UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the fiscal year ended | |
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-OR- | |
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ___________ to ___________ | |
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Commission
File No. |
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of |
(I.R.S.
Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value per share
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. YES
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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 ☐ | 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 Section13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES ☐
As of
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
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cautionary notice regarding forward-looking statements
Statements in this Annual Report and in any documents incorporated by reference therein which are not purely historical, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.
Readers should not place undue reliance upon the Company’s forward-looking statements, since such statements speak only as of the date they were made. Such forward-looking statements may refer to events that ultimately do not occur, or may occur to a different extent, or occur at a different time than such forward-looking statements describe. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained in this Annual Report and in any documents incorporated by reference therein, whether as a result of new information, future events, or otherwise. The Company acknowledges that all forward-looking statements involve risks and uncertainties that could cause actual events and/or results to differ materially from the events and/or results described in the forward-looking statements.
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PART I
ITEM 1. 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, business competencies, and geographic reach.
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.
Our History
Sharing Services was originally incorporated under the name Sharing Services, Inc. on April 24, 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
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Strategic Growth Initiatives
The
Company intends to grow its business by pursuing a multipronged growth strategy, that includes expanding: (a)
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 |
Travel
Services Travel
is essential to driving economic growth and job creation in states, destinations, and communities across the U.S., and it is indispensable
to our nation’s global competitiveness. Travel accounted for $1.2 trillion in direct spending in 2022 — which produced an
economic footprint of $2.6 trillion — a return to 2019 levels. In 2022, travel supported nearly 15 million American workers and
directly employed 8 million. This economic and job growth was largely due to the robust return of domestic leisure travel, which far
outpaced the recovery of the business travel and international travel segments. International
travel plays a critical role in the US economy. Prior to the COVID-19 pandemic, in 2019, international visitors spent $233.5 billion
experiencing the U.S.; injecting nearly $640 million a day into the U.S. economy. The U.S. travel and tourism industry generated $1.9
trillion in economic output, supporting 9.5 million American jobs, and accounted for 2.9% of U.S. Gross Domestic Product. At 14.5% of
international travel spending globally, international travelers spend more in the U. S. than any other country. Global
Travel The
travel industry accounted for approximately $5.8 trillion dollars globally, in 2021 — a large portion of which came from the largest
travel companies in the world. These outfits cater to both businesses and individuals and make the process of transit and accommodation
a streamlined affair, with most transactions booked online. Business
Segments, Geographic Area Information and Seasonality The
Company During
the fiscal years ended March 31, While
the Company’s business generally is not highly seasonal in nature, 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. Competition
The
health and wellness 2
The marketplace for subscription-based travel and leisure services is currently very dynamic and competitive, and highly fragmented. The barriers to entry are low and new competitors continuously emerge. We compete with many well-known companies, including some with greater resources, such as: Costco, Inspirato, Travel & Leisure Club, TripAdvisor, and Virgin Hotels, just to name a few. Our competitors may adopt aspects of our business model or may introduce new business models or services that we may need to adopt or otherwise adapt to in order to compete effectively, which could reduce our ability to differentiate our travel services from those of our competitors. Increased competition could result in a reduction in revenue, higher cost or reduced market share. We compete with many well-known companies, including some with greater resources, such as: Costco Travel (a division of Costco Wholesale), Inspirato Inc., Travel & Leisure Co., TripAdvisor, Inc., and Virgin Hotels (a division of Virgin Group), just to name a few.
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We
compete in these marketplaces by emphasizing differentiators such as our access to exclusive products and
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.
Travel
Thanks to the 10 largest travel companies in the world, consumers are able to book a plane, hotel, cruise, rental car, and more, often through one single web page. These companies can be dedicated to both businesses and consumers (oftentimes both) and are the biggest contributors to the travel industry’s nearly $5.8 trillion global economic contribution in 2021.
Beginning with the widespread adoption of the internet, the travel industry has split into two different sectors. The more traditional travel agency is one where most customers interact on a personal one-to-one basis with a travel agent, and these have existed for many decades. Today, the largest travel companies are all online and skip personal interaction to instead opt for integrated systems that work for every method of travel.
Currently, the largest travel online companies in the world include: Booking.com; Priceline.com; Trivago; Expedia.com; Hotels.com; Hotwire.com; Orbitz. Com; and Kayak.com.
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. |
| An exclusive line of Nootropic products sourced through one or more exclusive strategic partnerships and not available through traditional sales channels. |
Travel
Unlike the other online travel companies that sell to the public and spend millions of dollars each month on radio, television and billboards, MTV sells direct to consumers by way of independent sales representatives who promote and sell direct to consumers for a commission base payout. We only sell to consumers that join their membership-based subscription, which then offer the lowest rates available and do not mark up the travel unlike their competitors. Similar to large wholesale buying clubs like Costco and Sam’s club, where the consumer pays for a membership to offset the retail prices of consumer goods. Travel is sold at up to 65% off any companies, because we collect a monthly membership fee which offsets the expenses.
International Reach
During
our fiscal year ended March 31, 2023, and 2022, sales to customers and independent contractor distributors located in the U.S. accounted
for approximately 91% and 87% of consolidated sales,
In
June 2021, the Company, through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea). During our
fiscal
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
Key Products and Services
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
XanthoMax®
Happy Caps
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KetoCre® Keto Creamer- A delicious Ketogenic creamer designed to support a healthy Keto diet, and a great addition to any weight management program.
ElevaciTea®
Georgia Peach
ElevaciTea®
Vanilla Chai
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.
Member-Based Travel Services
In late 2022, through its subsidiary, Global Travel Destinations (doing business as “MyTravelVentures” or “MTV”), the Company launched a subscription-based travel service. MyTravelVentures’ services are designed to offer discounts in connection with travel, including on airfare, cruises, hotels, resorts, time shares and rental cars for destinations throughout the world for people of all ages, demographics, and economic backgrounds.
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
We
provide support to our independent contractor distributors with marketing content, websites, events, and technology. We offer our products
and services 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.
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Retail Customers and Independent Contractor Distributors
The Company distributes its health and wellness products and its subscription-based travel services 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 and travel services. 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 ITEM 1A. – “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
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,
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
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 ITEM 1A. – “RISK FACTORS” – “The success of our efforts to register our trademarks and to protect certain intellectual property rights” below 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,
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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 ITEM 1A. – “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.
Employees
As
of March 31,
| Location | 2023 | 2022 | ||||||
| United States | 41 | 58 | ||||||
| Asia | 2 | 10 | ||||||
| Total | 43 | 68 | ||||||
The
amounts above do not include the Company’s
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
In addition, the SEC maintains a website that contains any reports and other information that we file with the SEC: www.sec.gov.
ITEM 1A. RISK FACTORS
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.
A
- Risks
Relating to the Stock Distribution
The Distribution may not be completed on the terms or timeline currently contemplated, if at all.
DSS, Inc. (“DSS”) expects the Stock Distribution to be treated as a taxable non-liquidating distribution to its stockholders. As a result, a U.S. stockholder of DSS may have a U.S. Federal income tax liability in respect of the Distribution without the receipt of cash from DSS.
