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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: December 31, 2023

 

or

 

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

 

Commission File Number 000-55997

 

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   30-0869786

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5200 Tennyson Parkway, Suite 400, Plano, Texas   75024
(Address of principal executive offices)   (Zip Code)

 

(469) 304-9400

(Registrant’s telephone number, including area code)

 

None

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange in which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of February 13, 2024, there were 376,328,885 shares of the issuer’s Class A Common Stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION 4
Item 1. Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Item 4. Controls and Procedures 35
   
PART II—OTHER INFORMATION 36
Item 1. Legal Proceedings 36
Item 1A. Risk Factors 36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 37
Signatures 38

 

2
 

 

In this Quarterly Report, references to “the Company,” “Sharing Services,” “our company,” “we,” “our,” “ours,” and “us” refer to Sharing Services Global Corporation and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

 

cautionary notice regarding forward-looking statements

 

Statements in this Quarterly Report and in any documents incorporated by reference herein which are not purely historical, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.

 

Readers should not place undue reliance upon the Company’s forward-looking statements since such statements speak only as of the date they were made. Such forward-looking statements may refer to events that ultimately do not occur, or may occur to a different extent, or occur at a different time than such forward-looking statements describe. Except to the extent required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained in this Quarterly Report and in any documents incorporated by reference herein, whether as a result of new information, future events, or otherwise. The Company acknowledges that all forward-looking statements involve risks and uncertainties that could cause actual events and/or results to differ materially from the events and/or results described in the forward-looking statements.

 

3
 

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The following unaudited financial statements: condensed consolidated balance sheets as of December 31, 2023, condensed consolidated statements of operations and comprehensive loss for the three and nine months ended December 31, 2023 and 2022, condensed consolidated statements of cash flows, and condensed consolidated statements of changes in stockholders’ deficit for the nine months ended December 31, 2023 and 2022, are those of Sharing Services Global Corporation and its subsidiaries.

 

Index to Unaudited Condensed Consolidated Financial Statements

 

  Page
   
Condensed consolidated balance sheets as of December 31, 2023, and March 31, 2023 5
   
Condensed consolidated statements of operations and comprehensive loss for the three and nine months ended December 31, 2023 and 2022 6
   
Condensed consolidated statements of cash flows for the nine months ended December 31, 2023 and 2022 7
   
Condensed consolidated statements of changes in stockholders’ deficit for the nine months ended December 31, 2023 and 2022 8
   
Notes to the unaudited condensed consolidated financial statements 9

 

4
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS  

 

   December 31, 2023  March 31, 2023
   (Unaudited)   
ASSETS          
Current Assets          
Cash and cash equivalents  $737,850   $2,994,885 
Trade accounts receivable, net   494,451    273,674 
Other receivable   1,800,000    - 
Short-term advance   31,194    - 
Inventory, net   2,190,680    1,636,120 
Other current assets, net   226,371    527,827 
Total Current Assets   5,480,546    5,432,506 
Property and equipment, net   325,523    9,270,193 
Right-of-use assets, net   414,865    448,240 
Deferred income taxes, net   16    - 
Investment in unconsolidated entities, net   -    206,231 
Intangible assets   438,002    545,372 
Other assets   1,162,389    1,177,173 
TOTAL ASSETS  $7,821,341   $17,079,715 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable  $1,084,968   $1,028,510 
Accrued and other current liabilities   2,745,147    2,781,037 
Accrued sales commission payable   1,676,362    2,357,643 
Tax payable   1,518,379    1,446,503 
Note payable, related party, net of unamortized debt discount and unamortized deferred loan cost   -    6,922,043 
Note payable   1,200,000    - 
Convertible note payable, related party, net of unamortized debt discount and unamortized deferred loan cost   -    24,827,086 
Total Current Liabilities   8,224,856    39,362,822 
Lease liability, long-term   416,277    440,478 
TOTAL LIABILITIES   8,641,133    39,803,300 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ DEFICIT          
Series A convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,100,000 shares issued and outstanding   310    310 
Series B convertible preferred stock, $0.0001 par value, no shares issued and outstanding   -    - 
Series C convertible preferred stock, $0.0001 par value, 100,000,000 shares designated, 3,220,000 shares issued and outstanding   322    322 
Series D preferred stock, $0.0001 par value, 26,000 shares issued and outstanding   3    - 
Class A common stock, $0.0001 par value, 1,990,000,000 shares designated, 376,328,885 shares and 347,451,880 shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively   37,633    34,745 
Class B common stock, $0.0001 par value, 10,000,000 shares designated, no shares issued and outstanding   -    - 
Treasury stock   -    (626,187)
Additional paid in capital   110,699,858    84,619,762 
Shares to be issued   12,146    12,146 
Accumulated deficit   (111,230,122)   (106,456,378)
Accumulated other comprehensive loss   (339,942)   (308,305)
TOTAL STOCKHOLDERS’ DEFICIT   (819,792)   (22,723,585)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $7,821,341   $17,079,715 

