NOTES
TO 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 Quarterly Report, market their products
primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”
Currently, The Happy Co.TM markets and distributes its health and wellness products primarily in the United States, Canada,
the Republic of Korea, and other countries in the Asia Pacific region.
Subscription-Based
Travel Services - Through its subsidiary, Hapi Travel Destinations (“MyTravelVentures” or “MTV”), the Company
delivers subscription-based travel services. MyTravelVentures’ 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. MTV 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. In August 2022, the Company executed a non-binding letter of intent with American Wealth Mining
Corporation (“AWM”, known previously as American Premium Water Corporation), a related party, allowing AWM to be the exclusive franchisee of Hapi Café in the State of
New York.
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.
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 December 31, 2022, and March 31, 2022, cash and cash equivalents included cash held by our merchant processors
of approximately $1.0 million and $3.3 million, respectively, including approximately $0.9 million and $3.0 million, respectively held
by one merchant processor. In addition, as of December 31, 2022, and March 31, 2022, cash and cash equivalents held in bank accounts
in foreign countries in the ordinary course of business were $1.4 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 December 31, 2022, the amount
due from 1044 is $230,355.
At
December 31, 2022 and March 31, 2022, notes receivable were $926,205 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 in the Company’s consolidated statements of operations. At December
31, 2022, the investment was valued at approximately $4.3 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 December 31, 2022, and March 31, 2022, the allowance for obsolete inventory was $742,311 and 108,055, respectively, in
connection with the health and wellness products that are either damaged, expired or otherwise considered slowing moving based of historical
or projected 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 designed 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 $307,279 in principal and interest related to the loan for the nine months ended December
31, 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. On December 9, 2022, APB and the Company mutually agreed
to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note. As of December 31,
2022, the Company had $6.0 million outstanding under the APB Revolving Note and no accrued interest as of the date.
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.
SCHEDULE
OF FOREIGN EXCHANGE CURRENCY TRANSLATION
| | |
South Korean
Won per USD | |
| Exchange rate as of December 31, 2022 | |
| 1,261.92 | |
| | |
South
Korean Won per USD | |
| | |
Three Months Ended
December 31, 2022 | | |
Nine Months Ended
December 31, 2022 | |
| Average exchange rate as of December 31, 2022 | |
| 1,359.18 | | |
| 1,320.11 | |
Comprehensive
Loss
For
the three and nine months ended December 31, 2022, and 2021, the Company’s comprehensive loss was comprised of currency translation
adjustments and net loss.
Revenue
Recognition
As
of December 31, 2022, and March 31, 2022, deferred sales associated with product invoiced but not received by customers was $142,221
and $344,071, respectively. In addition, as of December 31, 2022 and March 31, 2022, deferred sales associated with our unfulfilled
performance obligations for services offered on a subscription basis was $89,679, and $70,968; deferred sales associated with our performance
obligations for customers’ right of return was $63,382 and $63,890, and deferred sales associated with customer loyalty points
was $106,380 and $68,287, respectively. Deferred sales are expected to be recognized into income when the related performance obligations
have been met.
During
the three and nine months ended December 31, 2022, no individual customer, or affiliated group of customers, represented 10% or more
of the Company’s consolidated net sales, and approximately 64% of net sales for the three months ended December 31, 2022, were
to customers (including 42% to recurring customers, refer internally as “SmartShip” sales, and approximately 22% to new customers)
and approximately 36% of the Company’s net sales were to independent distributors.
During
the nine months ended December 31, 2022, approximately 63% of the Company’s net sales were to customers (including 39% to recurring
customers, refer herein as “SmartShip” sales, and approximately 24% to new customers) and approximately 37% of the Company’s
net sales were to independent distributors.
During
the nine months ended December 31, 2021, approximately 67% of the Company’s net sales were to customers (including 32% to recurring
customers, refer herein as “SmartShip” sales, and approximately 35% to new customers) and approximately 33% of the Company’s
net sales were to independent distributors.
During
the nine months ended December 31, 2022, and December 31, 2021, approximately 93% and 86%, 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 December 31, 2022, substantially all of the Company’s consolidated net sales were from health and wellness
products (including approximately 70% from the sale of coffee and other functional beverages, 20% from the sales of Nutraceutical products
while the remaining sales of 10% were of weight management and other related products).
During
the nine months ended December 31, 2022, substantially all of consolidated net sales were from health and wellness products (including
approximately 70% from the sale of coffee and other functional beverages, 20% from the sale of Nutraceutical products and 10% from the
sale of weight management products and all other health and wellness products). During the nine months ended December 31, 2021, substantially
all net sales are from health and wellness products (including approximately 39% from the sale of Nutraceutical products, 29% from the
sale of coffee and other functional beverages, 12% from the sale of weight management products, and approximately 20% from the sale of
all other health and wellness products).
