 10,000,000 Class B shares authorized, no shares issued and outstanding   -    - 
Additional paid in capital   80,738,719    43,757,768 
Shares to be issued   12,146    12,146 
Accumulated deficit   (57,886,336)   (37,627,718)
Accumulated other comprehensive loss   (65,109)   - 
Total Stockholders’ Equity   22,828,944    6,159,039 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $43,164,724   $23,236,956 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

           
     
   For the Fiscal Years Ended March 31, 
   2022   2021 
Net sales  $34,424,314   $64,811,151 
Cost of goods sold   10,801,871    18,264,494 
Gross profit   23,622,443    46,546,657 
Operating expenses          
Selling and marketing expenses   17,239,655    29,740,974 
General and administrative expenses   19,714,963    18,983,209 
Total operating expenses   36,954,618    48,724,183 
Operating loss   (13,332,175)   (2,177,526)
Other income (expense)          
Interest expense, net   (12,204,444)   (47,613)
Gain on employee warrants liability   2,511,350    530,335 
Gain on extinguishment of debt   1,040,400    - 
Impairment loss on assets   (1,610,523)   - 
Unrealized gain on investments   3,663,940    - 
Other non-operating expense   (211,035)   (134,726)
Total other income (expense), net   (6,810,312)   347,996 
Loss before income taxes   (20,142,487)   (1,829,530)
Income tax benefit   (3,035,990)   (594,509)
Net loss  $(17,106,497)  $(1,235,021)
Other comprehensive loss (net of tax):          
Currency translation adjustments   (65,109)   - 
Total other comprehensive loss   (65,109)   - 
Comprehensive loss  $(17,171,606)  $(1,235,021)
Loss per share:          
Basic and diluted  $(0.08)  $(0.01)
Weighted average shares:          
Basic and diluted   206,211,711    172,046,517 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

           
   For the Fiscal Years Ended March 31, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(17,106,497)  $(1,235,021)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   655,267    163,248 
Stock-based compensation   (2,120,111)   3,578,707 
Deferred income taxes   (1,038,359)   (536,862)
Amortization of debt discount and other   12,231,501    18,647 
Gain on extinguishment of debt   (1,040,400)   - 
Impairment loss on assets   2,331,554    - 
(Gain) loss on investments and other assets   (3,663,940)   114,599 
Non-cash consulting expense   

632,877

    - 
Provision for inventory obsolescence   635,137    1,095,068 
Changes in operating assets and liabilities:          
Accounts receivable   (163,599)   2,562,491 
Inventory   (2,579,581)   1,235,523 
Other current assets   1,098,003    (1,348,655)
Security deposits   (459)   (20,967)
Accounts payable   (304,637)   524,124 
Income taxes payable   (2,110,592)   (714,692)
Lease liability   (19,073)   2,617 
Accrued and other liabilities   (2,663,745)   (7,005,797)
Net Cash Used in Operating Activities   (15,226,654)   (1,566,970)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for property and equipment   (9,331,967)   (914,336)
Payments for intangible assets   -    (190,151)
Payments for notes receivable   (579,790)   (204,879)
Collections of notes receivable   5,000    113,727 
Payment for acquisition of nonconsolidated interests   (2,937,000)    - 
Net Cash Used in Investing Activities   (12,843,757)   (1,195,639)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of common stock   3,078,607    3,023,390 
Repayments of convertible notes payable   (100,000)   - 
Proceeds from convertible notes payable   30,000,000    - 
Proceeds from issuance of promissory notes payable   -    1,040,400 
Repurchase of common stock   -    (899,500)
Net Cash Provided by Financing Activities   32,978,607    3,164,290 
IMPACT OF CURRENCY RATE CHANGES ON CASH   (29,339)   - 
Increase in cash and cash equivalents   4,878,857    401,681 
Cash and cash equivalents, beginning of fiscal year   12,144,409    11,742,728 
Cash and cash equivalents, end of fiscal year  $17,023,266   $12,144,409 
           
Supplemental cash flow information          
Cash paid for interest  $52,541   $5,071 
Cash paid for income taxes  $47,489   $828,233 
Supplemented disclosure of non-cash investing and financing activities:          
Related party loan fees, consulting fees, and interest obligations settled with shares of common stock  $8,900,000   $- 
Investment origination fee collected in shares of investee stock  $500,000   $- 
Right-of-use assets obtained in exchange for operating lease liability  $523,998   $164,970 
Settlement obligation satisfied with shares of common stock  $-   $400,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Fiscal Years Ended March 31,2022 and 2021

 

                                          -                                  
   Series A
Preferred Stock		   Series B
Preferred Stock		   Series C
Preferred Stock		   Common Stock                             
   Number of Shares   Par Value   Number of Shares   Par Value   Number of Shares   Par Value   Number of Shares   Par Value   Additional Paid In Capital   Subscription Receivable   Shares to be Issued   Treasury Stock   Accumulated Deficit   Accumulated Other Comprehensive Loss   Total 
Balance - April 30, 2020   32,478,750   $3,248    10,000,000   $1,000    3,490,000   $349    136,072,386   $13,607  - $38,871,057   $(114,405)  $11,785   $(1,532,355)  $(33,992,697)  $-   $3,261,589 
Common stock issued for cash   -    -    -    -    -    -    30,000,000    3,000    5,397,000    -    -    -    (2,400,000)   -    3,000,000 
Common stock issued upon settlement of litigation   -    -    -    -    -    -    10,000,000    1,000    399,000    -    -    -    -    -    400,000 
Preferred stock retired   (5,628,750)   (563)   -    -    -    -    -    -    563    -    -    -    -    -    - 
Conversions of preferred stock   (21,750,000)   (2,175)   (10,000,000)   (1,000)   (260,000)   (26)   32,010,000    3,201    -    -    -    -    -    -    - 
Common stock redeemed upon settlement of stockholder litigation   -    -    -    -    -    -    (38,308,864)   (3,831)   (1,528,524)   -    -    1,532,355    -    -    - 
Repurchase and retirement of common stock   -    -    -    -    -    -    (17,500,000)   (1,750)   (897,750)   -    -    -    -    -    (899,500)
Stock-based compensation expense   -    -    -    -    -    -    -    -    2,201,004    -    -    -    -    -    2,201,004 
Proceeds from common stock warrants exercised   -    -    -    -    -    -    -    -    -    -    23,390    -    -    -    23,390 
Stock warrants exercised   -    -    -    -    -    -    7,827,247    783  -  (570,177)   -    (23,029)   -    -    -    (592,423)
Subscription receivable impaired   -    -    -    -    -    -    -    -    (114,405)   114,405    -    -    -    -    - 
Net loss   -    -    -    -    -    -    -    -    -    -    -    -    (1,235,021)   -    (1,235,021)
Balance - March 31, 2021   5,100,000   $510    -   $-    3,230,000   $323    160,100,769   $16,010  16,010 $43,757,768   $-   $12,146   $-   $(37,627,718)  $-   $6,159,039 
Common stock issued for cash   -    -    -    -    -    -    50,000,000    5,000    5,245,000    -    -    -    (2,250,000)   -    3,000,000 
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 or retirements of preferred stock   (2,000,000)   (200)   -    -    (10,000)   (1)   10,000    1    200    -    -    -    -    -    - 
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   -    -    -    -    -    -    -    -    3,780,000    -    -    -    -    -    3,780,000 
Stock warrants exercised   -    -    -    -    -    -    51,813,200    5,181    148,451    -    -    -    -    -    153,632 
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -    -    -    -    (65,109)   (65,109)
Net loss   -    -    -    -    -    -    -    -  -  -    -    -    -    (17,106,497)   -    (17,106,497)
Balance - March 31, 2022   3,100,000   $310    -   $-    3,220,000   $322    288,923,969   $28,892  28,892 $80,738,719   $-   $12,146   $-   $(57,886,336)  $(65,109)  $22,828,944 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND BUSINESS

 

Sharing Services Global Corporation (“Sharing Services”) and its subsidiaries (collectively, the “Company”) aim to build shareholder value by developing or investing in innovative emerging businesses and technologies that augment the Company’s products and services portfolio as described below, business competencies, and geographic reach. The Company was incorporated in the State of Nevada in April 2015.

 

In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for approximately 99% of the Company’s consolidated net sales during the fiscal year 2022 and 2021, market our 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 (the “U.S.”) and Canada. In June 2021, the Company, through a subsidiary, commenced operations in the Republic of Korea (South Korea).

 

Subscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company established a subscription-based travel services business under the proprietary brand “Hapi Travel” in May 2022. The Hapi Travel TM 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 Travel provides 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 - In August 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 (the “MFA”) pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms of the MFA, 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 MFA.

 

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 the growth of these businesses. As part of the Company’s commitment to the success of these emerging businesses, the Company, directly or through its subsidiaries, also plans to offer non-traditional inventory financing, equity or debt financing, order fulfillment and logistic, CRM “Back Office” solutions, and other success-critical services to these businesses.

 

Corporate Name Change

 

Sharing Services Global Corporation was originally incorporated under the name Sharing Services, Inc. In January 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this the Company’s Common Stock traded under the symbol SHRV.

 

Change of Fiscal Year

 

In March 2021, Sharing Services changed its fiscal year-end from a fiscal year ending on April 30th to a fiscal year ending on March 31st. Accordingly, the accompanying financial statements reflect the results of operations and cash flows for the fiscal year ended March 31, 2022 (12 months) compared to the eleven months ended March 31, 2021.

 

F-8
 

 

The following table sets forth certain information about the Company’s results of operations for the twelve (12) months ended March 31, 2022, and 2021. The information for the twelve (12) months ended March 31, 2021, represents unaudited pro-forma information.

 

           
   12 Months Ended March 31, 
   2022   2021 
Net sales  $34,424,314   $74,664,436 
Gross profit  $23,622,443   $53,630,538 
Loss from continuing operations  $(20,142,487)  $(1,988,501)
Loss before income taxes  $(20,142,487)  $(1,988,501)
Income tax benefit   (3,035,990)   (1,782,278)
Net loss  $(17,106,497)  $(206,223)
           
Basic and diluted loss per share  $(0.08)  $(0.00)

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Reclassifications

 

Certain reclassifications have been made to the prior year’s data to conform with the current year’s presentation, primarily consisting of reclassification of the liability associated with uncertain tax positions of $904,643 as of March 31, 2021.

 

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, among others: the recoverability of 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 multiple performance obligations resulting from contracts with customers, the 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 share-based compensation awards, the provision for income taxes, 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 March 31, 2022, and 2021, cash and cash equivalents included cash held by our merchant processors of $3.3 million and $6.2 million, respectively, including $3.0 million and $4.9 million, respectively held by one merchant processor. In addition, as of March 31, 2022, and 2021, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $1.4 million and $1.6 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.

 

F-9
 

 

Accounts Receivable and Allowance for Doubtful Accounts

 

As of March 31, 2022, and 2021, accounts receivable was $1.7 million and $1.5 million, which represents primarily amounts due from one merchant processor of approximately $1.5 million and $1.5 million, respectively. On a quarterly basis, the Company evaluates the collectability of its accounts receivable and reviews current economic trends and its historical collection data to determine the adequacy of its allowance for doubtful accounts, if any, based on its historical collection data and current information. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of March 31, 2022, and 2021, the Company determined that no allowance was necessary.

 

Inventory and Cost of Goods Sold

 

Inventory consists of product held for sale in the normal course of our business. Inventory is stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. Inventory cost reflects direct product costs and certain shipping and handling costs, such as in-bound freight. When estimating the net realizable value of inventory, we consider several factors including estimates of future demand for the product, historical turn-over rates, the age and sales history of the inventory, and historic and anticipated changes in our product offerings. See Note 6 - “INVENTORIES” below for more information.

 

Physical inventory counts are performed at all facilities on a quarterly basis. Between physical counts, management estimates inventory shrinkage based on the Company’s historical experience. The Company periodically assesses the realizability of its inventory based on evaluation of its inventory levels against historical and anticipated sales. During the fiscal year ended March 31, 2022, and 2021, the Company recognized a provision for inventory losses of $635,137 and $1.1 million, respectively, in connection with health and wellness products that were either damaged, expired, or slow-moving, based on the Company’s historical and anticipated sales. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.

 

Cost of goods sold includes actual product costs, vendor rebates and allowances, if any, inventory shrinkage and certain shipping and handling costs, such as in-bound freight, associated with product sold. All other shipping and handling costs, including the cost to ship product to customers, are included in selling and marketing expenses in our consolidated statements of operations when incurred.