Prior to May 4, 2023, DSS and its affiliates held a controlling interest in our common stock. On May 4, 2023, DSS and Decentralized Sharing Systems, Inc., a wholly owned subsidiary of DSS, (“DSSI”) distributed 280,528,500 shares it held of SHRG to DSS, Inc. shareholders in connection with the Form S-1 (file no. 333-271184) initially filed with the Securities and Exchange Commission on April 7, 2023, and declared effective on April 25, 2023. DSS expects the Distribution to be treated as a taxable, non-liquidating distribution to its stockholders. As such, for U.S. federal income tax purposes, each U.S. stockholder of DSS receiving shares of Sharing Services Shares in the Distribution would be treated as if such stockholder had received a distribution in an amount equal to the fair market value of Sharing Services Shares received, which would result in (1) a taxable dividend to the extent of such stockholder’s pro rata share of DSS’s current and accumulated earnings and profits, (2) a reduction in such stockholder’s basis (but not below zero) in DSS common stock to the extent the amount received exceeds such stockholder’s share of earnings and profits and (3) a taxable gain to the extent the amount received exceeds the sum of the amount treated as a dividend and the stockholder’s basis in the DSS Common Stock. Accordingly, such stockholder may have a U.S. federal income tax liability in respect of the Distribution without the receipt of cash from DSS.
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B - 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.
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
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.
Our subsidiaries’ ability to attract and retain independent distributors; our subsidiaries’ ability to develop and maintain positive relationships with our 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, or to develop and maintain positive relationships with our independent 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, our subsidiaries’ inability to develop and maintain positive relationships with our independent 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.
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.
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In the countries where we operate, including the United States, 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.
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. 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 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. 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, 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, Our
business and financial performance could be adversely affected by inflation. In
recent history, 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
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 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. 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
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. Our
dependence on one supplier for a 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. 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. 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 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.
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. 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
The
long-term impacts of the G
– Risks Associated with our Common Stock, with our Preferred Shareholder Rights, and with Future
sales and issuances of our Common Stock or rights to purchase our Common Stock, including issuances pursuant to 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 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. 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 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 ( 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. We
are a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act. As permitted by scaled disclosure requirements
applicable to smaller reporting companies under the Exchange Act, the information we disclose may differ or be less comprehensive, when
compared to that of larger filers. If some investors find our common stock less attractive as a result of less comprehensive information
we may disclose pursuant to the exemptions available to us as a smaller reporting company, there may be a less active trading market
for our common stock and our stock price may be more volatile than that of an otherwise comparable company that does not avail itself
of the same or similar exemptions. H
- Risks Related to Current World Events An
escalation of the current war in Ukraine, generalized geopolitical 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.
None ITEM
2. PROPERTIES The
following table provides information about our material facilities: In
March 2022, the Company entered into a 7-year lease In
June 2021, the Company commenced operations in Seoul, South Korea in a facility subleased from HWH World, Inc. (“HWH
World”), a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. In May 2022, the
Company and HWH World amended the related sublease agreement to reduce the space subleased by the Company and to reduce the related
rent obligation. As of March 31, 2023, the agreement constitutes a month-to-month arrangement. During
the fiscal years ended March 31, ITEM
3. LEGAL PROCEEDINGS We
may be involved, from time to time, in claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry
insurance coverage in such amounts as we believe to be reasonable under the circumstances and that may or may not cover any or all of
our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse
impact on our consolidated financial position, cash flows or results of operations. We
are subject to several U.S. federal, state and local laws and regulations. These laws and regulations govern, among other things, labor
relations, the labeling and safety of the products we sell, and the methods we use to sell these products. We believe that we are in
material compliance with all such laws and regulations, although no assurance can be provided that this will remain true indefinitely
in the future. 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
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 13 14 15 16 18 19 21
Location
Type of Facility
Leased/Owned
Sq. Feet
Plano, Texas
Corporate Headquarters
Leased
5,560
Addison, Texas
Distribution Center
Leased
11,100
Lindon, Utah
Office Building
Owned
25,800
Seoul, South Korea
Asian Office
Leased
2,612
(a)
(b)
| (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. |
| ( |
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 |
| ( |
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. On December 30, 2022 the Plaintiffs filed a status report to the Court that a settlement had been reached. On February 2, 2023 the Parties filed a Joint Motion for Dismissal. 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. |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
for the Company’s Common Stock (a)
- Market Information 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. Readers should be aware that over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions. Our
Common Stock is traded under the symbol “SHRG.” Sharing Services, Inc.’s Common Stock commenced trading on March 7,
2017, under the symbol SHRV. In January 2019 the Company changed its corporate name to Sharing Services Global Corporation, as discussed
elsewhere in this Annual Report. In connection with the name change, effective April 4, 2019, the Company’s Common Stock commenced
trading under the symbol SHRG. (b)
- Holders As
of June (c)
- Dividends We
have not declared or paid dividends at any time during our past two fiscal years. We currently anticipate that we will retain future
earnings to support reinvestments in our business and our growth plans. Any payment of cash dividends in the future will be at the discretion
of our Board of Directors and will depend upon, among other things, future operating earnings and cash flows, future capital requirements,
contractual restrictions (including those contained in the agreements and instruments governing our debt and the Certificates of Designation
of our convertible Preferred Stock) and general business conditions. (d)
Securities Authorized for Issuance Under Equity Compensation Plans The
information contained under the caption “Equity Compensation Plans” in ITEM 12 – “SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS” is incorporated herein by reference. Recent
Sales of Unregistered Securities; Use of Proceeds from Registered Securities On
February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual
settlement of the interest accrued on the 2022 Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the
Company agreed to issue 26,285,714 shares of the Company’s Common Stock, at a price per share of $0.021 in lieu of cash payment
to satisfy the accrued and unpaid interest through and including December 31, 2022, in the amount of $552,000 owed to DSS. See Note 16
– Related Party Transactions in ITEM 8 of this Annual Report for further details. On
March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the “Agreement”) pursuant
to which the parties agreed to: (1) exchange and surrender the Assigned Warrants; (2) exchange and surrender the Service Warrants; (3)
exchange and surrender the DSSI Warrants; and (4) amend the 2022 Note by removing all conversion rights granted by the 2022 Note. Accordingly,
the Company issued 25,000,000 shares of In
connection with the transactions described in the preceding
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers None. We
are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act. Accordingly, we have omitted the performance graph otherwise
required by Item 5 of this Annual Report as permitted by applicable scaled disclosure rules. ITEM
6. [RESERVED] 25
Summary Results of Operations:
| Fiscal Year Ended March 31, | Increase | % | ||||||||||||||
| 2023 | 2022 | (Decrease) |
Change | |||||||||||||
| Net sales | $ | 16,102,136 | $ | 34,424,314 | $ | (18,322,178 | ) | -53.2 | % | |||||||
| Gross profit | 9,256,670 | 23,622,443 | (14,365,773 | ) | -60.8 | % | ||||||||||
| Operating expenses | (24,071,575 | ) | (36,954,618 | ) | (12,883,043 | ) | -34.9 | % | ||||||||
| Operating loss | (14,814,905 | ) | (13,332,175 | ) | 1,482,730 | 11.1 | % | |||||||||
| Non-operating loss, net | (22,870,258 | ) | (6,810,312 | ) | 16,059,946 | 235.8 | % | |||||||||
| Loss before income taxes | (37,685,163 | ) | (20,142,487 | ) | 17,542,676 | 87.1 | % | |||||||||
| Income tax benefit | - | (3,035,990 | ) | (3,535,990 | ) | -100.0 | % | |||||||||
| Net loss | $ | (37,685,163 | ) | $ | (17,106,497 | ) | $ | 20,578,666 | 120.3 | % | ||||||
Highlights
for the Fiscal Year Ended March 31,
3 million, compared to $23.6 million for the fiscal year ended March 31, 2022, and our consolidated gross margin was 57.5% and 69.1%, respectively, primarily as a result of an increase in our provision for expiring, damaged or excess (slow-moving) inventory of $1 .8 million and by aggressive product pricing.