 

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

 

5
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS  

(Unaudited)

 

   December 31, 2023  December 31, 2022  December 31, 2023  December 31, 2022
   Three Months Ended  Nine Months Ended
   December 31, 2023  December 31, 2022  December 31, 2023  December 31, 2022
Net sales  $2,885,645   $3,245,903   $8,172,469   $12,737,673 
Cost of goods sold   701,683    1,643,111    2,217,315    5,059,916 
Gross profit   2,183,962    1,602,792    5,955,154    7,677,757 
Operating expenses                    
Selling and marketing   948,228    928,246    3,112,773    5,723,642 
General and administrative   1,972,405    4,678,620    6,375,717    13,787,444 
Total operating expenses   2,920,633    5,606,866    9,488,490    19,511,086 
Operating loss   (736,671)   (4,004,074)   (3,533,336)   (11,833,329)
Other income (expense):                    
Interest expense, net   (137,362)   (3,320,159)   (3,006,440)   (9,761,622)
Other income   -    -    1,800,000    - 
Gain on employee warrants liability   -    39,375    -    207,210 
Loss on investment and extinguishment of debt   -    -    (116,841)   - 
Unrealized loss on investment   -    (3,614,242)   

-

   (10,284,002)
Other non-operating income (expense), net   (17,009)   (21,722)   86,427    118,077 
Total other expense, net   (154,371)   (6,916,748)   (1,236,854)   (19,720,337)
Loss before income taxes   (891,042)   (10,920,822)   (4,770,190)   (31,553,666)
Income tax expense (benefit)   3,554    104,129    3,554    (789,803)
Net loss  $(894,596)  $(11,024,951)  $(4,773,744)  $(30,763,863)
                     
Other comprehensive income (loss), net of tax:                    
Currency translation adjustments   (4,032)   251,166    (31,637)   (156,850)
Total other comprehensive (loss) income   (4,032)   251,166    (31,637)   (156,850)
Comprehensive loss  $(898,628)  $(10,773,785)  $(4,805,381)  $(30,920,713)
                     
Loss per share:                    
Basic and diluted  $(0.002)  $(0.04)  $(0.01)  $(0.12)
                     
Weighted average shares:                    
Basic and diluted   376,328,885    262,832,833    374,543,761    267,956,183 

 

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

 

6
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

   December 31, 2023   December 31, 2022 
   Nine Months Ended 
   December 31, 2023   December 31, 2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(4,773,744)  $(30,763,863)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   442,643    539,411 
Stock-based compensation   (148,267)   (303,784)
Amortization of debt discount and other   2,015,542    10,447,435 
Loss (gain) on extinguishment of debt   38,215    (350,320)
Intangible asset impairment   -    154,182 
Bad debt expense (recovery of bad debt provision)   177,115    (85,155)
Realized/unrealized gain on investments   -    10,284,002 
Provision for obsolete inventory (recovery of inventory provision)   (54,394)   1,012,433 
Changes in operating assets and liabilities:          
Accounts receivable   (397,891)   (22,413)
Short-term advance   (31,194)   - 
Other receivable   (1,800,000)   - 
Inventory   (500,165)   892,136 
Other current assets   672,915    321,291 
Property and equipment   (54,237)   - 
Other assets   97,590    (137,112)
Accounts payable   56,458    669,048 
Income taxes payable   71,860    (496,026)
Lease liability   1,578    35,008 
Accrued and other liabilities   760,577    (1,042,211)
Net Cash Used in Operating Activities  (3,425,399)  (8,845,938)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payments for property and equipment and other assets   -    (1,404,013)
Issuance of notes receivable   -    (216,885)
Purchase of marketable securities   -    (9,510,000)
Cash paid for asset purchase   -    (400,000)
Net Cash Used in Investing Activities   -    (11,530,898)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
           