 

Property and Equipment

 

Property and equipment are recorded at cost and reported net of accumulated depreciation. Depreciation expense is recognized over an asset’s estimated useful life using the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the term of the related lease, including lease renewals considered reasonably assured. The estimated useful lives of our property and equipment are as follows:

 

●Buildings and building improvements- shorter of 39 years or remaining useful life of the asset
●Furniture and fixtures - 3 years
●Office equipment - 5 years
●Computer Equipment - 3 years
●Computer software - 3 years
●Leasehold improvements - shorter of the remaining lease term or estimated useful live of the asset

 

The estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. The recoverability of long-lived assets is assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable, by comparing the net carrying amount of each asset to the total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 when (or as) it transfers control of the promised goods and services to the customer in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.

 

Revenue is recognized net of amounts due to taxing authorities (such as local and state sales tax). The Company’s customers place sales orders online and through the Company’s “back-office” operations, which creates a contract and establishes the transaction price. With respect to products sold, the Company’s performance obligation is satisfied upon receipt of the products by the customer. With respect to subscription-based revenue, including independent distributor membership fees, the Company’s performance obligation is satisfied over time (generally, up to one year). With respect to customer loyalty points awarded, the Company’s performance obligation is satisfied at the earliest of (a) the redemption or expiration date, or (b) when it is no longer probable the points will be redeemed. The Company assesses the probability an awards of customer loyalty points will be redeemed, based on its historic breakage rates. The timing of revenue recognition may differ from the time when the Company invoices the customer and/or collects payment. The Company has elected to treat shipping and handling costs as an activity to fulfill its performance obligations, rather than a separate performance obligation.

 

F-10
 

 

During the fiscal year ended March 31, 2022, a subsidiary of the Company introduced a Customer Loyalty Program which enables customers to earn points in a purchase transaction or through other means. The points are not redeemable for cash or product. Upon reaching 1,500 points, a customer may redeem the points and receive a $10 loyalty rewards card or certificate, that may be used when purchasing product. Points and loyalty rewards cards or certificates expire one year for the issuance date. However, points, loyalty rewards cards, and certificates are forfeited if the customer fails to remain active for a period of 90-days. The Company allocates a portion of the sales transaction price to each of its performance obligations therein, including points earned, and deferred revenue recognition until the earlier of (a) redemption or expiration of the rights conferred by the points or (b) the date when it is not probable the points will be redeemed (for example, because the holder is no longer an active customer).

 

As of March 31, 2022, and 2021, deferred revenue associated with product invoiced but not received by customers at the balance sheet date was $344,071 and $1.2 million, respectively; deferred revenue associated with unfulfilled performance obligations for services offered on a subscription basis was $70,968 and $153,216, respectively; deferred sales revenue associated with unfulfilled performance obligations for customers’ right of return was $63,890 and $95,780, respectively; and deferred sales revenue associated with customer loyalty points outstanding was $68,287 and $0, respectively. Deferred sales revenue is expected to be recognized over one year.

 

During the fiscal year ended March 31, 2022, and 2021, no individual customer, or related group of customers, represents 10% or more of our consolidated net sales. During the fiscal year ended March 31, 2022, approximately 66% of consolidated net sales were to consumers (including 32% to recurring customers, referred to herein as “SmartShip” sales, and approximately 34% to new customers) and approximately 34% of net sales were to independent distributors. During the fiscal year ended March 31, 2021, approximately 71% of our net sales were to consumers (including 43% to recurring customers, which we refer to as “SmartShip” sales, and approximately 28% to new customers) and approximately 29% of our net sales were to our independent distributors.

 

During the fiscal year ended March 31, 2022, and 2021, approximately 87% and 94%, respectively, of our consolidated net sales are to customers and independent distributors located in the U.S. (based on the customer’s shipping address). No other country represented more than 10% of total sales.

 

During the fiscal year ended March 31, 2022, substantially all the Company’s net sales are from health and wellness products (including approximately 33% from the sale of Nutraceutical products, approximately 32% from the sale of coffee and other functional beverages, approximately 11% from the sale of weight management products, and approximately 17% from the sale of all other health and wellness products). During the fiscal year ended March 31, 2021, approximately 99% of consolidated net sales are from our health and wellness products (including approximately 52% from the sale of Nutraceutical products, approximately 17% from the sale of coffee and coffee-related products, and approximately 30% from the sale of all other health and wellness products). During the fiscal year ended March 31, 2022, and 2021, our ten top selling products represent approximately 50% and 54%, respectively, of our consolidated net sales.

 

During the fiscal year ended March 31, 2022, and 2021, product purchases from one U.S.-based supplier accounted for approximately 64% and 99%, respectively, of total product purchases. In addition, during the fiscal year ended March 31, 2022, 33% of total product purchases were from one third-party supplier located in South Korea.

 

Sales Commissions

 

The Company recognizes sales commission expense when incurred. In the fiscal year ended March 31, 2022, and 2021, sales commission expense was approximately $16.3 million and $29.4 million, respectively, and is included in selling and marketing expenses in our consolidated statements of operations. The Company measures and recognizes sales commission expense based on the Company’s Distributor Compensation Plan. The Company’s independent distributors can earn commissions when they sell Company products to retail customers or to their downline independent distributors. Additionally, they can earn commissions when their personally sponsored distributors (or downline) sell products to end users. There is no limit as to the number of personally enrolled distributors or retail customers that an independent distributor may have and earned compensation for.

 

F-11
 

 

Share-Based Payments

 

The Company accounts for stock-based compensation awards to its directors, officers, and employees in accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”). During the fiscal year 2020, the Company, through a subsidiary, entered into multi-year employment agreements with certain employees. In general, each employment agreement contains (a) an Initial Warrant that vested immediately and is exercisable at a fixed exercise price and (b) Subsequent Warrants that vest over time and are exercisable at an exercise price calculated by multiplying a specified discount rate by the 10-day average stock price determined at the time of exercise. Generally, a Subsequent Warrants tranche vests in full at each anniversary of the employment agreement effective date, during the contractual term of employment. See Note 17 - “STOCK-BASED COMPENSATION” for more information.

 

As stated above, some stock warrants issued in connection with these multi-year employment agreements are exercisable at a variable exercise price, a price equal to the discounted 10-day average stock price determined at the time of exercise. In general, 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, however, the Company remeasures compensation expense associated with these awards after the service period ends and until the warrant is exercised or expires. As such, the Company’s stock-based compensation expense contains components associated with (i) awards that have a fixed exercise price whose fair value is measured at the grant date and (ii) awards with a variable exercise price whose value is measured at the balance sheet date, including fully vested awards. The Company recognizes the income/expense component associated with the subsequent measure of fully vested awards as non-operating income/expense.

 

In the fiscal year ended March 31, 2022, income recognized in connection with stock-based compensation awards was $2.3 million, including (a) compensatory expense of $186,264 and (b) income associated with the subsequent measure of fully vested awards (see preceding paragraph) of $2.5 million. In the fiscal year ended March 31, 2021, expense recognized in connection with stock-based compensation awards was $3.0 million, including (a) compensatory expense of $3.6 million and (b) income associated with the subsequent measure of fully vested awards of $530,335.

 

Lease Accounting

 

The Company determines if an arrangement is a lease at inception. Determining whether a contract contains a lease includes judgment regarding whether the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company accounts for its lease obligations in accordance with ASC Topic 842, Leases, which requires lessees to, among other things, report on their balance sheets a right-of-use asset and a lease liability measured based on the present value of future lease payments over the term of the lease agreements for agreements classified as operating leases.

 

For all arrangements as a lessee, the Company has elected an accounting policy to combine non-lease components with the related-lease components and treat the combined items as a lease for accounting purposes. The Company measures lease related assets and liabilities based on the present value of lease payments, including in-substance fixed payments, variable payments that depend on an index or rate measured at the commencement date, and the amount the Company believes is probable the Company will pay the lessor under residual value guarantees when applicable. The Company discounts lease payments based on the Company’s estimated incremental borrowing rate at lease commencement (or modification), which is primarily based on the Company’s estimated credit rating, the lease term at commencement, and the contract currency of the lease arrangement. The Company has elected to exclude short term leases (leases with an original lease term less than one year) from the measurement of lease-related assets and liabilities.

 

The Company tests right-of-use assets in an operating or finance lease at the asset group level (because these assets are long-lived nonfinancial assets and should be accounted for the same way as other long-lived nonfinancial assets) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements classified as operating leases. See Note 13 - “LEASES” below for more information about the Company’s lease obligations.

 

Foreign Currency

 

During the fiscal year ended March 31, 2022, and 2021, approximately 87% and 94%, respectively, of our consolidated net sales are denominated in U.S. Dollars. During the fiscal year ended March 31, 2022, and 2021, sales denominated in no other currency accounted for 10% or more of net sales.

 

F-12
 

 

As part of its growth initiatives, the Company recently expanded 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. Individually material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss in our consolidated balance sheets.

 

In June 2021, the Company expanded its geographical footprint, and through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea). The following exchange rates between the South Korean Won and the U.S. Dollar (“USD”) were used to translate the Company’s Korean operation’s financial statements:

 

   South Korean Won per USD 
Exchange rate as of March 31, 2022   1,212.99 
Average exchange rate for the fiscal year ended March 31, 2022   1,167.39 

 

Income Taxes

 

The Company uses the asset and liability method and follows ASC Topic 740 - Income Taxes (“ASC 740”) in accounting for its income taxes. The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (“temporary differences”). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which temporary differences are anticipated to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in measuring results of operations in the period that includes the enactment date. Deferred tax assets are evaluated periodically, and a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be realized unless it is more-likely-than-not that the assets will be realized in full. When assessing whether it is more-likely-than-not that the deferred tax assets will be realized, management considers multiple factors, including recent earnings history, expectations of future earnings, available carryforward periods, the availability of tax planning strategies, and other relevant quantitative and qualitative factors.

 

In determining the provision for income taxes, an annual effective income tax rate is used based on annual income, permanent differences between book and tax income, and statutory income tax rates. Accounting for income taxes involves judgment and the use of estimates.

 

The Company recognizes a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in its tax returns, unless the weight of available evidence indicates it is more-likely-than-not that the tax position will be sustained on audit, including resolution through available appeals processes. We measure the tax position as the largest amount which is more-likely-than-not of being realized. The Company considers many factors when evaluating and estimating the Company’s tax positions, which may require periodic adjustments when new facts and circumstances become known. See Note 14 - “INCOME TAXES” for more information about the Company’s accounting for income taxes.

 

Investments

 

Investments in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method of accounting. Significant influence is generally considered to exist when the Company has voting shares representing 20% to 50%, and other factors, such as representation on the board of directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investments and a corresponding increase or decrease in the investment balances. Dividends received from equity method investments are recorded as reductions in the cost of such investments. The Company generally considers an ownership interest of 20% or higher to represent significant influence. The Company accounts for the investments in entities over which it has neither control nor significant influence, and no readily determinable fair value is available, using the investment’s cost minus any impairment, if necessary.

 

Investments are evaluated for impairment when facts or circumstances indicate that the fair value of a long-term investment is less than the carrying value. An impairment loss is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investment; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

 

F-13
 

 

Related Parties

 

A party is considered to be related to the Company if it, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its separate interests.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the increase or decrease in stockholders’ equity during a period as a result of transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. For each of the fiscal years presented herein, the Company’s components of comprehensive loss included net loss and foreign currency translation adjustments, as reported in the consolidated statements of operations and comprehensive loss.

 

Segment Reporting

 

The Company follows ASC Topic 280, Segment Reporting. The Company’s management reviews the Company’s consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and has determined that the Company’s reportable segments are: (a) the sale of health and wellness products, and (b) the sale of other products and services. See Note 19 - “BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION” for more information about the Company’s reportable segments.

 

Recently Issued Accounting Standard - Adopted

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, that begin after December 15, 2020. The Company adopted the provisions of ASU 2019-12 effective April 1, 2021, and such adoption did not have a material impact on its consolidated financial statements.

 

Recently Issued Accounting Standard - 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.

 

NOTE 3 - FAIR VALUE MEASUREMENTS

 

The Company’s financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities, accounts payable, and notes payable, including convertible notes. The carrying amounts of cash equivalents, if any, accounts receivable, notes receivable, and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.

 

The Company’s measures and discloses the fair value of its financial instruments under the provisions of ASC Topic 820 - Fair Value Measurement, as amended (“ASC 820”). The Company defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for measuring fair value and requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There were no transfers between the levels of the fair value hierarchy during the periods covered by the accompanying consolidated financial statements.