| 26 |
| ● | For the fiscal year ended March 31, 2023, our consolidated net non-operating expenses were $22.9 million compared to $6.8 million for the fiscal year ended March 31, 2022, primarily as a result of higher losses on impairment of assets, higher unrealized losses on investment in unconsolidated entities, and lower gains on employee warrants liability in connection with certain stock-based awards. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |
● | For
the fiscal year ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In
In
In
| ● | In April 2023, Sharing Services issued 28,877,005 shares of the Company’s Common Stock to DSSI in lieu of cash payment to satisfy the accrued and unpaid interest from January 1, 2023, through and including March 31, 2023, in the amount of $540,000, owed to DSSI in connection with the 2022 Note. |
●
Overview
Summary Description of Business
Sharing Services Global Corporation and subsidiaries (“Sharing Services”, “we,” or the “Company”) aim to build shareholder value by developing or acquiring businesses and technologies that increase the Company’s product and services portfolio, business competencies, and geographic reach.
Currently,
the Company
| 27 |
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
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.
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)
Continuing
Uncertainty Regarding the
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,
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.
| 28 |
The
COVID emergency also may have the effect of exacerbating some of the other risk factors described elsewhere in this Annual Report, 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
The
Fiscal Year Ended March 31,
Net Sales
For
the fiscal year ended March 31,
We
believe there has been and continues to be significant uncertainty about the potentially adverse impact of the
The
decrease of $
During
the fiscal
During
the fiscal year ended March 31, 2023, approximately 63% of consolidated net sales were to consumers and approximately 37% of consolidated
net sales were to independent distributors. During the fiscal year ended March 31, 2022, approximately 66% of consolidated net sales
were to consumers
Gross Profit
For
the fiscal year ended March 31,
Selling and Marketing Expenses
For
the fiscal year ended March 31,
| 29 |
General and Administrative Expenses
For
the fiscal year ended March 31,
Interest Expense, Net
For the fiscal year ended March 31, 2023, interest expense was $2.9 million, excluding amortization of debt discount and deferred financing costs, in the aggregate, of $10.3 million, and interest income of $178,072. Interest expense of $2.9 million represents primarily interest associated with borrowings under the $27.0 million loan from “DSSI.” See Note 16 of the Notes to Consolidated Financial Statements for more details.
For
the fiscal year ended March 31, 2022, interest expense was $2.4 million, excluding amortization of debt discount
Gain
For
the fiscal
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.
Realized
and Unrealized Gains/
For
the fiscal
Realized Loss on Investment in Marketable Securities
For the fiscal years ended March 31, 2023 and 2022, realized loss on investments in marketable securities were $4.9 million and $0.0, respectively.
Impairment Losses on Assets
For
the fiscal
Other Non-operating Income/Expense, net
For
the fiscal year ended March 31,
| 30 |
Income Tax Benefit
During
the fiscal year ended March 31, 2023, the Company recognized income tax benefit of $0.0,net of the impact of the extinguishment of debt
on March 24, 2023 . 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.
As
a result of the foregoing, for the fiscal 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 As
of March 31, 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 shows our cash flow activities for the fiscal year ended March 31, Fiscal
Year Ended March 31 Increase (Decrease) 1,918,706 Net
Cash Used in Operating Activities Net cash used in operating activities Net
Cash Used in Investing Activities Net
cash used in investing activities Net
Cash Provided by Financing Activities Net
cash provided by financing activities 31
2023
2022
Net cash used in operating activities
$ (9,025,388 )
$ (15,226,654 )
$ (6,201,266 )
Net cash used in investing activities
(6,830,094 )
(12,843,757 )
(6,013,663 )
Net cash provided by financing activities
32,978,607
(31,059,901 )
Impact of currency rate changes in cash
(91,605 )
(29,339 )
62,266
Net increase (decrease) in cash and cash equivalents
$ (14,028,381 )
$ 4,878,857
$ (18,907,238 )
Impact
of
Prior
to April
Potential
Future Acquisitions The
Company intends to further grow its business by pursuing a multipronged growth strategy, which includes increasing the number of product
offerings in the U.S. and Canada, expanding its geographic footprint primarily in the Asia Pacific region, and Recent
Issuances of Equity Securities 32
| ● | In
| |
| ● | In February 2023, Sharing Services issued 33,333,333 shares of the Company’s Common Stock to DSS in connection with the February 2023 agreement between the Company and DSS to terminate the January 2022 consulting agreement between the parties. | |
| ● | In March 2023, Sharing Services issued 25,000,000 shares of the Company’s Common Stock to DSS and its affiliate in connection with the Securities Exchange and Amendment Agreement dated March 24, 2023, pursuant to which the parties agreed to amend the 2022 Note by removing the conversion rights granted by the 2022 Note and to rescind certain stock warrants to purchase shares of the Company’s Common Stock. | |
| ● | In April 2023, Sharing Services issued 28,877,005 shares of the Company’s Common Stock to DSSI in lieu of cash payment to satisfy the accrued and unpaid interest from January 1, 2023 through and including March 31, 2023, in the amount of $540,000, owed to DSSI in connection with the 2022 Note. |
Short-term Borrowings and Convertible Notes
Borrowing
Under Financing Arrangements (
In May 2020, the Company applied for and 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 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 were forgiven effective May 25, 2021.
In
May 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”),
and the Company entered a term sheet pursuant to which APB agree to extend a loan to the Company for approximately $5.7 million. The
loan would bear interest at 8%, mature on June 1, 2024, and be secured by a first mortgage interest on the Company’s Lindon, Utah
office building. APB is a subsidiary of
Convertible Notes Payable
In
On
June 15, 2022, the Company
In
In
April 2023, the Company issued 28,877,005 shares of the Company’s Common Stock
Capital Resources
During
the two fiscal years in the period ended March 31,
In
addition, in the fiscal year ended March 31, 2022,
Cash Requirements from Known Contractual and Other Obligations
As
of March 31,
As
discussed above, on
In
connection with the SPA, DSSI surrendered to the Company all DSSI’s rights pursuant to: (a)
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
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,
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.
| 35 |
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.