During
the nine months ended December 31, 2022, over 93% of the Company’s consolidated product purchases were from a third-party manufacturer
based in the U.S. During the nine months ended December 31, 2021, approximately 58% of product
purchases were from a third-party manufacturer based in the U.S., and approximately 41% of product purchases were from various suppliers
located in Asia.
Sales
Commissions
The
Company recognizes sales commission expense, when incurred, in accordance with GAAP. During the three months ended December 31, 2022,
and 2021, sales commission expense, which is included in selling and marketing expenses in our consolidated statements of operations
and comprehensive loss, was $1.2 million and $3.7 million, respectively; and during the nine months ended December 31, 2022, and 2021,
was $5.1 million and $13.6 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 that 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 that 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.
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:
SCHEDULE
OF COMPUTATIONS OF BASIC AND DILUTED LOSS PER SHARE
| | |
December 31,
2022 | | |
December 31,
2021 | | |
December 31,
2022 | | |
December 31,
2021 | |
| | |
Three Months Ended | | |
Nine Months Ended | |
| | |
December 31,
2022 | | |
December 31,
2021 | | |
December 31,
2022 | | |
December 31,
2021 | |
| Net loss, as reported | |
$ | (11,024,951 | ) | |
$ | (6,940,162 | ) | |
| (30,763,863 | ) | |
$ | (13,202,933 | ) |
| After tax interest adjustment | |
| - | | |
| - | | |
| | | |
| - | |
| Net loss, if-converted basis | |
$ | (11,024,951 | ) | |
$ | (6,940,162 | ) | |
$ | (30,763,863 | ) | |
$ | (13,202,933 | ) |
| Weighted average basic shares | |
| 262,832,833 | | |
| 192,112,139 | | |
| 267,956,183 | | |
| 188,051,336 | |
| Dilutive securities and instruments: | |
| | | |
| | | |
| | | |
| | |
| Convertible preferred stock | |
| | | |
| - | | |
| | | |
| - | |
| Convertible notes | |
| | | |
| - | | |
| | | |
| - | |
| Stock options and warrants | |
| | | |
| - | | |
| | | |
| - | |
| Weighted average diluted shares | |
| 262,832,833 | | |
| 192,112,139 | | |
| 267,956,183 | | |
| 188,051,336 | |
| Loss per share: | |
| | | |
| | | |
| | | |
| | |
| Basic and Diluted | |
$ | (0.04 | ) | |
$ | (0.04 | ) | |
$ | (0.12 | ) | |
$ | (0.07 | ) |
The
following potentially dilutive securities and instruments were outstanding as of December 31, 2022, and December 31, 2021, but excluded
from the table above:
SCHEDULE
OF POTENTIALLY DILUTIVE INSTRUMENTS OUTSTANDING
| | |
| | |
| |
| | |
December 31,
2022 | | |
December 31,
2021 | |
| Convertible preferred stock | |
| 6,320,000 | | |
| 7,630,800 | |
| Convertible notes payable | |
| 163,612,120 | | |
| 157,756,728 | |
| Stock warrants | |
| - | | |
| 94,829,948 | |
| Total potential incremental shares | |
| 169,932,120 | | |
| 260,217,476 | |
The
preceding table does not include 3,750,000 for both stock warrants held by employees which are not vested (or exercisable) at December
31, 2022 and 3,750,000 at December 31, 2021, respectively.
NOTE
4 – INVENTORY, NET
Inventory
consists primarily of finished goods. The Company provides an allowance for slow-moving, damaged, expired or expiring inventory. As of
December 31, 2022, and March 31, 2022, inventory consists of the following:
SCHEDULE
OF INVENTORY
| | |
December 31,
2022 | | |
March 31,
2022 | |
| Finished Goods | |
$ | 3,470,442 | | |
$ | 4,482,291 | |
| Allowance for inventory obsolescence | |
| (742,311 | ) | |
| (108,055 | ) |
| Inventory, net | |
$ | 2,728,131 | | |
$ | 4,374,236 | |
The
Company allowance for inventory obsolescence for the nine months ended December 31, 2022, and December 31, 2021, was $742,311 and $388,431,
respectively. The increase in the allowance was primarily 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.