 

F-14
 

 

Consistent with the valuation hierarchy contained in ASC 820, we categorized certain of our financial assets and liabilities as follows:

 

   As of March 31, 2022 
   Total   Level 1   Level 2   Level 3 
Assets                    
Investment in unconsolidated entities  $5,063,940   $    $    $5,063,940 
Total assets  $5,063,940   $    $    $5,063,940 
Liabilities                    
Convertible notes payable  $5,840,000   $-   $5,790,000   $50,000 
Total liabilities  $5,840,000   $-   $5,790,000   $50,000 

 

   As of March 31, 2021 
   Total   Level 1   Level 2   Level 3 
Assets                    
Notes receivable  $94,600   $-   $-   $94,600 
Total assets  $94,600   $-   $-   $94,600 
Liabilities                    
Notes Payable  $1,040,400   $-   $-   $1,040,400 
Convertible notes payable   134,393    -    -    134,393 
Total liabilities  $1,174,793   $-   $-   $1,174,793 

 

Certain of the Company’s investments in unconsolidated entities are valued for purposes of this disclosure using unobservable inputs, since there are no observable market transactions for such investments. The fair value of notes receivable approximates the carrying value due to the short-term nature of the note. See Note 5 below for more information about our notes receivable.

 

As of March 31, 2022, convertible notes payable (including current maturities) are reported in our consolidated financial statements at amortized cost of $30.1 million, less unamortized debt discount and deferred financing costs, in the aggregate, of $20.2 million. As of March 31, 2021, convertible notes payable (including current maturities) are reported in our consolidated financial statements at amortized cost of $150,000, less unamortized debt discount of $15,607. Notes payable and certain convertible notes payable are valued for purposes of this disclosure using discounted cash flows and observable interest rates whenever available. See Notes 10 and 12 below for more information about our notes and convertible notes payable.

 

NOTE 4 - EARNINGS (LOSS) PER SHARE

 

The Company calculates 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 our outstanding convertible Preferred Stock, convertible notes payable, stock warrants and other commitments to issue Common Stock, except where the impact would be anti-dilutive, as defined in GAAP.

 

The following table sets forth the computations of basic and diluted earnings (loss) per share for the periods indicated:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Net loss  $(17,106,497)  $(1,235,021)
           
Weighted average basic and diluted shares   206,211,711    172,046,517 
Earnings (loss) per share:          
Basic and diluted  $(0.08)  $(0.01)

 

F-15
 

 

The following potentially dilutive securities and instruments were outstanding on the dates indicated, but excluded from the table above because their impact would be anti-dilutive:

 

           
   As of March 31, 
   2022   2021 
Convertible notes payable   158,403,141    10,406,100 
Stock warrants   68,475,290    34,128,212 
Convertible Preferred Stock   7,307,589    20,879,530 
Total potential incremental shares   234,186,020    65,413,842 

 

 

NOTE 5 - NOTES RECEIVABLE, NET

 

In January 2021, the Company, through a wholly owned subsidiary, and 1044PRO, LLC (“1044 PRO”) entered into a Funding Agreement pursuant to which the Company agreed to provide to 1044 PRO loans under a $250,000 revolving credit line. In December 2021, the parties to the Funding Agreement entered into a modification to the Funding Agreement pursuant to which the parties agreed to increase the amount of the revolving credit line to $310,000. Borrowings under the credit line, as amended, are payable in monthly installments in amounts determined in relation to the amount of each cash advance. In connection with the Funding Agreement, the Company acquired a 10% equity interest in 1044 PRO and a security interest in 1044 PRO’s cash receipts and in substantially all 1044 PRO’s assets.

 

On January 26, 2022, the parties to the Funding Agreement discussed in the preceding paragraph entered into a new Loan Agreement pursuant to which the Company agreed to loan to 1044Pro up to and additional $250,000, of which $125,000 was funded immediately. Borrowings under the Loan Agreement bear interest at 10%, are payable in full on or before July 26, 2023, and are secured by a security interest in substantially all 1044Pro’s assets and a security interest in 50% of 1044Pro’s members’ interest. Borrowings under the Loan Agreement are further secured by a personal guaranty executed by a member of 1044Pro.

 

On January 14, 2022, the Company and MojiLife, LLC (“MojiLife”), an unconsolidated subsidiary of the Company, entered into a loan agreement pursuant to which the Company agreed to provide to MojiLife a loan in the amount of $150,000. Borrowings are payable in equal monthly installment of $8,333 and are due in full on July 14, 2023.

 

On a quarterly basis, the Company evaluates the collectability of its notes receivable and reviews current economic trends and its historical collection data to determine the adequacy of its allowance for impairment losses based on its historical collection data and other relevant information. An estimate for impairment losses is recognized when collection of the full amount is no longer probable. Note balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Notes receivable consist of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
1044PRO, LLC  $436,520   $189,199 
MojiLife, LLC   150,000    - 
Other   15,000    20,000 
 Total   601,520    209,199 
Allowance for obsolescence   (601,520)   (114,599)
 Total Notes Receivable  $-   $94,600 

 

The following table reflects the activity in the allowance for impairment losses for the periods presented:

 

 SCHEDULE OF ALLOWANCE FOR IMPAIRMENT LOSSES

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $114,599   $- 
Provision for estimated impairment losses   491,921    114,599 
Write-offs and recoveries   (5,000)   - 
Balance at end of fiscal year  $601,520   $114,599 

 

F-16
 

 

NOTE 6 - INVENTORY, NET

 

Inventory consists of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Finished Goods  $4,482,291   $2,556,368 
Allowance for obsolescence   (108,055)   (85,058)
Inventory, net  $4,374,236   $2,471,310 

 

The increase in finished goods as of March 31, 2022, compared to as of March 31, 2021, reflects the inventory of the Company’s South Korean subsidiary (primarily skin care products) that started its operations in June 2021, of approximately $1.9 million.

 

The following table reflects the activity in the allowance for inventory obsolescence for the periods presented:

 

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $85,058   $- 
Provision for estimated obsolescence   635,137    1,095,068 
Write-offs and recoveries   (612,140)   (1,010,010)
Balance at end of fiscal year  $108,055   $85,058 

 

NOTE 7 - OTHER CURRENT ASSETS, NET

 

Other current assets consist of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Prepaid consulting fees  $2,867,123   $- 
Inventory-related deposits   

384,477

    

1,845,722

 
Employee advances   -    320,631 
Prepaid insurance and other operational expenses   201,275    210,665 

Deposits for sales events

   222,540    

-

 
Right to recover asset   15,632    26,616 

Subtotal

   3,691,047    2,403,634 

Less: allowance for losses

   (179,765)   - 
Other current assets  $3,511,282   $2,403,634 

 

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 15 for more information). Prepaid insurance and other operational expenses 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 March 31, 2022, and 2021, employee advances include $0 and $320,631, respectively, due from an employee in connection with payroll tax obligations associated with the exercise of compensatory stock warrants. In the fiscal year ended March 31, 2022, the Company recognized a provision for losses in connection with certain inventory-related deposits for which recoverability is less than certain.

 

NOTE 8 - PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

SUMMARY OF PROPERTY AND EQUIPMENT

   2022   2021 
   As of March 31, 
   2022   2021 
Building and building improvements  $

8,976,878

   $- 
Computer software   875,925    734,510 
Furniture and fixtures   237,045    230,685 
Computer equipment   223,424    197,419 
Leasehold improvements and other   

263,208

    106,877 
Total property and equipment   10,576,480    1,269,491 
Impairment of property and equipment   (100,165)   - 
Accumulated depreciation and amortization   (891,174)   (381,541)
Property and equipment, net   $9,585,141   $887,950 

 

Depreciation and amortization expense in connection with the Company’s property and equipment for the fiscal year ended March 31, 2022, and 2021 was $534,371 and $161,663, respectively. During the fiscal year ended March 31, 2022, the Company recognized an impairment loss of $100,165 in connection with its formal plans to reorganize its Korean operations. See Note 20, “SUBSEQUENT EVENTS” for more details.

 

F-17
 

 

In December 2021, the Company, through as subsidiary, purchased an office building in Lindon, Utah for $8,942,640, including $3,675,000 allocated to land. The capitalized costs include legal and other professional fees incurred directly in connection with the purchase of the property. The Company assessed a useful life of the building (28 years). Depreciation and amortization expense for the fiscal year ended March 31, 2022, include $48,007 in connection with the building. On June 15, 2022, the Company and American Pacific Bancorp, Inc. (“APB”) entered a Loan Agreement pursuant to which APB loaned to the Company approximately $5.7 million. The loan is secured by a first mortgage interest on the Lindon, Utah building. See Note 20, “SUBSEQUENT EVENTS” for more details.

 

During the fiscal year ended March 31, 2021, the Company capitalized $715,354 in computer software in connection with upgrades to its information technology systems placed in service. In addition, during the fiscal year ended March 31, 2021, the Company incurred $163,106 in capitalizable costs primarily in connection with leasehold improvements for office facilities and ongoing upgrades to its information technology systems yet to be placed in service. These costs were reported in other assets in our consolidated balance sheets until the related assets were placed in service in 2022.

 

NOTE 9 - INVESTMENT IN UNCONSOLIDATED ENTITIES

 

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 of 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.

 

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 U.S. GAAP. During the fiscal year ended March 31, 2022, the Company recognized unrealized gains, before income tax, of $3.7 million 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, such as cordless scent diffusers, for the home and the car, as well as proprietary home cleaning products and accessories.

 

Investment in unconsolidated entities consists of the following:

 

   2022   2021 
   As of March 31, 
   2022   2021 
Investment in detachable GNTW stock warrant  $3,570,000   $- 
Investment in GNTW common stock   393,141    - 
Investment in Stemtech convertible note   1,100,799    - 
Investment in MojiLife, LLC   1,537,000    - 
Subtotal   6,600,940    - 
Less, allowance for impairment losses   (1,537,000)   - 
Investments  $5,063,940   $- 

 

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 fill 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.

 

F-18
 

 

The following table reflects the activity in the allowance for impairment losses for the periods presented:

 

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $-   $- 
Provision for estimated impairment losses   1,537,000    - 
Balance at end of fiscal year  $1,537,000   $- 

 

NOTE 10 - NOTES PAYABLE

 

In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1,040,400, 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 pursuant to the CARES Act. As of March 31, 2021, loan principal in the amount of $1,040,400, excluding accrued but unpaid interest of $8,922, was outstanding. In May 2021, the Company was notified by the lender that the Company’s obligations under the PPP Loan were forgiven effective May 25, 2021.

 

NOTE 11 - ACCRUED AND OTHER CURRENT LIABILITIES

 

Accrued and other current liabilities consist of the following:

 SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES

   2022   2021 
   As of March 31, 
   2022   2021 
Deferred sales revenues  $547,217   $1,449,359 
Liability associated with uncertain tax positions   921,987    904,643 
Accrued severance expense   -    700,000 
Payroll and employee benefits   478,360    523,454 
Settlement liability, current portion   341,919    376,921 
Lease liability, current portion   134,578    373,398 
Other operational accruals   655,721    499,639 
Accrued and other current liabilities  $3,079,782   $4,827,414 

 

Lease liability, current portion, represent obligations due withing one year under operating leases for office space, automobiles, and office equipment. See Note 13 - “LEASES” below for more information. accrued expense of $902,862 and accrued interest of $648,000 on the related party

 

NOTE 12 - CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

   Maturity  Interest   Conversion Price   As of March 31, 
Issuance Date  Date  Rate   (per share)   2022   2021 
April 2021  April 2024   8%  $0.20   $30,000,000   $- 
October 2017  October 2022   12%  $0.15    50,000    50,000 
April 2018  April 2021   0%  $0.01    -    100,000 
Total convertible notes payable         30,050,000    150,000 
Less: unamortized debt discount and deferred financing costs         20,151,230    15,607 
Subtotal         9,898,770    134,393 
Less: current portion of convertible notes payable         9,898,770    99,631 
Long-term convertible notes payable        $-   $34,762 

 

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 indicated above. The April 2018 convertible note was paid in full in March 2022.

 

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. HWH has informed the Company that it believes that during the term of the Note, the Company has granted more favorable financing terms to third-party lenders. As of the date of this Registration Statement, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

F-19
 

 

In April 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 majority 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 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. In addition, the Note is payable on demand by the holder. Accordingly, the Company classifies as current its obligation under 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 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. Interest on the Note is 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 is pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share.

 

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 are being amortized into interest expense over the term of the note (three years). During the fiscal year ended March 31, 2022, the Company issued 27,000,000 shares of its Class A Common Stock to DSSI, including 15,000,000 shares in payment of the loan origination fee discussed above and 12,000,000 shares in prepayment of interest for the first year. In connection therewith, the Company recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.

 

In the fiscal year ended March 31, 2022, and 2021, interest expense associated with the Company’s convertible notes was $2.4 million and $5,507, excluding amortization of debt discounts and deferred financing fees of $9.9 million and $18,647, respectively. These amounts are included in interest expense, net, in our consolidated statements of operations.

 

NOTE 13 - LEASES

 

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.