Recent Accounting Pronouncements and Accounting Changes
The
information contained in Note
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, are not required to provide the information required by Item 7A of this Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
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,
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and net cash used in operating activities of $37,685,163 and $9,025,388, respectively, for the fiscal year ended March 31, 2023. The Company has an accumulated deficit of $106,456,378 at March 31, 2023. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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
Related Party Convertible Note Payable
As
described in Note
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
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 and amended 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 | |
| ● | 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; |
/s/
We have served as the Company’s auditor since September 2017.
June
| 38 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2023 | As of March 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade accounts receivable, net | ||||||||
| Income taxes receivable | ||||||||
| Inventory, net | ||||||||
| Other current assets, net | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred income taxes, net | ||||||||
| Investment in unconsolidated entities, net | ||||||||
| Intangible assets | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | |||||||
| Accrued and other current liabilities | ||||||||
| Accrued sales commission payable | ||||||||
| Employee stock warrants liability | ||||||||
| State and local taxes payable | ||||||||
| , net of unamortized debt discount and unamortized deferred loan cost of $ | ||||||||
| Convertible notes payable, related parties, net of unamortized
debt discount and unamortized deferred loan cost of $ | ||||||||
| Total Current Liabilities | ||||||||
| Settlement liability, long term portion | ||||||||
| Lease liability, long-term | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ (Deficit) Equity | ||||||||
| Preferred stock, $ par value, shares authorized: | ||||||||
| Series A convertible preferred stock, $ par value, shares designated, shares issued and outstanding as of March 31, 2023 and March 31, 2022 | ||||||||
| Series B convertible preferred stock, $ par value, 10,000,000 shares designated, shares issued and outstanding | ||||||||
| Series C convertible preferred stock, $ par value, shares designated, shares issued and outstanding at March 31, 2023 and March 31, 2022 | ||||||||
| Class A common stock, $ par value, shares authorized, shares and shares issued and outstanding as of March 31, 2023 and March 31, 2022, respectively | ||||||||
| Class B common stock, $ par value, shares designated, shares issued and outstanding | ||||||||
| Treasury Stock, shares, at cost | ( | ) | ||||||
| Additional paid in capital | ||||||||
| Shares to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) Equity | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For
the Fiscal Year Ended | ||||||||
| 2023 | 2022 | |||||||
| Net sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Gain on employee warrants liability | ||||||||
| Gain on extinguishment of debt | ||||||||
| Impairment loss on assets | ( | ) | ||||||
| Unrealized gain (loss) on investment | ( | ) | ||||||
| Realized loss on investment in marketable securities | ( |
) | ||||||
| Other non-operating income (expense), net | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss (net of tax): | ||||||||
| Currency translation adjustments | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
| For
the Fiscal Years Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ( | ) | ( | ) | ||||
| Deferred income taxes | ( | ) | ||||||
| Loss on disposal of property | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of prepaid consulting fees | ||||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | ||||
| Impairment loss on assets | ||||||||
| Bad debt expense | ||||||||
| Loss (gain) on investments and other assets | ( | ) | ||||||
| Non-cash consulting expense | ||||||||
| Provision for obsolete inventory | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Lease liability | ( | ) | ||||||
| Accrued and other liabilities | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Payments for property and equipment | ( | ) | ( | ) | ||||
| Payments upon issuance of notes receivable | ( | ) | ( | ) | ||||
| Purchase of marketable securities, net | ( | ) | ||||||
| Collection of notes receivable | ||||||||
| Cash paid for acquisition of non-consolidated interests | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from issuance of promissory notes | ||||||||
| Repayments of borrowings under promissory notes | ( | ) | ( | ) | ||||
| Refinance of notes payable | ( | ) | ||||||
| Payment in connection with litigation settlement | ( | ) | ||||||
| Repayment of convertible note payable | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| IMPACT OF CURRENCY RATE CHANGES ON CASH | ( | ) | ( | ) | ||||
| Decrease in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of fiscal year | ||||||||
| Cash and cash equivalents, end of fiscal year | $ | $ | ||||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Debt modification | $ | $ | ||||||
| Common stock issued to settle accrued interest payable | $ | $ | ||||||
| Common stock issued to settle management fees payable | $ | $ | ||||||
Related party loan fees, consulting fees, and interest obligations settled with shares of common stock | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liability | $ | $ | ||||||
| Investment origination fee collected in shares of investee stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 41 |
SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
For the Fiscal Years Ended March 31, 2023 and 2022
| Series
A Preferred Stock | Series
B Preferred Stock | Series
C Preferred Stock | Common Stock | Additional | Shares | Accumulated Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Number of Shares | Par Value | Paid In Capital | Subscription Receivable | to be Issued | Treasury Stock | Accumulated Deficit | Comprehensive Loss | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for deferred financing costs and prepaid interest on debt | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversions or retirements of preferred stock | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of debt with beneficial conversion feature and in-the-money stock warrant, net of tax | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expiration of common stock puts | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock warrants exercised | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance– March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Class A and Class B Common Stock | Additional | Shares | Accumulated Other | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Par | Number of | Par | Number of | Par | Number of | Par | Paid in | to be | Treasury | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Issued | Stock | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| Refinancing of debt and detachable warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of shares of Common Stock | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Common Stock issued for debt modification | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to settle management fees payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued to settle accrued interest payable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued upon cancellation of stock warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation award (stock warrants) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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
Sale
of Health and Wellness Products - The Company
Corporate Name Change
Sharing
Services
In
the past eighteen months, the Company has initiated several business initiatives intended to stabilize its sales levels, to drive long-term
sales growth, and to create positive cash flows from operations, including by implementing stricter fiscal controls over operating costs
and expenditures. The Company believes it will be able to fund its working capital needs for the next 12 months with: (a) cash and cash
equivalents, as of March 31, 2023, of $
These matters raise reasonable doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE
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
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 and notes 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, the valuation of long-term debt covenants, 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,
Accounts Receivable and Allowance for Doubtful Accounts
As
of March 31,
Inventory and Cost of Goods Sold
Inventory
consists of
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,
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
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 | |
| ● | Furniture
and fixtures – | |
| ● | Office
equipment – | |
| ● | Computer
Equipment – | |
| ● | Computer
software – | |
| ● | Leasehold
improvements – |
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.
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 a 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,
During
the fiscal
During
the fiscal year ended March 31, 2023, approximately
During
the fiscal year ended March 31,
During
the fiscal
During
the fiscal year ended March 31,
Sales
Commissions
The
Company recognizes sales commission expense when incurred. In the fiscal year ended March 31,
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”).
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,
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,
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
| South Korean Won per 1 USD | ||||||||
| 2023 | 2022 | |||||||
| Exchange rate as of March 31st | ||||||||
| Average exchange rate for the fiscal year then ended | ||||||||
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
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
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.