NOTE
5 – OTHER CURRENT ASSETS, NET
Other
current assets consist of the following:
SCHEDULE
OF OTHER CURRENT ASSETS
| | |
December 31,
2022 | | |
March 31,
2022 | |
| Prepaid consulting fees, related party | |
$ | 230,136 | | |
$ | 2,867,123 | |
| Inventory-related deposits | |
| 222,982 | | |
| 384,477 | |
| Prepaid insurance and other operational expenses | |
| 258,257 | | |
| 201,275 | |
| Deposits for sales events | |
| - | | |
| 222,540 | |
| Right to recover asset | |
| 16,094 | | |
| 15,632 | |
| Subtotal | |
| 727,469 | | |
| 3,691,047 | |
| Less: allowance for losses | |
| (175,641 | ) | |
| (179,765 | ) |
| Other current assets | |
$ | 551,828 | | |
$ | 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 December 31, 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.
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 nine months ended December 31, 2022, the Company recognized losses, before income tax, of $1.2 million
and $4.9 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. In March of 2022, the company impaired the MojiLife investment as the evaluation at such time determined the investment
was not fully recoverable.
Investment
in unconsolidated entities and securities consists of the following:
SUMMARY
OF INVESTMENT IN UNCONSOLIDATED ENTITIES
| | |
December 31,
2022 | | |
March 31,
2022 | |
| Investment in detachable GNTW stock warrant | |
$ | 126,000 | | |
$ | 3,570,000 | |
| Investment in GNTW common stock | |
| 13,876 | | |
| 393,141 | |
| Investment in Stemtech convertible note | |
| 38,851 | | |
| 1,100,799 | |
| Investment in MojiLife, LLC | |
| 1,537,000 | | |
| 1,537,000 | |
| Subtotal | |
| 1,715,727 | | |
| 6,600,940 | |
| Less, allowance for impairment losses | |
| (1,537,000 | ) | |
| (1,537,000 | ) |
| Investments | |
$ | 178,727 | | |
$ | 5,063,940 | |
The
following table reflects the activity in the allowance for impairment losses for the periods presented:
SCHEDULE
OF ALLOWANCE FOR IMPAIRMENT LOSSES
| | |
December 31,
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 | |
NOTE
7 – PROPERTY AND EQUIPMENT, NET
Property
and equipment consist of the following:
SUMMARY
OF PROPERTY AND EQUIPMENT
| | |
December 31,
2022 | | |
March 31,
2022 | |
| Building and building improvements | |
$ | 8,975,813 | | |
$ | 8,976,878 | |
| Computer software | |
| 1,025,586 | | |
| 875,925 | |
| Furniture and fixtures | |
| 237,045 | | |
| 237,045 | |
| Computer equipment | |
| 223,424 | | |
| 223,424 | |
| Vehicles | |
| 27,851 | | |
| - | |
| Leasehold improvements and other | |
| 371,124 | | |
| 263,208 | |
| Total property and equipment | |
| 10,860,843 | | |
| 10,576,480 | |
| Impairment of property and equipment | |
| - | | |
| (100,165 | ) |
| Accumulated depreciation and amortization | |
| (1,423,299 | ) | |
| (891,174 | ) |
| Property and equipment,
net | |
$ | 9,437,544 | | |
$ | 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 designed 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:
SUMMARY
OF ACCRUED AND OTHER CURRENT LIABILITIES
| | |
December 31,
2022 | | |
March 31,
2022 | |
| Deferred sales | |
$ | 401,663 | | |
$ | 547,217 | |
| Liability associated with uncertain tax positions | |
| 925,795 | | |
| 921,987 | |
| Payroll and employee benefits | |
| 388,193 | | |
| 478,360 | |
| Settlement liability, current portion | |
| 224,000 | | |
| 341,919 | |
| Lease liability, current portion | |
| 78,266 | | |
| 134,578 | |
| Due to related parties | |
| 53,797 | | |
| 125,532 | |
| Other operational accruals | |
| 1,368,114 | | |
| 530,189 | |
| Accrued and other current
liabilities | |
$ | 3,439,828 | | |
$ | 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 December 31, 2022, include accrued expense of $816,115 and accrued interest of $552,000 on the related party convertible notes and
notes payable included in the condensed consolidated balance sheet.
NOTE
10 - CONVERTIBLE NOTES PAYABLE, RELATED PARTIES
Convertible
notes payable consists of the following:
SCHEDULE
OF CONVERTIBLE NOTES PAYABLE
| Issuance Date | |
Maturity Date | |
Interest Rate | | |
Conversion
Price
(per share) | | |
December 31,
2022 | | |
March 31,
2022 | |
| April 2021 | |
April 2024 | |
| 8 | % | |
$ | 0.20 | | |
$ | - | | |
$ | 30,000,000 | |
| October 2017 | |
October 2022 | |
| 12 | % | |
$ | 0.15 | | |
| - | | |
| 50,000 | |
| June 2022 | |
June 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 | |
| |
| | | |
| | | |
| 14,866,710 | | |
| 20,151,230 | |
| | |
| |
| | | |
| | | |
| 12,133,290 | | |
| 9,898,770 | |
| Less: current portion of convertible notes payable | |
| |
| | | |
| | | |
| 12,133,290 | | |
| 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 nine months ended December 31, 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.