 

F-20
 

 

The following information pertains to the Company’s leases as of the balance sheet dates indicated:

 

Assets  Classification  2022   2021 
      As of March 31, 
Assets  Classification  2022   2021 
Operating leases  Right-of-use assets, net  $593,389   $428,075 
Total lease assets     $593,389   $428,075 
              
Liabilities             
Operating leases  Accrued and other current liabilities  $134,578   $373,398 
Operating leases  Lease liability, long-term   461,515    77,810 
Total lease liabilities     $596,093   $451,208 

 

Expense pertaining to the Company’s leases for the periods indicated is as follows:

 

      Fiscal Year Ended March 31, 
Lease cost  Classification  2022   2021 
Operating lease cost  General and administrative expenses  $585,015   $495,272 
Operating lease cost  Depreciation and amortization   -    - 
Operating lease cost  Interest expense, net   -    - 
Total lease cost     $585,015   $495,272 

 

The Company’s lease liabilities are payable as follows:

 

Twelve months ending March 31,   Amount 
2023   $154,310 
2024    96,944 
2025    99,458 
2026    102,231 
2027    105,048 
Thereafter    258,025 
Total remaining payments    816,016 
Less imputed interest    219,923 
Total lease liability   $596,093 

 

F-21
 

 

NOTE 14 - INCOME TAXES

 

Our consolidated provision for (benefit from) income taxes is as follows:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Current:        
Federal  $(2,098,199)  $(326,121)
State and local   100,568    268,474 
Foreign   -    - 
Total current   (1,997,631)   (57,647)
Deferred:          
Federal   (1,038,359)   (536,862)
State and local   -     - 
Foreign   -     - 
Total deferred   (1,038,359)   (536,862)
Total consolidated income tax benefit  $(3,035,990)  $(594,509)

 

Our consolidated effective income tax rate reconciliation is as follows:

 

           
   Fiscal Year Ended March 31, 
   2022   2021 
Federal statutory rate   21.0%   21.0%
State and local income taxes   (0.5)   (11.6)
Prior period adjustments   -    45.6 
Change in valuation allowance for NOL carry-forwards   (6.7)   (5.3)
Effect of change in uncertain tax positions   -    (49.4)
Stock warrant transactions and other items   1.3    32.2 
Effective income tax rate   15.1%   32.5%

 

Our deferred tax asset (liability) is as follows:

 

         
   As of March 31, 
Deferred tax assets:  2022   2021 
Share-based compensation  $972,043   $873,970 
Accruals and reserves not currently deductible   649,113    247,348 
Impairment of investments and inventory   660,904    674,112 
Other   141,349    87,093 
Total deferred tax assets   2,423,409    1,882,523 
Less: valuation allowance   (2,342,204)   - 
Total deferred tax assets, net of valuation allowance   81,205    1,882,523 
Deferred tax liability:          
Other   -    9,353 
Total deferred tax liability   -    9,353 
Total consolidated deferred tax (liability) assets, net  $81,205  $1,873,170 

 

During the fiscal year ended March 31, 2022, the Company recognized a valuation allowance of $2.3 million in connection with certain deferred tax assets because of significant uncertainty about the Company’s ability to generate sufficient earnings in the foreseeable future to realize such assets. During the fiscal year ended March 31, 2022, and 2021, the Company recognized, in the aggregate, $491,496 and $91,931, respectively, in deferred income tax benefits in connection with certain foreign start-up operation. In addition, the Company recognized a valuation allowance of $491,496 and $91,931, respectively, in connection with the associated deferred tax assets because these star-up operations do not yet have a history of earnings and profits.

 

F-22
 

 

The Company has adopted the comprehensive model for how an entity should recognize, measure, present, and disclose in its financial statements uncertain tax positions that it has taken or expects to take on a tax return, consistent with ASC 740. Accordingly, the Company recognizes the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of March 31, 2022, and 2021, the Company had recognized a liability of $17,334 and $904,643, respectively, related to uncertain income tax positions, which is reported in other current liabilities. As of March 31, 2022, and 2021, the Company had unrecognized tax benefits of $921,977 and $904,643, respectively that, if recognized, would impact the Company’s effective tax rate.

 

A reconciliation of the Company’s unrecognized tax benefits for the years indicated is as follows:

 

   Fiscal Year Ended March 31, 
   2022   2021 
Balance at beginning of fiscal year  $904,643   $- 
Additions for tax positions related to the current year   17,334    - 
Additions for tax positions of prior years   -    904,643 
Reductions of tax positions of prior years   -    - 
Settlements   -    - 
Balance at end of fiscal year  $921,977   $904,643 

 

The company recognizes interest and/or penalties related to uncertain tax positions in current income tax expense. For the year ended March 31, 2022, and 2021, the Company had recognized accrued interest and penalties, in the aggregate, of $121,790 and $334,332, respectively. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase or decrease in the next twelve months due to uncertainties regarding timing and outcome of any examinations, the Company is evaluating alternatives that may impact the recognition of uncertain tax positions in the next twelve months.

 

The Company files consolidated federal income tax returns in the United States and files income tax returns in various state and foreign jurisdictions. As of March 31, 2022, the Company’s income tax returns for the following tax years remained subject to examination:

 

Tax Jurisdiction  Open Years 
United States   2016 - 2021 
Republic of Korea   2021 
Other Countries   N/A 

 

NOTE 15 - RELATED PARTY TRANSACTIONS

 

DSS, Inc., and 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, as more fully discussed in Note 11 above.

 

F-23
 

 

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 the 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 and 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 fiscal year ended March 31, 2022, the Company recognized consulting expense of $766,415 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.

 

As of March 31, 2022, DSS and its affiliates owned, in the aggregate, 191.9 million shares of the Company’s Class A Common Stock, excluding 210.0 million shares issuable upon the exercise of warrants held by DSS and 150.0 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.

 

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.

 

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. As of the date of this Registration Statement, the Company and HWH are evaluating alternative options to settle this Note in the foreseeable future.

 

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 includes 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.

 

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.

 

F-24
 

 

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.

 

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.

 

Premier Packaging Corporation

 

In the fiscal year ended March 31, 2022, 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 $155,693.

 

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 June 2020, the Company and the former Company officer discussed in the preceding paragraph entered into a Settlement Accommodation Agreement and an Amended and Restated Founder Consulting Agreement pursuant to which the Company and the former officer agreed to settle all existing disputes between them, the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain amounts to the former officer. The Company has recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance is $715,596.

 

The Company subleases warehouse and office space from Alchemist, a 10% shareholder of the Company. During the fiscal year ended March 31, 2022, and 2021, rent expense associated with such sublease agreement was $105,105 and $84,918, respectively.

 

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 fiscal year ended March 31, 2022, the Company recognized consulting fee income of $33,328.

 

NOTE 16 - STOCKHOLDERS’ EQUITY - CAPITAL STOCK

 

Preferred Stock

 

The Company’s Board of Directors (the “Board”) has authorized the issuance of up to 200,000,000 shares of Preferred Stock, par value of $0.0001 per share. The Board may divide this authorization into one or more series, each with distinct powers, designations, preferences, and rights.

 

F-25
 

 

Series A Convertible Preferred Stock

 

The Board has authorized the issuance of up to 100,000,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). Shares of our Series A Preferred Stock are senior in rank to shares of our Series C Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series A Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series A Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of our Series A Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to shares of our Series A Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of our Series A Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock ranking junior to the Series A Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series A Preferred Stock may elect to convert each share of the Series A Preferred Stock into one share of the Company’s Common Stock. Each share of our Series A Preferred Stock is entitled to one vote when voting as a class or together with the shares of our Common Stock.

 

During the fiscal year ended March 31, 2021, stockholders converted an aggregate of 21,750,000 shares of the Company’s Series A Preferred Stock into an equal number of shares of the Company’s Common Stock. There were no similar conversions in the fiscal year ended March 31, 2022.

 

As disclosed in the notes to our consolidated financial statements for the fiscal year ended April 30, 2020, in the fiscal year 2019, the Company filed suit against Research & Referral BZ and two other parties concerning breach of contract, fraud, and statutory fraud in a stock transaction, violations of state securities laws and alter ego relating to a stock exchange/transfer transaction, involving the Company’s stock. In April 2020, the court issued a Final Default Judgment in favor of the Company finding Research and Referral, BZ liable for the Company’s claims of fraud in the inducement and statutory fraud in a stock transaction. Further, the court ordered that the stock transaction be rescinded, and the Company’s stock be returned to the Company, and the matter has been dismissed with prejudice. During the fiscal year ended March 31, 2022, the Company’s transfer agent received and cancelled the stock certificate and the Company retired 2,000,000 shares of the Company’s Series A Preferred Stock previously purportedly held by Research and Referral BZ.

 

As of March 31, 2022, and 2021, 3,100,000 shares and 5,100,000 shares, respectively, of the Company’s Series A Preferred Stock remain outstanding. The shares of the Company’s Series A Preferred Stock reported in the Company’s financial statements as of March 31, 2022, include 2,900,000 shares purportedly held by Research & Referral BZ, pending cancellation of the stock certificate when presented by Research & Referral BZ in the future.

 

Series B Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series B Convertible Preferred Stock (the Series B Preferred Stock”). Issued and outstanding shares of our Series B Preferred Stock, if any, are senior in rank to shares of our Series A and Series C Preferred Stock. During the fiscal year ended March 31, 2021, all shares of the Company’s Series B Preferred Stock previously issued were converted into shares of the Company’s Class A Common Stock. As of March 31, 2022, and 2021, no shares of the Company’s Series B Preferred Stock remain outstanding.

 

Series C Convertible Preferred Stock

 

The Board has authorized the issuance of up to 10,000,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock”). Shares of our Series C Preferred Stock are junior in rank to the Series A and Series B Preferred Stock. The affirmative vote of the holders of 86% of the issued and outstanding shares of our Series C Preferred Stock is required for the Board: (i) to declare dividends upon shares of our Common Stock unless, with respect to cash dividends, the shares of our Series C Preferred Stock are to receive the same dividend as the common shares, on an as converted basis; (ii) to redeem the shares of Series C Preferred Stock at a redemption price of $0.001 per share; (iii) to authorize or issue additional or other capital stock that is junior or equal in rank to our Series C Preferred Stock with respect to the preferences as to distributions and payments upon the liquidation, dissolution, or winding up of the Company; and (iv) to amend, alter, change, or repeal any of the powers, designations, preferences, and rights of the Series C Preferred Stock. Upon the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, the holders of the Series C Preferred Stock are entitled to receive out of the assets of the Company the sum of $0.001 per share before any payment or distribution shall be made on our shares of Common Stock, or any other class of capital stock of the Company ranking junior to the Series C Preferred Stock. For a period of 10 years from the date of issuance, the holders of the Series C Preferred Stock may elect to convert each share of Series C Preferred Stock into one share of the Company’s Common Stock. Each share of our Series C Preferred Stock is entitled to one vote when voting as a class or together with shares of our Common Stock.

 

During the fiscal year ended March 31, 2022, and 2021, holders of 10,000 shares and 260,000 shares, respectively, of the Company’s Series C Preferred Stock converted their holdings into an equal number of shares of the Company’s Common Stock. As of March 31, 2022, and 2021, 3,220,000 shares and 3,230,000 shares of the Company’s Series C Preferred Stock remain outstanding.

 

F-26
 

 

Common Stock

 

The Board has authorized the issuance of up to 800,000,000 shares of Class A Common Stock and up to 10,000,000 shares of Class B Common Stock, each with a par value of $0.0001 per share. Holders of our Common Stock are entitled to dividends, subject to the rights of the holders of other classes of capital stock outstanding having priority rights with respect to dividends. At the time of this Registration Statement, no shares of the Company’s Class B Common Stock remain outstanding. References to our “Common Stock” throughout this report include our Class A Common Stock and Class B Common Stock, unless otherwise indicated or the context otherwise requires.

 

In July 2020, in exchange for $3.0 million in cash, the Company issued 30.0 million shares of its 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 the exercise price of $0.20 per share, in connection with the previously disclosed SPA Agreement between the Company and DSSI (see Note 15 above). On the effective date of the SPA Agreement, the closing price for the Company’s common stock was $0.18 per share and the Company recognized a deemed dividend of $2.4 million in connection with this related-party transaction.

 

In April 2021, the Company issued 27.0 million shares of its Class A Common Stock to DSSI, including 15.0 million shares in payment of a loan origination fee and 12.0 million shares in prepayment of interest on a loan, as more fully discussed in Notes 11 and 14 above. On the effective date of the loan agreement, the closing price for the Company’s common stock was $0.24 per share and the Company recognized a deemed dividend of $1.1 million in connection with this related-party transaction.

 

In December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $3.0 million in the Company in exchange for 50.0 million shares of Class A Common Stock and a Stock Warrant to purchase up to 50.0 million shares of the Company’s Class A Common Stock. 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 this related-party transaction.