Net proceeds from issuance of promissory notes   -    10,922,329 
Proceeds from note payable   1,200,000    - 
Common stock received on litigation settlement   -    (1,046,254)
Retirement of loans   -    (3,374,416)
Net Cash Provided by Financing Activities   1,200,000    6,501,659 
           
IMPACT OF CURRENCY RATE CHANGES ON CASH   (31,635)   (35,864)
Decrease in cash and cash equivalents  $(2,257,034)  $(13,911,041)
Cash and cash equivalents, beginning of period   2,994,885    17,023,266 
Cash and cash equivalents, end of period  $737,851   $3,112,225 
           
Supplemental cash flow information          
Cash paid for interest  $96,279   $127,790 
Cash paid for income taxes  $550   $- 

 

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

 

7
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT 

(Unaudited)

 

   Number  Par 

Number

  Par  Number  Par 

Number

  

Par  Number  Par  Paid in 

Shares to

  Treasury  Accumulated 

Comprehensive

   
   Series A  Series B  Series C  Series D  Class A and Class B              Accumulated   
   Preferred Stock 

Preferred Stock

 

Preferred Stock

  Preferred Stock  Common Stock  Additional          Other   
   Number  Par 

Number

  Par  Number  Par 

Number

  

Par  Number  Par  Paid in 

Shares to

  Treasury  Accumulated 

Comprehensive

   
   of Shares  Value  of Shares  Value  of Shares  Value  of Shares  Value  of Shares  Value  Capital  be Issued  Stock  Deficit  Loss  Total
Balance - March 31, 2023     3,100,000   $310                    -   $    -      3,220,000   $322                     -         -                  347,451,880   $34,745   $84,619,762   $    12,146   $(626,187)  $(106,456,378)  $                  (308,305)  $(22,723,585)
Cancellation of treasury-stock   -     -     -     -     -     -     -     -               (626,187)   -     626,187    -     -     - 
Common stock issued for debt modification                                 26,000   $3              26,169,365                        26,169,368 
Common stock issued to settle accrued interest payable                                           28,877,005    2,888    536,918                        539,806 
Currency translation adjustments                                                                    -    (31,637)   (31,637)
Net loss                                                                    (4,773,744)        (4,773,744)
Balance - December 31, 2023   3,100,000   $310    -   $-    3,220,000  $322    26,000  $3    376,328,885   $37,633   $110,699,858   $12,146   $-   $(111,230,122)  $(339,942)  $(819,792)

 

   Series A  Series B 

Series C

  Series D  Class A and Class B              Accumulated   
   Preferred Stock  Preferred Stock  Preferred Stock  Preferred Stock  Common Stock  Additional           Other   
   Number  Par 

Number of

  Par  Number  Par 

Number

  

Par  Number  Par  Paid in 

Shares to

  Treasury  Accumulated 

Comprehensive

   
   of Shares  Value  Shares  Value  of Shares  Value  of Shares  Value  of Shares  Value  Capital  be Issued  Stock  Deficit  Loss  Total
Balance - March 31, 2022      3,100,000   $310                      -   $-    3,220,000   $      322                     -   $-    288,923,969   $28,892   $80,738,719   $    12,146    -    $(57,886,336)  $(65,109)  $22,828,944 
Refinancing of debt and detachable warrants   -     -     -     -     -     -     -     -               1,235,516    -     -               1,235,516 
Repurchase of 26,091,136 shares of Common Stock                                           (26,091,136)   (2,609)   (23,482)       $(626,187)             (652,278)
Currency translation adjustments                                                                         (156,850)   (156,850)
Net loss                                                                    (30,763,863)        (30,763,863)
Balance - December 31, 2022   3,100,000   $310    -   $-    3,220,000  $322    -  $-    262,832,833   $26,283   $81,950,753   $12,146   $(626,187)  $(88,650,199)  $(221,959)  $(7,508,531)

 

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

 

8
 

 

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS

 

Description of Operations

 

Sharing Services Global Corporation (“Sharing Services,” “SHRG”) 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 was incorporated in the State of Nevada in April 2015. The Company’s main business activities include:

 

Sale of Health and Wellness Products - The Company markets its health and wellness products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.” Currently, The Happy Co. TM markets and distributes its health and wellness products primarily in the United States (the “U.S.”) and Canada.