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 December 31, 2022, and December 31, 2021, interest expense in connection with the Company’s convertible
notes was $552,000 and $605,934, respectively, excluding amortization of debt discount and deferred financing costs of $2.5 million and
$2.3 million, respectively. During the nine months ended December 31, 2022, and December 31, 2021, interest expense in connection with
the convertible notes were $1.2 million and $1.8 million, respectively, excluding amortization of debt discount and deferred financing
cost of $5.6 million and $6.7 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:
SCHEDULE OF STATUTORY RATES FOR OUR DOMESTIC AND FOREIGN OPERATION
| Country | |
2022 | | |
2021 | |
| United States | |
| 21 | % | |
| 21 | % |
| Republic of Korea | |
| 21 | % | |
| 22 | % |
| Effective Income Tax Rate | |
| 21 | % | |
| 22 | % |
Our
consolidated effective income tax rate reconciliation is as follows:
SCHEDULE OF INCOME TAX RATE RECONCILIATION RATE
| | |
2022 | | |
2021 | |
| | |
Nine Months Ended
December 31, | |
| | |
2022 | | |
2021 | |
| Federal statutory rate | |
| 21.0 | % | |
| 21.0 | % |
| State and local income taxes | |
| (0.0 | ) | |
| (0.7 | ) |
| Valuation allowance for NOL carry-forwards | |
| (21.0 | ) | |
| (51.1 | ) |
| Stock warrant transactions and other items | |
| (2.5 | ) | |
| 4.1 | |
| Effective income tax rate | |
| (2.5 | )% | |
| (26.7 | )% |
Income
taxes applicable to our foreign operations are not material in the periods presented.
NOTE
12 - STOCKHOLDERS’ EQUITY
Common
Stock
During
the nine months ended December 31, 2022, the Company issued to DSSI: (a) a two-year 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 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
nine months ended December 31, 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”).
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 December 31, 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 December 31, 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 December 31, 2022, of the Company’s Class
A Common Stock outstanding. As of December 31, 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. As of December 31, 2022, the Company had accrued approximately $700,000, related to the Consulting Agreement, within
the condensed consolidated financial statements. During the three and nine months ended December 31, 2022,
the Company recognized consulting expense of $1.0 million and $3.1 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.
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 December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2022. No consulting income has been recognized for the three and nine months ended December
31, 2022.
Impact
Biomedical, Inc. and DSS BioHealth Holdings Inc.
In
the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased health and wellness products from Impact Biomedical,
Inc., a subsidiary of DSS, in the aggregate amount of $111,414. During the three months ended December 31, 2022, the Company made no
purchases of health and wellness products from DSS BioHealth Holdings Inc. For the nine months ended December 31, 2022, the Company’s
purchases totaled $36,808.
K
Beauty Research Lab. Co., Ltd
In
the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty
Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai
Ambrose Chan, a Director of the Company, in the aggregate amount of $2.3 million. The Company’s affiliates operating in Asia intend
to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as
part of the Company’s previously announced strategic growth plans. During the three months ended December 31, 2022, the Company
made no purchases of skin care products manufactured by K Beauty Research Lab and other items. For the nine months ended December 31,
2022, the Company made purchases in the amount of $1,572 of skin care products manufactured by K Beauty Research Lab.
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 $152,813 for the nine months ended December 31, 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 nine months ended December 31, 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 nine
months ended December 31, 2022, rent expense associated with such sublease agreement was $26,007 and $77,787, respectively.
American
Wealth Mining Corporation (formerly, 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 nine months ended December 31, 2022, the Company recognized consulting fee income of $12,498
and 37,494,
respectively.
In
August 2022, the Company executed a non-binding letter of intent with American Wealth Mining Corporation (“AWM”), a related party, allowing AWM to be the exclusive franchisee of Hapi Café in the State
of New York.
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. On December 9,
2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms
of the APB Revolving Note. As of December 31, 2022, the Company had $6.0
million outstanding under the APB Revolving Note.
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.