 

As discussed in Note 13 above, in January 2022, the Company and DSS entered into a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which the DSS will provide to the Company certain consulting services, as defined in the Consulting Agreement. In connection with the Consulting Agreement, the Company agreed to pay DSS and 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 fair value of the detachable Stock Warrant was $3.5 million which is being recognized as consulting expense over the term of the Consulting Agreement (one year). In February 2022, Sharing Services issued 50.0 million shares of its Common Stock Class A to DSS in connection with the exercise of such Stock Warrant.

 

During the fiscal year ended March 31, 2021, the Company also issued: (a) 10.0 million shares of its Class A Common Stock to Robert Oblon, a co-founder of the Company, pursuant to the previously disclosed Multi-Party Settlement Agreement, (b) 5.5 million shares in connection with the exercise of warrants by Company employees, and (c) 2.3 million shares in connection with the exercise of warrants by independent distributors of the Company.

 

During the fiscal year ended March 31, 2022, holders of 10,000 shares of the Company’s Series C Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock. In addition, during the fiscal year ended March 31, 2022, the Company issued: (a) 1.5 million shares in connection with the exercise of warrants by Company employees, and (b) 313.200 shares in connection with the exercise of warrants by independent distributors of the Company.

 

During the fiscal year ended March 31, 2021, the holders of 10.0 million shares of the Company’s Series B Preferred Stock and 10.0 million shares of the Company’s Class B Common Stock converted their holdings into an equal number of shares of the Company’s Class A Common Stock. In addition, during the fiscal year ended March 31, 2021, a purported holder of 20.0 million shares of the Company’s Series A Preferred Stock, converted such holdings into an equal number of shares of the Company’s Class A Common Stock, holders of 1.8 million shares of the Company’s Series A Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock, and holders of 260,000 shares of the Company’s Series C Preferred Stock converted such holdings into an equal number of shares of the Company’s Class A Common Stock.

 

As of March 31, 2022, and 2021, 288,923,969 shares and 160,100,769 shares, respectively, of our Class A Common Stock remained issued and outstanding. As of March 31, 2022, and 2021, there were no shares of the Company’s Class B Common Stock outstanding.

 

F-27
 

 

NOTE 17 - STOCK-BASED COMPENSATION

 

A subsidiary of the Company has awarded compensatory warrants to purchase shares of the Company’s common stock to its officers and employees (see Note 2 - “SIGNIFICANT ACCOUNTING POLICIES - Share-Based Payments” for more details) and warrants to purchase shares of the Company’s common stock to its independent sales force. Further, the Company from time to time, awards stock warrants to its consultants in exchange for services.

 

Stock Warrants

 

Stock Warrants Issued to Related Parties, Directors, Officers, and Employees

 

In the fiscal year ended March 31, 2021, the Company issued to Company directors, officers, and employees stock warrants to purchase, in the aggregate, up to 29,200,000 shares of its Common Stock, with an aggregate grant date fair value of $3.6 million. Some of the stock warrants outstanding as of March 31, 2022, are exercisable at a variable exercise price (see Note 2 - “SIGNIFICANT ACCOUNTING POLICIES - Share-Based Payments” for more details) pursuant to the related employment agreements.

 

As discussed in Note 14, 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 agreed to invest $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 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.

 

The following table summarizes the activity relating to the Company’s stock warrants held by Related Parties (all of which are fully vested) (See Note 15 above for more details):

 

   Number of
Warrants		   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   333,333   $0.15    2.4 
Granted   10,000,000         - 
Exercised        -    - 
Expired or forfeited   -         - 
Outstanding at March 31, 2021   10,333,333   $0.20    2.3 
Granted   250,000,000    0.14    - 
Exercised   (50,000,000)   0.0001      
Expired or forfeited   -    -    - 
Outstanding at March 31, 2022   210,333,333   $0.18    4.1 

 

F-28
 

 

The following table summarizes the activity relating to the Company’s vested and unvested stock warrants held by Directors, Officers, and Employees:

 

   Number of
Warrants		   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   22,000,000   $0.002    4.2 
Granted   29,200,000    0.13    - 
Exercised   (9,000,000)   0.0001    - 
Expired or forfeited   (18,125,000)   0.0001    - 
Outstanding at March 31, 2021   24,075,000   $0.11    3.5 
Granted   -    -    - 
Exercised   (1,500,000)   0.13    - 
Expired or forfeited   (2,875,000)   0.19    - 
Outstanding at March 31, 2022   19,700,000   $0.03    2.6 
Less: unvested at March 31, 2022   5,625,000   $0.02    2.1 
Vested at March 31, 2022   14,075,000   $0.04    2.8 

 

Stock Warrants Issued to Our Independent Sales Force

 

In the fiscal year ended March 31, 2021, the Company issued fully vested warrants to purchase up to 4,013,000 shares of its Common Stock to members of its independent sales force, with a fair value of $1.5 million. The warrants are exercisable for a period ranging from one to two years from the issuance date, at the exercise price ranging from $0.01 per share to $0.25 per share. In the fiscal year ended March 31,2022, and 2021, warrants held by independent distributors to purchase up to 1,507,200 shares and 2,066,600 shares, respectively, of the Company’s Common Stock expired or were otherwise terminated or forfeited. See Note 2 - “SIGNIFICANT ACCOUNTING POLICIES - Sales Commissions” for more details.

 

The following table summarizes the activity relating to the Company’s stock warrants held by members of the Company’s independent sales force (all of which are fully vested):

 

   Number of
Warrants		   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   4,390,600   $0.04    2.5 
Granted   4,013,000    0.01    - 
Exercised   (2,339,000)   0.01    - 
Expired or forfeited   (2,066,600)   0.25    - 
Outstanding at March 31, 2021   3,998,000   $0.09    1.4 
Granted   2,400    0.01    - 
Exercised   (313,200)   0.01    - 
Expired or forfeited   (1,507,200)   0.03    - 
Outstanding at March 31, 2022   2,180,000   $0.02    1.2 

 

F-29
 

 

Stock Warrants Held by Our Consultants

 

From time to time, the Company has granted fully vested warrants to purchase shares of its Common Stock to its consultants in exchange for services. The following table summarizes the activity relating to the Company’s stock warrants held by Company consultants (all of which are fully vested):

 

   Number of
Warrants		   Weighted Average Exercise Price   Weighted Average Remaining Term 
Outstanding at April 30, 2020   160,000   $1.97    3.80 
Granted   -    -    - 
Exercised   -    -    - 
Expired or forfeited   (60,000)   0.25    - 
Outstanding at March 31, 2021   100,000   $3.00    1.00 
Granted   -    -    - 
Exercised, expired or forfeited   -    -    - 
Outstanding at March 31, 2022   100,000   $3.00    0.02 

 

The following table summarizes additional information relating to all stock warrants outstanding and warrants exercisable as of March 31, 2022:

 

All Warrants Outstanding   All Warrants Exercisable 
    Weighted
Average Remaining		   Weighted
Average		       Weighted
Average		 
Number of
Shares		   Contractual
life (in years)		   Exercise
Price		   Number of
Shares		   Exercise
Price		 
 3,000,000    5.40   $0.0001    3,000,000   $0.0001 
 16,700,000    2.10   $0.04    11,075,000   $0.04 
 210,000,000    4.1   $0.18    210,000,000   $0.18 
 2,180,000    1.20   $0.02    2,180,000   $0.02 
 333,333    0.50   $0.15    333,333   $0.15 
 100,000    0.02   $3.00    100,000   $3.00 
 232,313,333              226,688,333      

 

NOTE 18 - COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

Legal Proceedings - Related-Party Matters and Settlement Liability

 

In February 2020, the Company, Alchemist, and a former officer of the Company entered into a Settlement Accommodation Agreement and an Amended and Restated Founder Consulting Agreement pursuant to which the Company and the former officer agreed to settle all existing disputes between them, the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain amounts to the former officer. The Company has recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance is $715,596. See Note 15 - “RELATED PARTY TRANSACTIONS - Alchemist Holdings, LLC” above for more information.

 

Legal Proceedings - Other Matters

 

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.

 

F-30
 

 

(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. This matter remains pending as of March 31, 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. See Note 20, SUBSEQUENT EVENTS below.

   
(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 is a companion case to the AAA arbitration proceeding described in paragraph (b) above and, while it remains pending as of March 31,2022, further action in this case has been stayed by court order, pending final adjudication of the referenced AAA arbitration proceeding. See Note 20, SUBSEQUENT EVENTS below.

   
(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. The matter remains pending as of March 31, 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, unfair competition under state and federal law as well as tortious interference with contracts and business relationships. See Note 20, SUBSEQUENT EVENTS below.

   
(f) Cause 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. The matter remains pending as of March 31, 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. The matter remains pending as of March 31, 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. The matter remains pending as of March 31, 2022.

 

F-31
 

 

NOTE 19 - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

 

Business Segments

 

As of March 31, 2022, and 2021, the Company, through its subsidiaries, markets and sells its products and services to consumers, through its independent sales force and proprietary websites, and to its independent distributors. The Company has determined its reportable segments are: (a) the sale of health and wellness products, and (b) the sale of other products and services. The Company’s determination of its reportable segments is based on how its chief operating decision maker manages the business.

 

The Company’s segment information is as follows:

 

   2022   2021 
   Fiscal Year Ended March 31, 
   2022   2021 
Net sales          
Health and wellness products  $32,147,330   $64,046,966 
Other   2,276,984    764,185 
Total net sales  $34,424,314   $64,811,151 
Operating earnings (loss):          
Segment gross profit:          
Health and wellness products  $22,059,788   $45,997,828 
Other   1,562,655    548,829 
Total segment gross profit   23,622,443    46,546,657 
Selling and marketing expenses   17,239,655    29,740,974 
General and administrative expenses   19,714,963    18,983,209 
Consolidated operating loss  $(13,332,175)  $(2,177,526)
Total Assets:          
Health and wellness  $13,729,219   $22,772,217 
Corporate   29,435,505    464,739 
Consolidated total assets  $43,164,724   $23,236,956 
Payments for property and equipment:          
Health and wellness  $208,952   $907,891 
Corporate   9,123,016    6,445 
Consolidated payments for property and equipment  $9,331,967   $914,336 
Depreciation and amortization expense:          
Health and wellness  $94,459   $155,085 
Corporate   560,808    8,163 
Consolidated depreciation and amortization  $655,267   $163,248 

 

Geographic Area Information

 

Our consolidated net sales, by geographic area, were as follows:

 

  2022   2021 
   Fiscal Year Ended March 31, 
Country  2022   2021 
United States  $29,803,258   $60,961,369 
Canada   2,446,330    3,214,633 
Republic of Korea   1,706,367    - 
Other   468,359    635,149 
 Total  $34,424,314   $64,811,151 

 

F-32
 

 

Our consolidated total assets, by geographic area, were as follows:

 

  2022   2021 
   Fiscal Year Ended March 31, 
Country  2022   2021 
United States  $39.865.782   $20,941,018 
Republic of Korea   2,663,149    1,200,214 
Other   635,793    1,095,725 
Total  $43,164,724   $23,236,956 

 

NOTE 20 - SUBSEQUENT EVENTS

 

Legal Proceedings - In April 2022, the parties to the matters discussed in Items (b), (c) and (e) in Note 18 - COMMITMENTS AND CONTINGENCIES - Legal Proceedings - Other Matters above reached a settlement, and the related legal and arbitration proceedings were dismissed.

 

Federal Income Tax Refund - In April 2022, the Company received a federal income tax refund in the amount of $300,000.

 

Modification of Debt - 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.

 

Financing of Lindon, Utah Facility - 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 a Loan Agreement pursuant to which APB loaned to 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 Alset eHome International Inc. (NASDAQ:AEI). Heng Fai Ambrose Chan, and Frank D. Heuszel, each a Director of the Company, also serve on the Board of Directors of APB, and Mr. Chan also serves on the Board of Directors of Alset eHome International.

 

Settlement With Former Officer - As disclosed in Note 14 above, in February 2020, the Company and a former officer of the Company entered into an Amended and Restated Founder Consulting Agreement (the “Co-Founder’s Agreement”) pursuant to which the former officer agreed to continue to provide certain consulting services to the Company, and the Company agreed to pay certain periodic amounts to the former officer. At that time, the Company recognized a settlement liability of $2.0 million in connection therewith. As of March 31, 2022, the settlement liability balance was $715,596. In May 2022, the Company and certain of its subsidiaries, on the one hand, and 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 $1,043,645.40; 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 $652,278.40, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,228 in connection with the previously recognized loss related to the Co-Founder’s Agreement.

 

Reorganization of Korean Operations - In May 2022, the Company implemented its plan to reorganize its Korean operations. The reorganization resulted in a significant reduction in the size of the space subleased from HWH World (see Note 15 - “RELATED PARTY TRANSACTIONS” above) and a reduction (by ten) in the number of staff employed in our Korean operations. The reorganization did not result in material costs and expenses.