 

Sale of Member-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company established a subscription-based travel services business under the proprietary brand MyTravelVentures (“MTV”) in May 2022. MTV provides entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model. The MTV services are designed to offer discount for travel relating to airfare, cruises, hotels, resorts, time shares and rental cars for destinations throughout the world for people of all ages, demographics, and economic backgrounds.

 

In August 2021, Sharing Services and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement (the “MFA”) pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms of the MFA, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the MFA. The Company plans to open up Hapi Café in Dallas and other major cities in North America, and is in the process of identifying and evaluating suitable locations.

 

Directly or through its subsidiaries, the Company from time to time will invest in emerging business in the direct selling industry, using a combination of debt and equity financing, in efforts to leverage the Company’s business competencies and to participate in the growth of these businesses. As part of the Company’s commitment to the success of these emerging businesses, the Company, directly or through its subsidiaries, also plans to offer shared services, such as merchant processing, insurance, order fulfillment and logistics, and other “back office” solutions that are success-critical to these businesses in the direct sales industry.

 

NOTE 2- GOING CONCERN

 

The accompanying unaudited condensed consolidated financial statements as of December 31, 2023 have been prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. During the nine months ended December 31, 2023 and 2022, the Company had a net loss was approximately $4.8 million and $30.8 million, respectively. These factors among other raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from significant shareholders sufficient to meet its minimal operating expenses and seeking third party equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

9
 

 

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited condensed consolidated interim financial statements included herein have been prepared in accordance with GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for year ended March 31, 2023.

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period financial information has been reclassified 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 December 31, 2023, and March 31, 2023, cash and cash equivalents included cash held by our merchant processors of approximately $0.08 million and $0.5 million, respectively. In addition, as of December 31, 2023, and March 31, 2023, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were approximately $0.4 million and $1.3 million, respectively. Amounts held by our merchant processor or held in bank accounts located in foreign countries are generally not insured by any federal agency.

 

Accounts Receivable and Allowance for Credit Losses

 

Accounts receivable consists mainly of amounts due from a merchant processor in the normal course of business. To measure impairment on accounts receivables, the Company adopted current expected credit losses (CECL) model, which is established on management’s historical collection experience, age of the receivable, the economic environment, industry trend analysis, and the current credit profile and financial condition of the merchant processor. On a quarterly basis, management reviews its receivables to determine if the allowance for doubtful accounts is adequate and adjusts the allowance, including the base loss rate and adjustment factors, when necessary. Delinquent account balances are written-off against the allowance for doubtful accounts after all means of collection have been exhausted and that the likelihood of collection is not probable.

 

Inventory

 

Inventory consists of finished goods and promotional materials and are stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. The Company periodically assesses its inventory levels when compared to current and anticipated sales levels. As of December 31, 2023, and March 31, 2023, the allowance for obsolete inventory was $843,034 and $880,926, respectively, in connection with health and wellness product that is damaged, expired or otherwise in excess of forecasted outputs, based on our current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its condensed consolidated statements of operations.

 

10
 

 

Other Receivable and Loan Payable

 

In July 2023, the Company, through its out-sourced payroll services provider (“Paychex”), submitted a claim to the Internal Revenue Services (“IRS”) for the Employee Retention Tax Credit (“ERTC credit”) based on its payroll records and other pertinent information. Refunds will be distributed based on IRS processing times and the total ERTC credit will be approximately $1.8 million. Since the likelihood of receiving the ERTC credit is probable and the amount is estimable, the Company has recorded its ERTC credit in the Other Receivable.