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
Recently
Issued Accounting Standard -
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
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
Consistent
with the valuation hierarchy contained in ASC 820, we categorized certain of our financial assets and liabilities as follows:
As
of March 31, 2023
Total
Level
1
Level
2
Level
3
Assets
Investment
in unconsolidated entities
$
$
$
$
Total assets
$
$
$
$
Liabilities
Notes
payable
$
$
$
Total liabilities
$
$
$
$
As
of March 31, 2022
Total
Level
1
Level
2
Level
3
Assets
Investment
in unconsolidated entities
$
$
$
$
Total
assets
$
$
$
$
Liabilities
Convertible
notes payable
$
$
$
$
Total
liabilities
$
$
$
$
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
As
of March 31, 2023, notes payable (including current maturities) are reported in our consolidated financial statements at amortized
cost of $
The
Company calculates basic
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average basic and diluted shares | ||||||||
| Loss per share: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Convertible notes payable | ||||||||
| Stock warrants | ||||||||
| Convertible Preferred Stock | ||||||||
| Total potential incremental shares | ||||||||
NOTE
In
January 2021, the Company, through a wholly owned subsidiary, and
On
January 26, 2022, the parties to the Funding Agreement discussed in the preceding paragraph entered into a new Loan Agreement (“Revolving
Promissory Note”) pursuant to which the Company agreed to loan to 1044Pro up to
On
August 29, 2022, the Company and 1044Pro entered into an agreement to modify the Revolving Promissory Note dated January 26, 2022. In
accordance with the amendment, the Company agreed to lend $
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 $
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 receivable 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:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| 1044Pro | $ | $ | ||||||
| MojiLife | ||||||||
| Other | ||||||||
| Subtotal | ||||||||
| Allowance for impairment losses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The following table reflects the activity in the allowance for impairment losses for the periods presented:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Balance at beginning of fiscal year | $ | $ | ||||||
| Provision for estimated impairment losses | ||||||||
| Write-offs and recoveries | ( | ) | ||||||
| Balance at end of fiscal year | $ | $ | ||||||
NOTE
Inventory consists of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Finished Goods | $ | $ | ||||||
| Allowance for obsolescence | ( | ) | ( | ) | ||||
| $ | $ | |||||||
The
The following table reflects the activity in the allowance for inventory obsolescence for the periods presented:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Balance at beginning of fiscal year | $ | $ | ||||||
| Provision for estimated obsolescence | ||||||||
| Write-offs and recoveries | ( | ) | ( | ) | ||||
| Balance at end of fiscal year | $ | $ | ||||||
NOTE
Other current assets consist of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Prepaid consulting fees, related party | $ | $ | ||||||
| Inventory-related deposits | ||||||||
| Prepaid insurance and other operational expenses | ||||||||
| Deposits for sales events | ||||||||
| Right to recover asset | ||||||||
| Subtotal | ||||||||
| Allowance for losses | ( | ) | ( | |||||
| $ | $ | |||||||
Prepaid
consulting fees represent the fair value on the grant date of stock warrants issued to DSS in January 2022 for consulting services to
be rendered over a year from the issue date (see Note
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.
NOTE
Property and equipment consist of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Building and building improvements | $ | $ | ||||||
| Computer software | ||||||||
| Furniture and fixtures | ||||||||
| Computer equipment | ||||||||
| Leasehold improvements and other | ||||||||
| Total property and equipment | ||||||||
| Impairment of property and equipment | ( |
) | ||||||
| Accumulated depreciation and amortization | ( |
) | ( |
) | ||||
| $ | $ | |||||||
Depreciation
and amortization expense in connection with the Company’s property and equipment for the fiscal year ended March 31,
In
December 2021, the Company, through as subsidiary, purchased an office building in Lindon, Utah for $
NOTE
In
September 2021, the Company, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered
into a Securities Purchase Agreement (the “SPA”) pursuant to which the Company invested $
The
Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance
with U.S. GAAP. During the fiscal year ended March 31, 2022, the Company recognized unrealized gains, before income tax, of $
In
September 2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company acquired a
Investment in unconsolidated entities consists of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Investment in detachable GNTW stock warrant | $ | $ | ||||||
| Investment in GNTW common stock | ||||||||
| Investment in Stemtech convertible note | ||||||||
| Investment in MojiLife | ||||||||
| Subtotal | ||||||||
| Allowance for impairment losses | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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.
The
following table reflects the activity in the allowance for impairment losses for the periods presented:
Fiscal
Year Ended March 31,
2023
2022
Balance at beginning of fiscal
year
$
$
Provision for estimated
impairment losses
Balance at end of fiscal
year
$
$
NOTE
Notes payables consist of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| American Pacific Bancorp, Inc. – Linden building | $ | $ | ||||||
| American Pacific Bancorp, Inc. – Revolving Note | ||||||||
| Unamortized discount and deferred financing costs | ( | ) | ||||||
| $ | $ | |||||||
In
May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $
On
June 15, 2022, Linden Real Estate Holdings, LLC, a wholly owned subsidiary of the Company, American Pacific Bancorp, Inc. (“APB”),
and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $
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 $
NOTE 12 – ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities consist of the following:
| As of March 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred sales revenues | $ | $ | ||||||
| Liability associated with uncertain tax positions | ||||||||
| Accrued interest payable | ||||||||
| Payroll and employee benefits | ||||||||
| Settlement liability, current portion | ||||||||
| Lease liability, current portion | ||||||||
| Other accruals | ||||||||
| $ | $ | |||||||
Lease
liability, current portion,
NOTE
Convertible notes payable consists of the following:
| Maturity | Interest | Conversion Price | As of March 31, | |||||||||||||||
| Issuance Date | Date | Rate | (per share) | 2023 | 2022 | |||||||||||||
| % | $ | N/A | $ | $ | ||||||||||||||
| % | $ | |||||||||||||||||
| Total convertible notes payable | ||||||||||||||||||
| Unamortized debt discount and deferred financing costs | ( |
) | ( |
) | ||||||||||||||
| Subtotal | ||||||||||||||||||
| Less: current portion of convertible notes payable | ||||||||||||||||||
| Long-term convertible notes payable | $ | $ | ||||||||||||||||
The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s Common Stock at the conversion prices indicated above. The April 2018 convertible note was paid in full in March 2022.