 

Funding Agreement With MojiLife - In May 2022, the Company and MojiLife entered into a Funding Agreement (the “Funding Agreement”) pursuant to which the Company agreed to provide to MojiLife loans up to a maximum outstanding at any point in time of $150,000, under a revolving line of credit. Borrowings under the revolving line of credit bear interest at the annual rate of 8% and cash advance granted are due and payable 180 days after each advance. Upon completion of the Funding Agreement, the Company advanced $40,000 to MojiLife.

 

NOTE 21 - SUPPLEMENTARY FINANCIAL INFORMATION

 

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, are not required to provide the supplementary financial information otherwise required by Item 302, as amended.

 

F-33
 

 

SHARING SERVICES GLOBAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

  

           
   September 30,
2022		   March 31,
2022		 
   (Unaudited)     
ASSETS          
Current Assets          
Cash and cash equivalents  $6,458,865   $17,023,266 
Trade accounts receivable, net   1,757,494    1,682,958 
Income taxes receivable   -    300,000 
Inventory, net   3,524,236    4,374,236 
Notes receivable, net   241,942    - 
Other current assets, net   1,519,741    3,511,282 
Total Current Assets   13,502,278    26,891,742 
Property and equipment, net   9,554,577    9,585,141 
Right-of-use assets, net   473,993    593,389 
Deferred income tax assets, net   81,208    81,205 
Investment in unconsolidated entities, net   1,370,242    5,063,940 
Investment in marketable securities   6,506,547    - 
Intangible assets, net   616,804    688,670 
Other assets   1,171,267    260,637 
TOTAL ASSETS  $33,276,916   $43,164,724 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities          
Accounts payable  $940,528   $985,139 
Accrued sales commission payable   3,061,475    3,745,481 
Employee stock warrants liability   299,669    452,050 
State and local taxes payable   1,413,613    1,339,366 
Note payable - related party, net of unamortized debt discount and unamortized deferred loan cost of $699,056 as of September 30, 2022   10,952,513    - 
Accrued and other current liabilities   3,364,308    3,079,782 
Convertible notes payable, related parties, net of unamortized debt discount and unamortized deferred loan cost of and $17,396,771 as of September 30, 2022, $20,151,230 as of March 31, 2022, respectively.   9,603,229    9,898,770 
Total Current Liabilities   29,635,335    19,500,588 
Settlement liability, long-term    -    373,677 
Lease liability, long-term   413,587    461,515 
TOTAL LIABILITIES   30,048,922    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 September 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 as of September 30 and March 31, 2022   -    - 
Series C convertible preferred stock, $0.0001 par value, 10,000,000 shares designated, 3,220,000 shares issued and outstanding as of September 30 and March 31, 2022, respectively   322    322 
Common stock, $0.0001 par value, 2,000,000,000 shares authorized:          
Class A common stock, $0.0001 par value, 1,990,000,000 shares designated, 262,832,833 shares and 288,923,969 shares issued and outstanding as of September 30 and March 31, 2022, respectively   26,283    28,892 
Class B common stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding as of September 30, 2022, and March 31, 2022   -    - 
Treasury Stock, 26,091,136 shares, at cost   (626,187)   - 
Additional paid in capital   81,913,495    80,738,719 
Shares to be issued   12,146    12,146 
Accumulated deficit   (77,625,249)   (57,886,336)
Accumulated other comprehensive loss   (473,126)   (65,109)
Total Stockholders’ Equity   3,227,994    22,828,944 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $33,276,916   $43,164,724 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-34
 

 

SHARING SERVICES GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

  

                     
   Three Months Ended   Six Months Ended 
   September 30,
2022		   September 30,
2021		   September 30,
2022		   September 30,
2021		 
Net sales  $4,188,152   $9,873,300   $9,491,770   $21,084,827 
Cost of goods sold   1,759,776    2,924,439    3,416,804    6,278,250 
Gross profit   2,428,376    6,948,861    6,074,966    14,806,577 
Operating expenses                    
Selling and marketing expenses   2,037,596    5,022,160    4,795,396    10,172,635 
General and administrative expenses   4,557,922    5,540,701    9,108,825    10,269,011 
Total operating expenses   6,595,518    10,562,861    13,904,221    20,441,646 
Operating loss   (4,167,142)   (3,614,000)   (7,829,255)   (5,635,069)
Other income (expense):                    
Interest expense, net   (3,321,410)   (3,126,358)   (6,441,464)   (6,056,372)
Gain on employee warrants liability   52,875    646,930    167,835    1,781,100 
Gain on extinguishment of debt   -    -    -    1,040,400 
Unrealized gain (loss) on investments   (11,553,933)   2,114,970    (6,669,760)   2,114,970 
Other non-operating income (expense), net   49,632    9,559    139,799    (14,046)
Total other (expense), net   (14,772,836)   (354,899)   (12,803,590)   (1,133,948)
Loss before income taxes   (18,939,978)   (3,968,899)   (20,632,845)   (6,769,017)
Income tax benefit   (554,075)   (1,254,134)   (893,932)   (506,245)
Net loss  $(18,385,903)  $(2,714,765)  $(19,738,913)  $(6,262,772)
                     
Other comprehensive income (loss), net of tax:                    
Currency translation adjustments   (263,751)   (8,230)   (408,017)   23,973 
Total other comprehensive (loss) income   (263,751)   (8,230)   (408,017)   23,973 
Comprehensive loss  $(18,649,654)  $(2,722,995)  $(20,146,930)  $(6,238,799)
                     
Loss per share:                    
Basic  $(0.07)  $(0.01)  $(0.07)  $(0.03)
Diluted  $(0.07)  $(0.01)  $(0.07)  $(0.03)
                     
Weighted average shares:                    
Basic and diluted   262,832,833    187,567,291    270,531,857    186,009,840 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-35
 

 

SHARING SERVICES GLOBAL CORPORATION

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   -    -    -    -    -    -    -    -   1,172,167    -         -    -    1,172,167 
Repurchase of 26,091,136 shares of Common Stock        -         -    -    -    (26,091,136)   (2,609)  $2,609         (626,187)        -    (626,187)
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -    -    -    (408,017)   (408,017)
Net loss   -    -    -    -    -    -    -    -    -    -    -    (19,738,913)   -    (19,738,913)
Balance – September, 30, 2022   3,100,000   $310    -   $-    3,220,000   $322    262,832,833   $26,283   $81,913,495   $12,146    (626,187)  $(77,625,249)  $(473,126)  $3,227,994 

 

                                                                  
   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 or retirements of preferred stock   (2,000,000)   (200)   -    -    (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 
Stock warrants exercised   -    -    -    -    -    -    500,000    50    77,450                   77,500 
Currency translation adjustments   -    -    -    -    -    -    -    -    -    -    -    23,973    23,973 
Net loss   -    -    -    -    -    -    -    -    -    -    (6,262,772)   -    (6,262,772)
Balance – September 30, 2021   3,100,000   $310    -   $-    3,220,000   $322    187,610,769   $18,761   $71,922,718   $12,146 -  $(44,792,611)  $23,973   $27,185,619 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-36
 

 

SHARING SERVICES GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

           
   Six Months Ended 
   September 30,
2022		   September 30,
2021		 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(19,738,913)  $(6,262,772)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   335,571    228,294 
Stock-based compensation gain   (152,381)   (1,461,637)
Deferred income tax benefit   -    (1,513,672)
Amortization of debt discount and other   6,994,167    4,877,643 
Gain on extinguishment of debt   (350,320)   (1,040,400)
Impairment loss on intangible assets   154,182    - 
Bad debt expense   107,800    - 
Unrealized gain (loss) on investments   6,669,760    (1,778,789)
Provision for obsolete inventory   433,714    - 
Changes in operating assets and liabilities:          
Accounts receivable   (182,343)   (24,398)
Inventory   514,591    (3,455,082)
Other current assets   422,894   1,797,008 
Other assets   (153,324)    (1,810)
Accounts payable   762,392    (126,488)
Income taxes payable   (577,235)   921,641 
Lease liability   17,541    (21,946)
Accrued and other liabilities   (694,905)   (2,297,788)
Net Cash Used in Operating Activities   (5,436,809)   (10,160,196)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for property and equipment and other assets   (1,352,792)   (209,997)
Issuance of notes receivable   (241,942)   - 
Purchase of marketable securities   

(9,510,000

)   - 
Collection of notes receivable   -   (41,682)
Cash paid for asset purchase   (400,000)    (2,937,000)
Net Cash Used in Investing Activities   (11,504,734)   (3,188,679)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Retirement of loan   (3,348,811)   - 
Net proceeds from issuance of promissory notes   10,922,329    - 
Common stock received on litigation settlement   (1,046,254)   - 
Proceeds from issuance of common stock   -    34,625 
Proceeds from convertible notes   -    30,000,000 
Net Cash Provided by Financing Activities   6,527,264    30,034,625 
           
IMPACT OF CURRENCY RATE CHANGES ON CASH   (150,122)   11,124 
Increase (decrease) in cash and cash equivalents   (10,564,401)   16,696,874 
Cash and cash equivalents, beginning of period   17,023,266    12,144,409 
Cash and cash equivalents, end of period  $6,458,865   $ 28,841,283 
           
Supplemental cash flow information          
Cash paid for interest  $127,790   $32,435 
Cash paid for income taxes  $-   $45,312 
           
Supplemented disclosure of non-cash investing and financing activities:          
Stock issued for financing fees and prepaid interest on debt  $-   $ 5,400,000 
Investment origination fee collected in shares of investee stock  $-   $500,000 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-37
 

 

SHARING SERVICES GLOBAL CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND BUSINESS

 

Description of Operations

 

Sharing Services Global Corporation and subsidiaries (“Sharing Services” or the “Company”) aim to build shareholder value by developing or acquiring businesses, products and technologies in the direct selling industry and other industries 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 Registration Statement, 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 (“Hapi Travel”), the Company delivers subscription-based travel services. The Hapi Travel services are designed to offer the deepest discounts for travel relating to airfare, cruises, hotels, resorts, time shares and rental cars for destinations throughout the world for people of all ages, demographics, and economic backgrounds. Hapi Travel 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 Cafes – Sharing Services has entered into a Master Franchise Agreement (“MFA”) 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. Under the MFA, Sharing Services, directly or through its subsidiaries, will operate no less than five corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores. Each corporate-owned or franchised Hapi CaféTM store will allow customers and Brand Partners seeking a healthier lifestyle access to: (a) functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) physical fitness, nutrition management and personal workout print and video content, and (d) the Company’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.

 

F-38
 

 

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 September 30, 2022, and March 31, 2022, cash and cash equivalents included cash held by our merchant processors of approximately $1.1 million and $3.3 million, respectively, including approximately $1.1 million and $3.0 million, respectively held by one merchant processor. In addition, as of September 30, 2022, and March 31, 2022, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $1.3 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

 

On August 29, 2022, the Company and 1044Pro LLC (“1044”) entered in an agreement to modify the Revolving Promissory Note dated January 22, 2022. In accordance with the amendment, the Company agreed to lend $125,000 to 1044 for a 20% membership interest in 1044. The loan is secured by the assets of 1044 as well as by a personal guaranty executed by a member of 1044.

 

At September 30, 2022 and March 31, 2022, notes receivable were $951,262 and $601,520, before allowance for impairment losses of $709,320 and $601,520, respectively.

 

Investment in Marketable Securities

 

The Company has invested in a marketable security that can easily be bought, sold, or traded on public exchanges. The investment is carried at fair market. Unrealized gains and losses have been recorded to operating income. At September 30, 2022, the investment was valued at approximately $6.5 million on the Company’s unaudited condensed consolidated balance sheet.

 

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 September 30, 2022, and March 31, 2022, the allowance for obsolete inventory was $433,714 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.

 

Other Assets

 

Other assets include a multi-user license and code of a back-office platform that was acquired for $1,000,000 in July 2022. This back-office platform is intended to facilitate the computation and processing of commission payments to distributors, and it requires customization in order for it to be operational. Costs associated with the customization and build out of the platform has been capitalized in accordance with ASC 350 - Capitalization on Internal-Use Software Costs.

 

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 APB, also serve on the Board of Directors of the Company. Monthly payments of principal and interest in the amount of $43,897 have been made beginning July 1, 2022, and are payable on the same date of each month thereafter. The Company paid $131,691 in principal and interest related to the loan for the three months ended September 30, 2022.

 

On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10 million. The APB Revolving Note included origination fees of $600,000. The Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly. Interest payments on the loan are due and payable on the last day of each consecutive third calendar month until the maturity date of August 12, 2024. As of September 30, 2022, the Company had $6.0 million outstanding under the APB Revolving Note and accrued interest of $60,667 which amount was paid on October 1, 2022.

 

F-39
 

 

Foreign Currency Translation

 

As part of our strategic growth plan initiatives, we have expanded our 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.