 

Through the introduction of Paychex, the Company successfully applied for an ERTC loan (“bridge loan”) in August 2023. The bridge loan that was approved came to $1.2 million, and it was recorded as a Loan Payable. The loan is for a 12-month period and carries a 2% monthly interest rate. The loan proceeds must be used solely and exclusively for working capital and other business purposes and it had an origination fee of $24,000. The Company received net proceeds of approximately $1.18 million in September 2023.

 

Other Assets

 

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

 

Foreign Currency Translation

 

The functional currency of each of our foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individual material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in accumulated other comprehensive loss in our condensed consolidated balance sheets. In September 2021, the Company, through its wholly owned subsidiary, commenced operations in the Republic of Korea (South Korea).

 

SCHEDULE OF FOREIGN EXCHANGE CURRENCY TRANSLATION

   South Korean 
   Won per USD 
Exchange rate as of December 31, 2023   1,294.46 

 

   South Korean Won per USD 
   Three Months ended   Nine Months ended 
   December 31, 2023   December 31, 2023 
Average exchange rate as of December 31, 2023   1,320.54    1,316.52 

 

11
 

 

Comprehensive Loss

 

For the three and nine months ended December 31, 2023 and 2022, the Company’s comprehensive loss comprised of currency translation adjustments and net loss.

 

Revenue Recognition

 

As of December 31, 2023, and March 31, 2023, deferred sales revenue associated with products invoiced but not received by customers at the balance sheet date was $212,715 and $113,896, respectively. In addition, as of December 30, 2023, and March 31, 2023, deferred sales revenue associated with our unfulfilled performance obligations for services offered on a subscription basis was $44,248 and $80,528, and deferred sales revenue associated with our performance obligations for customers’ right of return was $26,970 and $26,894, and deferred revenues associated with customer loyalty points was $25,493 and $25,493, respectively. Deferred sales revenue is expected to be recognized over one year.

 

During the three and nine months ended December 31, 2023 and 2022, substantially all our consolidated net sales were from our health and wellness products.

 

Sales Commissions

 

The Company recognizes sales commission expenses, when incurred, in accordance with GAAP. During the three months ended December 31, 2023 and 2022, sales commission expense, which is included in selling and marketing expenses in our condensed consolidated statements of operations and comprehensive loss, was approximately $0.9 million and $1.2 million, respectively. During the nine months ended December 31, 2023 and 2022, sales commission expense was approximately $2.7 million and $5.1 million, respectively

 

Recently Issued Accounting Standards - Pending Adoption

 

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal year 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.

 

12
 

 

NOTE 4 – LOSS PER SHARE

 

We calculate basic loss per share by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is calculated similarly but reflects the potential impact of shares issuable upon the conversion or exercise of outstanding convertible preferred stock, convertible notes payable, if any, stock warrants and other commitments to issue common stock, except where the impact would be anti-dilutive.

 

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

 

   2023   2022 
   Three Months Ended December 31, 
   2023   2022 
Net loss  $(894,596)  $(11,024,951)
Weighted average basic and diluted shares   376,328,885    262,832,833 
Loss per share:          
Basic and diluted  $(0.002)  $(0.04)

 

   2023   2022 
   Nine Months Ended December 31, 
   2023   2022 
Net loss  $(4,773,744)  $(30,763,863)
Weighted average basic and diluted shares   374,543,761    267,956,183 
Loss per share:          
Basic and diluted  $(0.01)  $(0.12)

 

The following potentially dilutive securities and instruments were outstanding as of December 31, 2023, and 2022, but excluded from the table above:

 

   2023   2022 
   As of December 31, 
   2023   2022 
Convertible preferred stock   6,320,000    6,320,000 
Convertible notes payable   -    163,612,120 
    -      
Total potential incremental shares   6,320,000    169,932,120 

 

13
 

 

NOTE 5 – INVENTORY, NET

 

Inventory consists primarily of finished goods. The Company provides an allowance for any slow-moving or obsolete inventory. As of December 31, 2023, and March 31, 2023, inventory consists of the following:

 

   December 31, 2023   March 31, 2023 
         
Finished Goods  $3,033,714   $2,517,046 
Allowance for inventory obsolescence   (843,034)   (880,926)
Inventory,net  $2,190,680   $1,636,120 

 

NOTE 6 – OTHER CURRENT ASSETS, NET

 