In
October 2017,
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 $
In
June 2022, the Company and 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 $
In
March 2023, the Company and DSSI entered into a Securities Exchange and Amendment Agreement pursuant to which the parties agreed to
amend the 2022 Note by removing the conversion rights granted by the 2022 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 as a deemed dividend of approximately $
In
the fiscal year ended March 31, 2023, and
NOTE
The
Company leases space for its corporate headquarters, warehouse space, automobiles, and office and other equipment, under lease agreements
classified as operating leases. The Company has remaining lease terms of approximately
The following information pertains to the Company’s leases as of the balance sheet dates indicated:
| As of March 31, | ||||||||||
| Assets | Classification | 2023 | 2022 | |||||||
| Operating leases | Right-of-use assets, net | $ | $ | |||||||
| Total lease assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Accrued and other current liabilities | $ | $ | ||||||||
| Operating leases | Lease liability, long-term | |||||||||
| Total lease liabilities | $ | $ | ||||||||
Expense pertaining to the Company’s leases for the periods indicated is as follows:
| Fiscal Year Ended March 31, | ||||||||||
| Lease cost | Classification | 2023 | 2022 | |||||||
| Operating lease cost | General and administrative expenses | $ | $ | |||||||
| Operating lease cost | Depreciation and amortization | |||||||||
| Operating lease cost | Interest expense, net | |||||||||
| Total lease cost | $ | $ | ||||||||
The Company’s lease liabilities are payable as follows:
| Twelve months ending March 31, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total remaining payments | ||||
| Less imputed interest | ||||
| Total lease liability | $ | |||
NOTE
Our consolidated provision for (benefit from) income taxes is as follows:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ( | ) | ||||
| State and local | ||||||||
| Foreign | ||||||||
| Total current | ( | ) | ||||||
| Deferred: | ||||||||
| Federal | ( | ) | ||||||
| State and local | ||||||||
| Foreign | ||||||||
| Total deferred | ( | ) | ||||||
| Total consolidated income tax benefit | $ | $ | ( | ) | ||||
Our consolidated effective income tax rate reconciliation is as follows:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Federal statutory rate | % | % | ||||||
| State and local income taxes | ( | ) | ||||||
| Change in valuation allowance for NOL carry-forwards | ( | ) | ( | ) | ||||
| Stock warrant transactions and other items | ||||||||
| Effective income tax rate | % | % | ||||||
Our deferred tax asset (liability) is as follows:
| As of March 31, | ||||||||
| Deferred tax assets: | 2023 | 2022 | ||||||
| Share-based compensation | $ | $ | ||||||
| Accruals and reserves not currently deductible | ||||||||
| Impairment of investments and inventory | ||||||||
| Other | ||||||||
| Total deferred tax assets | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets, net | $ | $ | ||||||
During
the fiscal year ended March 31, 2023, and 2022, the Company recognized a valuation allowance of approximately $
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.
A reconciliation of the Company’s unrecognized tax benefits for the years indicated is as follows:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Balance at beginning of fiscal year | $ | $ | ||||||
| Additions for tax positions related to the current year | ||||||||
| Balance at end of fiscal year | $ | $ | ||||||
The
company recognizes interest and/or penalties related to uncertain tax positions in current income tax
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,
| Tax Jurisdiction | Open Years | |||
| United States | ||||
| Republic of Korea | ||||
| Other Countries | N/A | |||
NOTE
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 $ million in the Company and the Company agreed to issue million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to million shares of the Company’s Class A Common Stock at an exercise price of $ per share (the “Assigned Warrants”). Concurrently with the SPA Agreement, Mr. Chan and DSS, then a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued million of its Class A Common Stock pursuant to the SPA Agreement. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.
In
April 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $
In
December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $
In
January 2022, the Company and DSS who, together with its subsidiaries
In
June 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 $
On
February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the “DSS Letter Agreement”), pursuant
to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as of December
31, 2022. In accordance with the DSS Letter Agreement, the Company also agreed to issue shares of the Company’s Common
Stock in lieu of cash payment to satisfy the accrued and unpaid service fees equal to $
On
February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual
settlement of the interest accrued on the 2022 Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the
Company agreed to issue shares of the Company’s Common Stock, at a price per share of $ in lieu of cash payment
to satisfy the accrued and unpaid interest through and including December 31, 2022, in the amount of $
On
March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the “Agreement”)
pursuant to which the parties agreed to: (1) exchange and surrender of the Assigned
On
April 17, 2023, the Company and DSSI mutually agreed in a subsequent Letter Agreement (the “Second DSSI Letter Agreement”)
to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023. In accordance
with the Second DSSI Letter Agreement, the Company agreed to issue shares of the Company’s Common Stock, at a price
per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest between January 1, 2023, through and including
March 31, 2023, in the amount of $
As
of March 31, 2023, DSS and its affiliates owned, in the aggregate,
| 59 |
Alset Title Company, Inc.
In
December 2021, Sharing Services, through one of its subsidiaries, purchased an office building in Lindon, Utah for $
Hapi Café, Inc.
In November 2021, Sharing Services and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the Master Franchise Agreement.
HWH International, Inc.
In
October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $
HWH World, Inc.
A
subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc. (“HWH World”),
a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. Pursuant to the terms of the
sublease agreement, the Company recognized a right-of-use asset and an operating lease liability of $
In
September 2021, the Company and HWH World entered into an Advisory Agreement pursuant to which the Company provides strategic advisory
services to HWH World in connection with its North America expansion plans in exchange for a monthly fee of $
Impact Biomedical, Inc.
In
the fiscal year ended March 31, 2022, a wholly owned subsidiary of the Company purchased health and wellness products from Impact Biomedical,
Inc., a subsidiary of DSS, in the aggregate amount of $
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 $ million.
Premier Packaging Corporation
In
the fiscal year ended March 31, 2023, and 2022, a wholly owned subsidiary of the Company issued purchase orders to Premier Packaging
Corporation, a subsidiary of DSS, to acquire printed packaging materials
| 60 |
Alchemist Holdings, LLC
In February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed to transfer to the Company million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations to the Company. Under the terms of the Accommodation Agreement, Alchemist and the former Company officer also agreed to transfer to the Company million shares of the Company’s Common Stock held by Alchemist, to offset certain legal and other expenses incurred by the Company in connection with various related-party legal claims. Accordingly, in the fiscal year ended March 31, 2021, the Company and Alchemist caused the transfer to the Company, in the aggregate, of million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares.
In
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 $
In
May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer discussed in the preceding
paragraph and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement
with Mutual Releases (the “May 2022 Settlement Agreement”) pursuant to which the parties amicably settled all claims and
disputes among them; (b) the former officer sold to the Company shares of the Company’s common stock then under the
voting and dispositive control of the former officer; (c) the Company made a one-time payment of $
The
Company subleases warehouse and office space from Alchemist, a
New Electric CV Corp. (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 $
American Pacific Bancorp, Inc.