 

   South Korean
Won per USD		 
Exchange rate as of September 30, 2022   1,435.44 

 

   South Korean Won per USD 
   Three Months ended
September 30, 2022		   Six Months Ended
September 30, 2022		 
Average exchange rate as of September 30, 2022   1,340.47    1,300.50 

 

Comprehensive Loss

 

For the three and six months ended September 30, 2022, and 2021, the Company’s comprehensive loss was comprised of currency translation adjustments and net loss.

 

Revenue Recognition

 

As of September 30, 2022, and March 31, 2022, deferred sales associated with product invoiced but not received by customers was $159,021 and $344,071, respectively. In addition, as of September 30, 2022, and March 31, 2022, deferred sales associated with our unfulfilled performance obligations for services offered on a subscription basis was $73,748, and $70,968, and deferred sales associated with our performance obligations for customers’ right of return was $61,824 and $63,890, and deferred sales associated with customer loyalty points was $94,097 and $68,287, respectively. Deferred sales are expected to be recognized over one year.

 

During the three and six months ended September 30, 2022, no individual customer, or affiliated group of customers, represented 10% or more of the Company’s consolidated net sales, and approximately 62% of net sales for the three months ended September 30, 2022, were to customers (including 39% to recurring customers, refer internally as “SmartShip” sales, and approximately 23% to new customers) and approximately 38% of the Company’s net sales were to independent distributors.

 

During the three and six months ended September 30, 2021, no individual customer, or affiliated group of customers, represented 10% or more of the Company’s consolidated net sales, and approximately 68% of net sales for the three months ended September 30, 2021, were to customers (including 34% to recurring customers and approximately 34% to new customers) and approximately 32% of net sales were to independent distributors.

 

F-40
 

 

During the six months ended September 30, 2022, approximately 63% of the Company’s net sales were to customers (including 38% to recurring customers, refer herein as “SmartShip” sales, and approximately 25% to new customers) and approximately 37% of the Company’s net sales were to independent distributors.

 

During the six months ended September 30, 2021, approximately 69% of the Company’s net sales were to customers (including 32% to recurring customers, refer herein as “SmartShip” sales, and approximately 37% to new customers) and approximately 31% of the Company’s net sales were to independent distributors.

 

During the six months ended September 30, 2022, and September 30, 2021, approximately 93% and 84%, respectively, of the Company’s consolidated net sales were to customers and/or independent distributors located in the United States. No other country accounted for 10% or more of consolidated net sales.

 

During the three months ended September 30, 2022, substantially all of the Company’s consolidated net sales were from health and wellness products (including approximately 7% from the sale of coffee and other functional beverages, 20% from the sales of Nutraceutical products while the remaining sales of 9% were of weight management related products). During the three months ended September 30, 2021, substantially all of the Company’s consolidated net sales were from health and wellness products (including approximately 64% from the sale of coffee and other functional beverages, 22% from the sales of Nutraceutical products while the remaining sales of 16% were of weight management related products).

 

During the six months ended September 30, 2022, substantially all of consolidated net sales were from health and wellness products (including approximately 70% from the sale of Nutraceutical products, 20% from the sale of coffee and other functional beverages, 10% from the sale of weight management products and all other health and wellness products). During the six months ended September 30, 2021, approximately 99% of the Company’s consolidated net sales were from health and wellness products (including approximately 42% from the sale of Nutraceutical products, 28% from the sale of coffee and other functional beverages, 14% from the sale of weight management products, and approximately 15% from the sale of all other health and wellness products).

 

During the three and six months ended September 30, 2022, over 93% of the Company’s consolidated product purchases were from a third-party manufacturer based in the U.S. During the three and six months ended September 30, 2021, approximately 55% of the Company’s consolidated product purchases were from a third-party manufacturer based in the U.S., while 45% of 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 September 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 $1.5 million and $4.9 million, respectively; and during the six months ended September 30, 2022 and 2021, was $3.9 million and $9.9 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.

 

F-41
 

 

NOTE 3 – LOSS PER SHARE

 

We calculate basic loss per share by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted loss 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 loss per share also reflects an adjustment to net loss 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:

 

                     
   Three Months Ended   Six Months Ended 
   September 30,
2022		   September 30,
2021		   September 30,
2022		   September 30,
2021		 
Net loss, as reported  $(18,385,903)  $(2,714,765)   $(19,738,913)  $(6,262,772 
After tax interest adjustment   -    -    -    - 
Net loss, if-converted basis  $(18,385,903)  $(2,714,765)  $(19,738,913)  $(6,262,772)
Weighted average basic shares   262,832,833    187,567,291    270,531,857    186,009,840 
Dilutive securities and instruments:                    
Convertible preferred stock   -    -    -    - 
Convertible notes   -    -    -    - 
Stock options and warrants   -    -    -    - 
Weighted average diluted shares   262,832,833    187,567,291    270,531,857    186,009,840 
Loss per share:                    
Basic  $(0.07)  $(0.01)  $(0.07)  $(0.03)
Diluted  $(0.07)  $(0.01)  $(0.07)  $(0.03)

 

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

 

           
   September 30,
2022		   September 30,
2021		 
Convertible preferred stock   6,320,000    8,289,781 
Convertible notes payable   246,123,029    156,381,169 
Stock warrants   23,246,817    128,743,903 
Total potential incremental shares   275,689,846    293,414,853 

 

The preceding table does not include 3,750,000 for both stock warrants held by employees which are not vested (or exercisable) at September 30, 2022 and 4,250,000 at September 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 September 30, 2022, and March 31, 2022, inventory consists of the following:

 

           
   September 30,
2022		   March 31,
2022		 
Finished Goods  $3,957,950   $4,482,291 
Allowance for inventory obsolescence   (433,714)   (108,055)
Inventory, net  $3,524,236   $4,374,236 

 

The Company allowance for inventory obsolescence for the six months ended September 30, 2022, and September 30, 2021, was $433,714 and $284,780, respectively. The change in the allowance has primarily been driven by expired/expiring products.

 

On July 5, 2022, the Company entered into an asset purchase agreement with Hulsa LLC. The Company purchased assets, inclusive of inventory and intangible assets. The Company paid $400,000 in exchange for the assets and received approximately $177,000 of inventory related to the purchase. The inventory is included within the Inventory, net, line on the condensed consolidated balance sheet as of September 30, 2022.

 

NOTE 5 – OTHER CURRENT ASSETS, NET

 

Other current assets consist of the following:

 

           
   September 30,
2022		   March 31,
2022		 
Prepaid consulting fees, related party  $1,139,999   $2,867,123 
Inventory-related deposits   253,884    384,477 
Prepaid insurance and other operational expenses   287,553    201,275 
Deposits for sales events   -    222,540 
Right to recover asset   13,946    15,632 
Subtotal   1,695,382    3,691,047 
Less: allowance for losses   (175,641)   (179,765)
Other current assets  $1,519,741   $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). 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 September 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 $175,641 and $179,765.

 

F-42
 

 

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 and six months ended September 30, 2022, the Company recognized losses, before income tax, of $8.6 million and $3.7 million 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 and securities consists of the following:

 

           
   September 30,
2022		   March 31,
2022		 
Investment in detachable GNTW stock warrant  $966,000   $3,570,000 
Investment in GNTW common stock   106,379    393,141 
Investment in Stemtech convertible note   297,863    1,100,799 
Investment in MojiLife, LLC   1,537,000    1,537,000 
Subtotal   2,907,242    6,600,940 
Less, allowance for impairment losses   (1,537,000)   (1,537,000 
Investments  $1,370,242   $5,063,940 

 

The following table reflects the activity in the allowance for impairment losses for the periods presented:

 

           
   September 30,
2022		   March 31,
2022		 
Balance at beginning of period  $1,537,000   $- 
Provision for estimated impairment losses   -    1,537,000 
Balance at end of period  $1,537,000   $1,537,000 

 

F-43
 

 

NOTE 7 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

 

           
   September 30,
2022		   March 31,
2022		 
Building and building improvements  $8,976,878   $8,976,878 
Computer software   1,020,396    875,925 
Furniture and fixtures   237,046    237,045 
Computer equipment   223,424    223,424 
Leasehold improvements and other   351,878    263,208 
Total property and equipment   10,809,622    10,576,480 
Impairment of property and equipment   -    (100,165 
Accumulated depreciation and amortization   (1,255,045)   (891,174)
Property and equipment, net  $9,554,577   $9,585,141 

 

NOTE 8 - OTHER ASSETS

 

In July 2022, the Company acquired a multi-user license of a back-office platform for $1,000,000. This back-end platform is intended to facilitate the computation and processing of commission payments to distributors, and it requires customization in order for it to be operational. The license has no resell rights and the Company has the option to buy the full license within six months of the launch of the platform. At of the date of this report, this platform is in development for inclusion of relevant user requirements.

 

NOTE 9 – ACCRUED AND OTHER CURRENT LIABILITIES

 

Accrued and other current liabilities consist of the following:

 

           
   September 30,
2022		   March 31,
2022		 
Deferred sales  $388,691   $547,217 
Liability associated with uncertain tax positions   925,794    921,987 
Payroll and employee benefits   427,473    478,360 
Settlement liability, current portion   -    341,919 
Lease liability, current portion   70,789    134,578 
Due to related parties   699    125,532 
Other operational accruals   1,550,862    530,189 
Accrued and other current liabilities  $3,364,308   $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 September 30, 2022, include accrued expense of $902,862 and accrued interest of $648,000 on the related party convertible notes and notes payable included in the condensed consolidated balance sheet.

 

F-44
 

 

NOTE 10 - CONVERTIBLE NOTES PAYABLE, RELATED PARTIES

 

Convertible notes payable consists of the following:

 

Issuance Date  Maturity Date  Interest Rate   Conversion
Price
(per share)		   September 30,
2022		   March 31,
2022		 
April 2021  April 2024   8%  $0.20   $-   $30,000,000 
October 2017  October 2022   12%  $0.15    -    50,000 
September 2022  September 2024   8%  $     0.03    27,000,000    - 
Total convertible notes payable                27,000,000    30,050,000 
Less: unamortized debt discount and deferred financing costs                17,396,771    20,151,230 
                 9,603,229    9,898,770 
Less: current portion of convertible notes payable                9,603,229    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, 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 six months ended September 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.

 

F-45
 

 

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 September 30, 2022, and September 30, 2021, interest expense in connection with the Company’s convertible notes was $558,000 and $606,444, respectively, excluding amortization of debt discount and deferred financing costs of $2.6 million and $2.3 million, respectively. During the six months ended September 30, 2022, and September 30, 2021, interest expense in connection with the convertible notes were $648,000 and 1.7 million, respectively, excluding amortization of debt discount and deferred financing cost of $3.1 and $4.4 million respectively. These amounts are included in interest expense in our consolidated statements of operations.

 

NOTE 11 – 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:

 

           
   Six Months Ended
September 30,		 
   2022   2021 
Federal statutory rate   21.0%   21.0%
State and local income taxes   (0.2)   (0.7)
Valuation allowance for NOL carry-forwards   (15.6)   (51.1)
Stock warrant transactions and other items   (0.2)   4.1 
Effective income tax rate   5.2%   (26.7)%

 

Income taxes applicable to our foreign operations are not material in the periods presented.

 

NOTE 12 - STOCKHOLDERS’ EQUITY

 

Common Stock

 

During the six months ended September 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 six months ended September 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”).

 

F-46
 

 

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 September 30, 2022, and March 31, 2022, there were 262,832,833 and 288,923,969 shares of the Company’s Class A Common Stock issued. As of September 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 September 30, 2022, of the Company’s Class A Common Stock outstanding. As of September 30, 2022, and March 31, 2022, there were no shares of the Company’s Class B Common Stock issued and outstanding.

 

NOTE 13 - 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 and six months ended September 30, 2022, the Company recognized consulting expense of $1.1 million and $2.1 million, 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.

 

F-47
 

 

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 September 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 $78,636, which amount represents the principal plus accrued interest. The detachable stock warrant to purchase the additional 333,333 shares of the Company’s Common Stock was forfeited by the Holder upon payment. 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 $2,808 in rent expense for the six months ended September 30, 2022, 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 six months ended September 30, 2022. No consulting income has been recognized for the three and six months ended September 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 and six months ended September 30, 2022, the Company’s purchases of health and wellness products from Impact Biomedical, Inc., totaled $19,247 and $36,808, respectively.

 

F-48
 

 

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 and six months ended September 30, 2022, the Company purchased skin care products manufactured by K Beauty Research Lab and other items in the amount of $929 and $1,572.

 

Premier Packaging Corporation

 

Premier Packaging Corporation is a wholly owned subsidiary of the Company. Purchase orders to Premier Packaging Corporation, a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount was $28,090 and $151,509 for the six months ended September 30, 2022, and 2021, respectively

 

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. During the six months ended September 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 and six months ended September 30, 2022, rent expense associated with such sublease agreement was $25,081 and $50,179, respectively.