Other current assets consist of the following:

 

   December 31,2023   March 31, 2023 
Inventory-related deposits  $334,373   $288,649 
Accounts receivable, related parties   -    167,578 
Prepaid insurance and other operational expenses   46,560    105,652 
Deposits for sales events   -    120,614 
Right to recover asset   21,079    20,975 
Subtotal   402,012    703,468 
Less: allowance for losses   (175,641)   (175,641)
Other current assets  $226,371   $527,827 

 

Prepaid insurance and other operational expenses primarily consist of payments for goods and services (such as freight, trade show expenses and insurance premiums) which are expected to be realized in the next operating cycle. Prepaid interest represents interest on the 2022 Note due to Decentralized Sharing Systems, Inc. (“DSSI”) (see NOTE 14 below) for the period from July 1, 2023 inclusive to December 31, 2023. Right to recover assets is associated with our customers’ right of return and is expected to be realized in one year or less. As of December 31, 2023, and March 31, 2023, the provision for losses in connection with certain inventory-related deposits for which recoverability is less than certain was approximately $176,000.

 

14
 

 

NOTE 7 – INVESTMENT IN UNCONSOLIDATED ENTITIES, NET

 

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

 

The Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. During the three months ended September 30, 2022, the Company recognized unrealized gains, before income tax, of $4,865,354 in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.

 

Effective June 30, 2023, subject to the terms of a certain Loan Purchase Contract, Assignment of Note and Liens and Other Loan Documents, and Note Allonge document, DSSI purchased from SHRG the Stemtech promissory note in the amount of $1.4 million, along with all SHRG’s rights in any Stemtech warrants, for a purchase price of $1.1 million, with the financial terms generally summarized as follows: (a) DSSI paid the $1.1 million purchase price by crediting the $27.0 million loan, first to interest and then to principal, and (b) DSSI acquired ownership of the $1.4 million promissory note payable by Stemtech, free and clear of any liens, and any equity or warrant interest in the Stemtech that SHRG may have held. As of September 30, 2023, as a result of the transaction, the Company no longer has an investment in Stemtech.

 

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

 

On October 1, 2023, MojiLife and its principals Darin Davis and Kimberlee Davis (collectively the “Seller”) and Moji Life International, Inc., a Nevada corporation (the “Purchaser”), a wholly-owned subsidiary of the Company (collectively the “Parties”) entered into an Asset Purchase Agreement (the “MojiLife Asset Purchase Agreement”). Pursuant to the MojiLife Asset Purchase Agreement, the Purchaser purchased the Seller’s real and personal property including, machinery and equipment, intellectual property, trade names, patents, marketing strategies and materials, all product formulas, all saleable inventory, the Seller’s organization database of distributors and customers, and assumed certain liabilities of the Seller.

 

In connection with the Moji Asset Purchase Agreement, on October 1, 2023, the Purchaser and SHRG Development Ventures, LLC (“SHRGDV”), an affiliate of the Purchaser and subsidiary of the Company also entered an Exchange Agreement whereby SHRDV relinquished and surrendered its 30.75% LLC unit ownership interest in Seller.

 

On a quarterly basis, the Company evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized when recovery in full of the Company’s investment is no longer probable. Investment balances are written off against the allowance after the potential for recovery is considered remote.

 

Investment in unconsolidated entities consists of the following:

 

  

December 31, 2023

  March 31, 2023
Investment in detachable GNTW stock warrant  $           -   $143,641 
Investment in GNTW common stock   -    18,300 
Investment in Stemtech convertible note   -    44,290 
Investment in MojiLife, LLC   -    1,537,000 
Subtotal   -    1,743,231 
Less, allowance for impairment losses   -    (1,537,000)
Investments  $-   $206,231 

 

15
 

 

NOTE 8 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of the following:

   December 31, 2023  March 31, 2023
Building and building improvements  $-   $8,952,555 
Computer software   1,024,274    1,024,274 
Furniture and fixtures   287,421    237,042 
Computer equipment   220,264    220,264 
Leasehold improvements and other    399,306    394,306 
Total property and equipment   1,931,265    10,828,441 
Accumulated depreciation and amortization   (1,605,742)   (1,558,248)
Property and equipment, net  $325,523   $9,270,193 

 

Effective June 30, 2023, the Company and DSSI entered into an Assignment of Limited Liability Company Interests agreement pursuant to which: (a) DSSI assumed approximately $7.24 million in SHRG liabilities secured by certain Commercial Real Estate, (b) DSSI credited SHRG approximately $240,000 towards amounts owed under the 2022 Note (the “$27.0 million loan”), and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness.