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
$
On
August 11, 2022, the Company executed a revolving credit promissory note with APB pursuant to which the Company has access to advances
with a maximum principal balance not to exceed the principal sum of $
NOTE 17 - STOCKHOLDERS’ EQUITY – CAPITAL STOCK
Preferred Stock
Series A Convertible Preferred Stock
The
Board has authorized the issuance of up to 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
During
the fiscal year ended March 31, 2021, stockholders converted an aggregate of shares of the Company’s Series A Preferred
Stock into an equal number of shares of the Company’s Common Stock. There were
As
of March 31,
Series B Convertible Preferred Stock
The
Board has authorized the issuance of up to 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,
Series C Convertible Preferred Stock
The
Board has authorized the issuance of up to 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
During
the fiscal year ended March 31, 2022,
Common Stock
The
Board has authorized the issuance of up to shares of Class A Common Stock and up to shares of Class B Common
Stock, each with a par value of $ 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 Annual Report,
In
April 2021, the Company issued million shares of its Class A Common Stock to DSSI, including million shares in payment of a
loan origination fee and million shares in prepayment of interest on a loan, as more fully discussed in Notes
In
December 2021, the Company and DSSI entered into a Stock Purchase and Share Subscription Agreement pursuant to which DSSI invested $
million in the Company in exchange for million shares of Class A Common Stock and a Stock Warrant to purchase up to 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 $ per share and the Company recognized a deemed dividend of $
On February 3, 2023, the Company mutually agreed with
DSS to enter into a Letter Agreement (the “DSS Letter Agreement”), pursuant to which the Company and DSS have agreed to terminate
and release all obligations of the Consulting Agreement effective as of December 31, 2022. In accordance with the DSS Letter Agreement,
the Company also agreed to issue shares of the Company’s Common Stock in lieu of cash payment to satisfy the accrued
and unpaid service fees equal to $
On February 28, 2023, the Company and DSSI mutually
agreed in a Letter Agreement (the “First DSSI Letter Agreement”) to a mutual settlement of the interest accrued on the 2022
Note issued by the Company to DSSI. In accordance with the DSSI Letter Agreement, the Company agreed to issue shares of the
Company’s Common Stock, at a price per share of $ in lieu of cash payment to satisfy the accrued and unpaid interest through
and including December 31, 2022, in the amount of $
In
March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the “Agreement”).
Pursuant to the Agreement, the parties decided to: 1) exchange and surrender the Assigned Warrants, 2) exchange and surrender the Service
Warrants, 3) exchange and surrender the DSSI Warrants, and 4) amend the 2022 Note by removing all conversion rights granted by the 2022
Note. Under the terms of the Agreement, the Company issued
In
February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement
Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed
to transfer to the Company million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations
to the
In
May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated
with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022
Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer
sold to the Company shares of the Company’s common stock then under the voting and dispositive control of the former
officer; (c) the Company made a one-time payment of $
| 63 |
During
the fiscal year ended March 31, 2022, holders of 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)
As
of March 31,
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
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
In
October 2017, the Company issued a convertible note in the principal amount of $
In
January 2022, the Company and DSS who, together with its subsidiaries, was then a majority shareholder of the Company, entered into
a one-year Business Consulting Agreement (the “Consulting Agreement”) pursuant to which the DSS would 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 ($
In
June 2022, the Company and 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 $
| 64 |
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 16, “RELATED PARTY TRANSACTIONS” above for more details):
| Number
of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Term | ||||||||||
| Outstanding at March 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | ||||||||||
| Expired or forfeited | - | |||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Expired, terminated, or forfeited | ( | ) | - | |||||||||
| Outstanding at March 31, 2023 | $ | - | ||||||||||
In
February 2023, the Company issued a fully vested warrant to purchase up to shares of the Company’s Common Stock, at
an exercise price of $
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 March 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | ( | ) | - | |||||||||
| Expired or forfeited | ( | ) | - | |||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Expired or forfeited | ( | ) | ||||||||||
| Outstanding at March 31, 2023 | $ | |||||||||||
| Less: unvested at March 31, 2023 | $ | |||||||||||
| Vested at March 31, 2023 | $ | |||||||||||
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 shares of its Common Stock
to members of its independent sales force, with a fair value of $ million. The warrants are exercisable for a period ranging from
to
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 March 31, 2021 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Expired or forfeited | ( | ) | ||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired or forfeited | ||||||||||||
| Outstanding at March 31,2023 | $ | |||||||||||
From
time to time, the Company has granted fully vested warrants to purchase shares of
| Number
of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Term | ||||||||||
| Outstanding at March 31, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised, expired or forfeited | - | |||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised, expired or forfeited | ( | ) | ||||||||||
| Outstanding, at March 31, 2023 | - | |||||||||||
The
following table summarizes additional information relating to all stock warrants outstanding and warrants exercisable as of March 31,
| All Warrants Outstanding | All Warrants Exercisable | |||||||||||||||
| Weighted Average Remaining Contractual | Weighted Average | Weighted Average | ||||||||||||||
| Number of Shares | life (in years) | Exercise Price | Number of Shares | Exercise Price | ||||||||||||
| $ | $ | |||||||||||||||
| $ | $ | |||||||||||||||
| $ | $ | |||||||||||||||
NOTE
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 $
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.
| (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 |
66
| (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 |
| (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. | |
| ( |
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 | |
| ( | 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. On December 30, 2022 the Plaintiffs filed a status report to the Court that a settlement had been reached. On February 2, 2023 the Parties filed a Joint Motion for Dismissal. 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. |
NOTE
Business Segments -
As
of March 31,
| 67 |
The Company’s segment information is as follows:
| Fiscal Year Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net sales | ||||||||
| Health and wellness products | $ | $ | ||||||
| Other | ||||||||
| Total net sales | $ | $ | ||||||
| Operating earnings (loss): | ||||||||
| Segment gross profit: | ||||||||
| Health and wellness products | $ | $ | ||||||
| Other | ||||||||
| Total segment gross profit | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Consolidated operating loss | $ | ( | ) | $ | ( | ) | ||
| Total Assets: | ||||||||
| Health and wellness | $ | $ | ||||||
| Corporate | ||||||||
| Consolidated total assets | $ | $ | ||||||
| Payments for property and equipment: | ||||||||
| Health and wellness | $ | $ | ||||||
| Corporate | ||||||||
| Consolidated payments for property and equipment | $ | $ | ||||||
| Depreciation and amortization expense: | ||||||||
| Health and wellness | $ | $ | ||||||
| Corporate | ||||||||
| Consolidated depreciation and amortization | $ | $ | ||||||
Geographic Area Information
Our consolidated net sales, by geographic area, were as follows:
| Fiscal Year Ended March 31, | ||||||||
| Country | 2023 | 2022 | ||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Republic of Korea | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Our consolidated total assets, by geographic area, were as follows:
| Fiscal Year Ended March 31, | ||||||||
| Country | 2023 | 2022 | ||||||
| United States | $ | $ | ||||||
| Republic of Korea | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE
On April 10, 2023, the Company, on the first part, and Ms. Kimberley McLean, Mr. Brian Christopher Schweda, Jr., Mr. Mark Willodson, Ms. Judy Willodson, and Valentus, Inc. (each, a competitor and/or a former distributor of the Company), on the second part, settled all disputes between the Company and each of such competitor and/or former distributor, and exchanged mutually acceptable releases.
NOTE
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.
| 68 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer (“CEO”)
and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures, as defined
in Rule 13a-15(e) of the Exchange Act, as of the end of the fiscal period covered by this Annual Report, and concluded that, as of March
31,
Limitations on the Company’s Controls and Procedures. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Management’s Annual Report on Internal Control over Financial Reporting.