 

F-49
 

 

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 and six months ended September 30, 2022, the Company recognized consulting fee income of $12,498 and 24,996, respectively.

 

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 September 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.

 

On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company has access to advances with a maximum principal balance not to exceed the principal sum of $10 million. The APB Revolving Note is collateralized by the assets of the Company, and it bears interest at the annual rate of 8% and such interest shall be due and payable quarterly as it accrues on the outstanding balance. Interest payments on the loan are due and payable on the last day of each consecutive third calendar month until the maturity date of August 12, 2024. As of September 30, 2022, the Company had $6.0 million outstanding under the APB Revolving Note and accrued interest of $60,667 which amount was paid on October 1, 2022.

 

NOTE 14 – 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. 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 detachable stock warrant to purchase the additional 333,333 shares of the Company’s Common Stock was forfeited by the Holder upon payment. The Company made the payment to HWH on August 9, 2022.

 

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.

 

F-50
 

 

During the three months ended September 30, 2022, and 2021, the Company recognized a compensatory gain of $167,855 and $1,134,170, respectively, in connection with grants with a variable exercise price after service is completed.

 

NOTE 15 – 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  September 30,
2022		   March 31,
2022		 
Operating leases  Right-of-use assets, net  $473,993   $593,389 
Total lease assets     $473,993   $593,389 
              
Liabilities             
Operating leases  Accrued and other current liabilities  $70,789   $134,578 
Operating leases  Lease liability, long-term   413,587    461,515 
Total lease liabilities     $484,376   $596,093 

 

The following information pertains to the Company’s leases for the periods indicated:

 

      Three Months Ended
September 30,		 
Lease cost  Classification  2022   2021 
Operating lease cost  General and administrative expenses  $21,831   $305,680 
Operating lease cost  Depreciation and amortization   -    - 
Operating lease cost  Interest expense, net   -    - 
Total lease cost     $21,831   $305,680 

 

      Six Months Ended
September 30,		 
Lease cost  Classification  2022   2021 
Operating lease cost  General and administrative expenses  $45,009   $465,500 
Operating lease cost  Depreciation and amortization   -    - 
Operating lease cost  Interest expense, net   -    - 
Total lease cost     $45,009   $465,500 

 

The Company’s lease liabilities are payable as follows:

 

      
Twelve months ending September 30,  Amount 
2023  $72,962 
2024   99,367 
2025   102,147 
2026   104,926 
2027   107,706 
Thereafter   252,241 
Total remaining payments   739,349 
Less imputed interest   254,973 
Total lease liability  $484,376 

 

F-51
 

 

NOTE 16 – 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 September 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 Plaintiffs in 2015. The Company and its affiliated entities filed an answer denying the three investors’ claims. Plaintiffs filed a First Amended Complaint on October 14, 2021. The Company and its affiliated entities responded in November 2021 by filing a Motion to Dismiss the claims contained in the Amended Complaint. The Motion was granted on July 20, 2022, by Court Order dismissing with prejudice the Company and all affiliated entities from the lawsuit. In early August 2022, Plaintiffs on their own motion moved to dismiss all claims against the remaining parties in the case to enable the Order of Dismissal to become an appealable, final Order. On September 7, 2022, Plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit. As of September 30, 2022, the Fifth Circuit had not yet issued a briefing schedule.
   
(b) 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. The parties settled their disputes, and a Joint Motion for Final Dismissal was filed with the Court on September 30, 2022 requesting the Court to enter a Final Order of Dismissal with Prejudice and close the case.

 

F-52
 

 

(c) 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. On March 9, 2022, the Company filed suit against a competitor and former distributors. An Agreed Temporary Injunction was entered by the Court against the Willodsons in April 2022. This matter remains pending as of September 30, 2022.
   
(d) 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. The Defendant filed two motions to dismiss. The Court entered an Order recently denying Defendant’s motion to dismiss for lack of jurisdiction over the Defendant in Texas. As of September 30, 2022, Defendant’s motion to dismiss Plaintiff’s claim of tortious interference remains pending. Regardless of the outcome of that pending motion, the case will move forward with breach of contract claims against the Defendant. The case is pending as of September 30, 2022.
   
(e) Case No. 9:22-cv-00146; Travel Gig, LLC and Happitravel, LLC v. Sharing Services Global Corporation, SHRG IP Holdings, LLC; Global Travel Destinations, LLC., and Does 1-25, pending in the United States District Court for the District of Montana. On September 7, 2022, Plaintiffs filed a lawsuit against the Company and two affiliated entities alleging trademark infringement concerning the Company’s affiliated travel entity. Plaintiffs filed a motion seeking a Preliminary Injunction and the Court set a hearing on the motion for November 1, 2022.
   
(f) 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 September 30, 2022.

 

NOTE 17 - 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:

 

                     
   September 30, 2022 
   Total   Level 1   Level 2   Level 3 
Assets                    
                     
Investment in unconsolidated entities, net  $1,370,242   $-    -    1,370,242 
Investment in marketable securities   6,506,547         6,506,547     -    - 
Total assets  $7,876,789   $6,506,547   $-   $1,370,242 
Liabilities                    
                     
Convertible notes payable  $17,918,182   $-   $17,918,182   $- 
Total liabilities  $17,918,182   $-   $17,918,182   $- 

 

                    
   March 31, 2022 
   Total   Level 1   Level 2   Level 3 
Assets                
                    
Investment in unconsolidated entities, net  $5,063,940   $-   $-   $5,063,940 
Total assets  $5,063,940   $-   $-   $5,063,940 
Liabilities                   
                    
Convertible notes payable  $5,840,000   $-   $5,790,000   $50,000 
Total liabilities  $5,840,000   $-   $5,790,000   $50,000 

 

NOTE 18 - SUBSEQUENT EVENTS

 

In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions subsequent to the balance sheet date of September 30, 2022, for potential recognition or disclosure through the date of this report. No other events require adjustment to or disclosure in the Company’s unaudited condensed consolidated financial statements.

 

F-53
 

 

 

[●] Shares of Common Stock

 

 

 

PROSPECTUS

 

 

EF HUTTON

 

division of Benchmark Investments, LLC

 

______________, 2022

 

Through and including [●], 2023 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 
 

 

PART II — INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

 

The following table sets forth all expenses to be paid by the registrant in connection with the issuance and distribution of the securities to be registered, other than underwriting discounts and commissions. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee:

 

Expense Items  Cost 
SEC registration fee  $ 
FINRA filing fee  $   
Accounting fees and expenses  $*  
Legal fees and expenses  $*  
Transfer agent fees and expenses  $ *  
Printing expenses  $*  
Miscellaneous fees and expenses  $ *  
Total  $ *  

 

* To be provided by amendment.

 

Item 14. Indemnification of Directors and Officers.

 

Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

 

II-1
 

 

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

 

Item 15. Recent Sales of Unregistered Securities.

 

In the month ended February 28, 2022, the Company issued 50,000,000 shares of its Class A Common Stock in connection with the exercise of warrants by DSS, Inc., a majority shareholder of the Company. The proceeds from these stock issuances were used for general corporate purposes.

 

In connection with the transactions described in the preceding paragraph, no underwriters were involved, there were no proceeds generated (except as indicated in the preceding paragraph), and the issuances were made in reliance on the exemption from the registration requirements of the Securities Act of 1933 provided under Section 4(a)(2) thereof.

 

II-2
 

 

EXHIBIT INDEX

 

Exhibit    
Number   Description
1.1   Form of Underwriting Agreement by and between the Company and EF Hutton, a division of Benchmark Investments, LLC*
     
3.1   Second Amended and Restated Articles of Incorporation of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit A to the Company’s Proxy Statement on Schedule 14A filed on July 14, 2021
     
3.2   Bylaws of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 24, 2019
     
4.1   Certificate of Designation of Series A Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.2 to the Company’s Current Report on Form 8-K filed on May 8, 2017
     
4.2   Certificate of Designation of Series C Preferred Stock, which is incorporated herein by reference from Exhibit 3.1.4 to the Company’s Current Report on Form 8-K filed on May 8, 2017
     
4.3   Convertible Promissory Note dated April 13, 2018 issued by Sharing Service, Inc. in favor of RB Capital Partners, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 19, 2018
     
4.4   Convertible Promissory Note dated April 5, 2021 issued by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.2 to the Company’s Current Report on Form 8-K filed on April 9, 2021
     
4.5   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 1.3 to the Company’s Current Report on Form 8-K filed on April 9, 2021
     
4.6   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 29, 2021
     
4.7   Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock, which is incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
     
4.8   Form of Convertible Promissory Note issued, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 4.8 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
4.9   Form of Warrant to Purchase Shares of Sharing Services Global Corporation’s Class A Common Stock issued, in June 2022, by Sharing Service Global Corporation to Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 4.9 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
5.1   Opinion Of Sichenzia Ross Ference LLP as to the legality of the securities being offered*
     
10.1   U. S. Small Business Administration Note dated May 13, 2020 issued by Sharing Services Global Corporation in favor of Prosperity Bank, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 18, 2020
     
10.2   Stock Purchase and Share Subscription Agreement dated as of July 22, 2020 by and between Sharing Services Global Corporation and Heng Fai Ambrose Chan, which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 24, 2020
     
10.3   Settlement Accommodation Agreement [Including Stock Disposition and Release Provisions] dated July 22, 2020 by and between Sharing Services Global Corporation, Bear Bull Market Dividends, Inc., Kenyatto Montez Jones, and MLM Mafia, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on July 30, 2020
     
10.4   Securities Purchase Agreement dated as of April 5, 2021 by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on April 9, 2021
     
10.5   Stock Purchase and Share Subscription Agreement dated as of December 23, 2021 by and among Sharing Service Global Corporation and Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 29, 2021
     
10.6   Business Consulting Agreement dated January 24, 2022 by and between Sharing Service Global Corporation and DSS, Inc., which is incorporated herein by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022
     
10.7   Form of Distributor Agreement of The Happy Co., which is incorporated herein by reference from Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
     
10.8   2021 The Happy Co. Brand Partner Compensation Plan, which is incorporated herein by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed on June 10, 2021
     
10.9   Form of Securities Purchase Agreement entered into, in June 2022, by and among Sharing Services Global Corporation, and the Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
10.10   Form of Security Agreement made, in June 2022, by Sharing Service Global Corporation in favor of Decentralized Sharing Systems, Inc., which is incorporated herein by reference from Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
10.11   Form of Loan Agreement entered into, in June 2022,by and between LINDEN REAL ESTATE HOLDINGS, LLC and AMERICAN PACIFIC BANCORP, INC., which is incorporated herein by reference from Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
10.12   Form of DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT made, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of Cottonwood Title Insurance Agency, Inc., for the benefit of American Pacific Bancorp, Inc., which is incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
10.13   Form of Demand Promissory Note issued, in June 2022, by LINDEN REAL ESTATE HOLDINGS, LLC in favor of AMERICAN PACIFIC BANCORP, INC., which is incorporated herein by reference from Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
21.1   List of Subsidiaries of Sharing Services Global Corporation, which is incorporated herein by reference from Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on June 21, 2022
     
23.1   Consent of Sichenzia Ross Ference LLP (contained in Exhibit 5.1)*
     
23.3   Consent of Independent Registered Public Accounting Firm
     
107   Filing Fee table

 

* To be filed by amendment

 

II-3
 

 

Item 17. Undertakings.

 

(a) The undersigned registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

(5) For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

(c) The undersigned Registrant hereby undertakes that it will:

 

(1) for determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.

 

(2) for determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.

 

II-4
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Plano, State of Texas, on December 9, 2022.

 

  SHARING SERVICES GLOBAL CORPORATION
  (Registrant)
     
  By: /s/ John Thatch
    John Thatch
    Chief Executive Officer and Vice Chairman of the Board of Directors (Principal Executive Officer)
     
  By: /s/ Anthony S. Chan
    Anthony S. Chan
    Chief Financial Officer (Principal Financial Officer)

 

POWER OF ATTORNEY

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated below:

 

Signature   Title   Date
/s/ John Thatch   Chief Executive Officer and Vice Chairman of the Board of Directors (Principal Executive Officer)   December 9, 2022
John Thatch        
         
/s/ Heng Fai Ambrose Chan   Executive Chairman of the Board of Directors   December 9, 2022
Heng Fai Ambrose Chan        
         
/s/ David K. Keene   Director   December 9, 2022
David K. Keene        
         
/s/ Frank D. Heuszel   Director   December 9, 2022
Frank D. Heuszel        
         
/s/ Castel B. Hibbert   Director   December 9, 2022
Castel B. Hibbert        
         
/s/ Robert H. Trapp   Director   December 9, 2022
Robert H. Trapp        
         
/s/ Christian Zimmerman   Director   December 9, 2022
Christian Zimmerman        

 

II-5

 

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