 

NOTE 9 – ACCRUED AND OTHER CURRENT LIABILITIES

 

Accrued and other current liabilities consist of the following:

 

   December 31, 2023  March 31, 2023
Deferred sales revenues  $369,726   $246,811 
Liability associated with uncertain tax positions   925,785    925,795 
Accrued interest payable   -    536,123 
Payroll and employee benefits   302,276    329,762 
Lease liability, current portion   33,790    41,385 
Other accruals   1,113,570    701,161 
Accrued and other current liabilities   $2,745,147   $2,781,037 

 

Lease liability, current portion, represents obligations due within one year under operating leases for office space, automobiles, and office equipment. See Note 16 - LEASES below for more information. As of December 31, 2023, and March 31, 2023, other accruals include amounts due to related parties of $0 and $167,578, respectively, and several operational accruals of $1,113,570 and $533,583, respectively.

 

16
 

 

NOTE 10 – NOTES PAYABLE, RELATED PARTY

 

Notes payable, related party, consisted of the following:

 

 SCHEDULE OF NOTE PAYABLE RELATED PARTY

   December 31, 2023  March 31, 2023
APB Loan  $             -   $5,594,253 
APB Revolving Note   -    1,530,569 
Unamortized discount and deferred financing costs   -    (202,779)
Note payable to related party, net  $-   $6,922,043 

 

On June 15, 2022, the Company, through one of its subsidiaries, Linden Real Estate Holdings LLC (“SHRG Subsidiary”), entered into a secured real estate promissory note with American Pacific Bancorp, Inc. (“APB”), pursuant to which APB loaned the Company approximately $5.7 million the “APB Loan”). The APB Loan would mature on June 1, 2024, bore interest at the annual rate of 8%, with interest payable in equal monthly installments of $43,897 commencing on July 1, 2022 (with the remainder due on June 1, 2024). The loan was secured by a first mortgage interest on the Company’s Lindon, Utah office building. In connection with this loan, the Company received net proceeds of $5,522,829 from APB on June 17, 2022.

 

On August 11, 2022, the Company executed a revolving credit promissory note with APB (“the APB Revolving Note”) pursuant to which the Company had access to advances with a maximum principal balance not to exceed the principal sum of $10 million. The APB Revolving Note included origination fees of $600,000. The APB Revolving Note was collateralized by the assets of the Company, and it bore interest at the annual rate of 8%. On December 9, 2022, APB and the Company mutually agreed to limit and/or end any further commitment by APB to fund or to readvance under the terms of the APB Revolving Note to $6.0 million. As of March 31, 2023, the Company had $1.5 million outstanding under the APB Revolving Note and accrued interest of $54,384.

 

Effective June 30, 2023 subject to the terms of an Assignment of Limited Liability Company Interests agreement, Decentralized Sharing Systems, Inc. (“DSSI”) purchased the SHRG Subsidiary with the financial terms generally summarized as follows: (a) DSSI assumed approximately $7.24 million in SHRG liabilities (namely, all amounts due under the APB Loan and the APB Revolving Note), (b) DSSI credited SHRG approximately $240,000 towards amounts owned under the 2022 Note (the “$27.0 million loan”), and (c) DSSI acquired ownership of Linden Real Estate Holdings LLC, with its sole asset being a commercial lot and commercial building located in Lindon, Utah, subject to the assumed indebtedness.

 

NOTE 11 – CONVERTIBLE NOTE PAYABLE, RELATED PARTY

 

Note payable, related party, consists of the following:

 

 SCHEDULE OF RELATED PARTY CONVERTIBLE NOTES PAYABLE

Issuance Date   Maturity Date   Interest Rate    

Conversion

Price (per share)

    December 31, 2023     March 31, 2023  
September 2022   September 2024     8 %   $