Management
of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) of the Exchange Act. Our management, with the participation of our CEO and our CFO, assessed the effectiveness
of our internal control over financial reporting as of March 31,
All internal control systems, no matter how well designed, have inherent limitations. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except
as stated below, the information required by Item 10 of this Annual Report is incorporated herein by reference from our Proxy Statement
related to the
Directors and Executive Officers
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, Inc. (formerly Document Security Systems, Inc.) (“DSS”). Mr. Chan also serves as Executive Chairman of the Company’s
Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Company’s Board of Directors
of the Company. Until May 4, 2023, DSS, together with its subsidiary, Decentralized Sharing Systems, Inc.,
Code of Business Conduct and Ethics
The
Company’s Board of Directors has adopted a Code of Business Conduct and Ethics that applies to the Company’s directors, officers
and employees. Copies of this document are available in print to any person, free of charge, upon written request to our Investor Relations
Department at
Involvement
in Legal Proceedings
No Executive Officer or Director of the registrant has been convicted in a criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding that is currently pending. In addition, no Executive Officer of the registrant is the subject of any other type of legal proceedings pending.
As of the date hereof, no Executive Officer or Director of the registrant is involved in any bankruptcy petition by or against any business in which they are a general partner, an executive officer or a director at this time or within two years of any involvement as a general partner, executive officer, or director of any business.
ITEM 11. EXECUTIVE COMPENSATION
We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, have omitted certain information required by Item 11 of this Annual Report as permitted by applicable scaled disclosure rules.
The
additional information required by Item 11 of this Annual Report is incorporated herein by reference from our Proxy Statement related
to the
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except
as stated below, the information required by Item 12 of this Annual Report, including information about securities granted under individual
compensation arrangements with executives of the registrant, is incorporated herein by reference from our Proxy Statement related to
the
Equity
Compensation Plans
In the fiscal year ended March 31, 2022, the Company did not issue securities
to its directors, officers, employees, independent sales distributors
In
the fiscal years ended March 31, 2021, and April 30, 2020, the Board authorized the issuance of fully vested stock warrants to purchase
an aggregate of up to 29,200,000 shares and 32,000,000 shares, respectively, of the Company’s Common Stock to its employees, including
24,700,000 shares and 32,000,000 shares, respectively, exercisable at a price linked to the price of a share of the Company’s stock
multiplied by a discount rate. As of March 31, 2022, stock warrants to purchase up to 19,700,000 shares under these authorizations remain
outstanding.
In
addition, in the fiscal years 2018 and 2019, the Company issued fully vested stock warrants in connection with certain stock
subscription agreements. These warrants convey the right to purchase up to 2,180,000 shares of the Company’s Common Stock, at
an exercise price determined by the average trading price per share of the Company’s Common Stock and
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, have omitted certain information required by Item 13 of this Annual Report as permitted by applicable scaled disclosure rules.
The
additional information required by Item 13 of this Annual Report is incorporated herein by reference from our Proxy Statement related
to the
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by Item 14 of this Annual Report is incorporated herein by reference from our Proxy Statement related to the
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Annual Report:
(a)
List of Financial Statements and Financial Statement Schedules required by Item 8 of this Annual Report: See Consolidated Financial
Statements beginning on Page
(b)
Exhibits The
following exhibits are filed as part of this Annual Report or are incorporated herein by reference:
| 72 |
*Filed herewith
*
(c) Financial Statement Schedules – Not applicable
ITEM 16. FORM 10-K SUMMARY.
As permitted, the Company has elected to omit the information required by Item 16 of this Annual Report.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the
| 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 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ John Thatch | Chief
Executive Officer and Vice Chairman of the Board of |
June
| ||
| John Thatch | ||||
| /s/ Heng Fai Ambrose Chan | Executive Chairman of the Board of Directors | June
| ||
| Heng Fai Ambrose Chan | ||||
| /s/ David K. Keene | Director | June
| ||
| David K. Keene | ||||
| /s/ Frank D. Heuszel | Director | June
| ||
| Frank D. Heuszel | ||||
| /s/ Castel B. Hibbert | Director | June
| ||
| Castel B. Hibbert | ||||
| /s/ Robert H. Trapp | Director | June
| ||
| Robert H. Trapp | ||||
| /s/ Christian Zimmerman | Director | June
| ||
| Christian Zimmerman |
Exhibit 21.1
SHARING
SERVICES GLOBAL CORPORATION
LIST OF SUBSIDIARIES
Sharing Services Global Corporation
| ● | ||
| Elevacity Ventures, LLC (Texas) | ||
| ● | Elevacity Holdings, LLC (Texas) | |
| ● | Elevacity U.S., LLC (Texas) | |
| ● | ||
| Global Product Innovations, LLC (Texas) | ||
| ● | Global Travel Destinations, LLC (Texas) | |
| ● | Product Innovations Affiliates, LLC (Texas) | |
| ● | ||
| ● | SHRG Development Ventures, LLC (Texas) | |
| ● | SHRG IP Holdings, LLC (Texas) | |
| ● | SHRG
| |
| ● | SHRG North America Acquisitions, LLC (Texas) | |
| ● | SHRG Real Estate Holdings, LLC (Texas) | |
| ● | Linden Real Estate Holdings, LLC (Texas) | |
| ● | Elevacity International Holdings, LLC (Texas) | |
| ● | SHRG Asia Partners Pte. Limited (Singapore) | |
| ● | ||
| ● | ||
| Elepreneurs Asia Limited (Hong Kong) | ||
| ● | Elepreneurs Asia Pte. Limited (Singapore) | |
| ● | Partners Happy Pte. Limited (Singapore) | |
| ● | The Happy Co. Korea Limited (South Korea) | |
| ● | HAPI International Limited (Hong Kong) | |
| ● | HAPI Group Limited (Hong Kong) | |
| ● | HAPPY International DMCC (Dubai) | |
| ● | Four Oceans Holdings, Inc (Nevada) | |
| ● | Elenergy, LLC (Inactive) | |
| ● | Elevacity Global Australia PTY LTD (Inactive) | |
| ● | Elevacity Global Canada, ULC (Inactive) | |
| ● | Elevacity Global NZ Limited (Inactive) | |
| ● | Elevacity Limited (Inactive) | |
| ● | Elepreneurs Canada, ULC (Inactive) | |
| ● | Imagine University, LLC (Inactive) | |
| ● | Legacy Direct Global LLC (Inactive) | |
| ● | Total Travel Media, Inc. (Inactive) |
Note:
All entities shown above are direct or indirect wholly owned subsidiaries of the Registrant.
Exhibit
31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Thatch, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Sharing Services Global Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | June |
| By: | /s/ John Thatch | |
| John Thatch | ||
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony S. Chan, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Sharing Services Global Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: | June |
| By: | /s/ Anthony S. Chan | |
| Anthony S. Chan | ||
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report on Form 10-K of Sharing Services Global Corporation (the “Company”) for the fiscal year
ended March 31,
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| By: | /s/ John Thatch | |
| John Thatch | ||
| Chief Executive Officer |
Date: | June |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report on Form 10-K of Sharing Services Global Corporation (the “Company”) for the fiscal year
ended March 31,
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| By: | /s/ Anthony S. Chan | |
| Anthony S. Chan | ||
| Chief Financial Officer |
Date: | June |