During
the three months ended December 31, 2022, and 2021, the Company recognized a compensatory gain of $39,375 and $154,488, respectively,
in connection with grants with a variable exercise price after service is completed. During the nine months ended December 31, 2022,
and 2021, the Company recognized a gain of $207,210 and 1,935,588, 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:
SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES
| | |
| |
| | |
| |
| Assets | |
Classification | |
December 31, 2022 | | |
March 31, 2022 | |
| Operating leases | |
Right-of-use assets, net | |
$ | 458,768 | | |
$ | 593,389 | |
| Total lease assets | |
| |
$ | 458,768 | | |
$ | 593,389 | |
| | |
| |
| | | |
| | |
| Liabilities | |
| |
| | | |
| | |
| Operating leases | |
Accrued and other current liabilities | |
$ | 78,266 | | |
$ | 134,578 | |
| Operating leases | |
Lease liability, long-term | |
| 413,587 | | |
| 461,515 | |
| Total lease liabilities | |
| |
$ | 491,853 | | |
$ | 596,093 | |
The
following information pertains to the Company’s leases for the periods indicated:
SCHEDULE OF OPERATING LEASE COSTS
| | |
| |
Three Months Ended December 31, | |
| Lease cost | |
Classification | |
2022 | | |
2021 | |
| Operating lease cost | |
General and administrative expenses | |
$ | 36,920 | | |
$ | 54,463 | |
| Operating lease cost | |
Depreciation and amortization | |
| - | | |
| - | |
| Operating lease cost | |
Interest expense, net | |
| - | | |
| - | |
| Total lease cost | |
| |
$ | 36,920 | | |
$ | 54,463 | |
| | |
| |
Nine Months Ended December 31, | |
| Lease cost | |
Classification | |
2022 | | |
2021 | |
| Operating lease cost | |
General and administrative expenses | |
$ | 81,212 | | |
$ | 349,165 | |
| Operating lease cost | |
Depreciation and amortization | |
| - | | |
| - | |
| Operating lease cost | |
Interest expense, net | |
| - | | |
| - | |
| Total lease cost | |
| |
$ | 81,212 | | |
$ | 349,165 | |
The
Company’s lease liabilities are payable as follows:
SCHEDULE OF OPERATING LEASE LIABILITY PAYABLE
| | |
| |
| Twelve months ending September 30, | |
Amount | |
| 2023 | |
$ | 80,439 | |
| 2024 | |
| 99,367 | |
| 2025 | |
| 102,147 | |
| 2026 | |
| 104,926 | |
| 2027 | |
| 107,706 | |
| Thereafter | |
| 252,241 | |
| Total remaining payments | |
| 746,826 | |
| Less imputed interest | |
| 254,973 | |
| Total lease liability | |
$ | 491,853 | |
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 December
31, 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 December 31, 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 December 31, 2022, requesting the Court to enter a Final Order of Dismissal
with Prejudice and close the case. |
| (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 December 31, 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 December 31, 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 December 31, 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. This case was resolved on December 29, 2022, and the Court entered a Dismissal
with Prejudice on February 6, 2023. |
| |
|
| (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 December 31, 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:
SCHEDULE OF VALUATION HIERARCHY FINANCIAL ASSETS AND LIABILITIES
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
December 31, 2022 | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Assets | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Investment in unconsolidated entities, net | |
$ | 178,727 | | |
$ | - | | |
| - | | |
| 178,727 | |
| Investment in marketable securities | |
| 4,251,225 | | |
| 4,251,225 | | |
| | | |
| | |
| Total assets | |
$ | 4,429,952 | | |
$ | 4,251,225 | | |
$ | - | | |
$ | 178,727 | |
| Liabilities | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Convertible notes payable | |
$ | 12,109,091 | | |
$ | - | | |
$ | 12,109,091 | | |
$ | - | |
| Total liabilities | |
$ | 12,109,091 | | |
$ | - | | |
$ | 12,109,091 | | |
$ | - | |
| | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
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 December 31, 2022, for potential recognition or disclosure through the date of this report. Except as
disclosed below, no other events require adjustment to or disclosure in the Company’s unaudited condensed consolidated
financial statements.
| ● | On February 3, 2023, the Company and DSS entered into a mutual release
and termination of the business consulting agreement dated January 24, 2022 (the “Consulting Agreement”) effective December
31, 2022. The Parties agree and acknowledge that the Company’s accrued and unpaid service fees of $700,000 owed to DSS under the
Consulting Agreement and, in lieu of a cash payment thereof, the Company shall issue to DSS 33,333,333 shares of the Company’s common
stock (calculated on a pre-reverse split basis), reflecting a price per share of $0.021 (which price is the average of last five days’
closing price as per OTC Markets), in full satisfaction of any and all amounts due by the Company to DSS pursuant to the Consulting Agreement. |
