SHARING SERVICES GLOBAL Corp - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (469) 304-9400

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. YES [  ] NO [X]

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 [  ] NO [X]

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 [X] NO [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES [  ] NO [X]

As of October 31, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing price for the registrant’s common stock, was $5,973,400. As of June 30, 2019, there were 114,367,061 shares of the registrant’s Class A common stock and 10,000,000 shares of the registrant’s Class B common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement to be delivered to stockholders in connection with the 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report where indicated.

TABLE OF CONTENTS

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

cautionary notice regarding forward-looking statements

Statements in this Annual Report, and in any documents incorporated in this report by reference, which are not purely historical facts or which depend upon future events, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which we refer to as the Exchange Act. Forward-looking statements may appear throughout this report, including in the following sections: “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would” or similar expressions.

Readers are cautioned not to place undue reliance on forward-looking statements, since such statements speak only as of the date they were made. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including any forward-looking statements contained in this Annual Report. The events described in forward-looking statements might not occur or might occur to a different extent or at a different time than described in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events, or otherwise.

PART I

ITEM 1. BUSINESS.

Sharing Services Global Corporation (“Sharing Services”, “SHRG”, or “the Company”), a Nevada corporation, was incorporated on April 24, 2015. Sharing Services is a diversified holding company, with Elepreneurs Holdings, a direct selling company, and Elevacity Holdings, a products company, being its primary operating subsidiaries. Elepreneurs markets and distributes health and wellness products that are sold under the Elevate brand through an independent sales force of distributors, or Elepreneurs. The Company’s management team, and business partners and consultants, include industry leaders with extensive experience in the direct selling industry, as well as expertise in our product offerings.

In the future, the Company intends to develop and market additional product offerings. These additional offerings will allow the Company to combine products, services, and non-traditional compensation methods to create a unique GIG Economy Opportunity.

Our History

Sharing Services, Inc. was originally formed in 2015 to develop and market two web applications (“web apps”) but soon expanded its business model to develop and market a wide range of health and wellness products. The Company achieved this and brought the Elevate brand to the market by launching its Elepreneurs and Elevacity subsidiaries in 2017.

In May 2017, the Company acquired Total Travel Media, Inc. (“Total Travel Media” or “TTM”) and, in September 2017, it acquired Four Oceans Holdings, Inc. (“Four Oceans”). Both Total Travel Media and Four Oceans are engaged in developing, marketing and selling technology, training, media and travel products. During the year 2017, the Company also acquired minority equity interests in several entities engaged in the development of online marketing and direct sales software systems, travel products, health benefit services, and consumer insurance products.

Products

In December 2017, the Company launched its current health and wellness product line under the name Elevate to bring health and wellness products to the marketplace. The Company’s Elevate product line consists of Nutraceutical products. The Company refers to is core product as “D.O.S.E.” (which stands for: Dopamine, Oxytocin, Serotonin and Endorphins). The launch of this product line accelerated the Company’s growth and has enabled the Company to expand its sales volume and operations at a rapid pace.

Recent Corporate Name Change

As disclosed earlier, 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. The corporate name change was approved by the Company’s shareholders and by its Board. In connection with the name change, the Company adopted the trading symbol SHRG effective April 4, 2019. Prior to this the Company’s common stock traded under the symbol SHRV.

Future Acquisitions

The Company has plans to expand its products offerings in order to further grow its sales volume and achieve sustained profitability through the continued focus on its growth strategy. This growth strategy includes strategic acquisitions which the Company intends to make, subject to the approval of its Board, to augment its product portfolio and complement its business competencies.

Industry and Business Trends

The Company believes the following industry and business trends will influence the direct selling industry and provide it with opportunities to grow its business and achieve positive financial results in the near future:

Business Segments, Geographic Area Information and Seasonality

The information in Note 16 of the Notes to Consolidated Financial Statements contained in Item 8 — “Financial Statements and Supplementary Data” of this Annual Report is incorporated herein by reference.

In each of the two fiscal years in the period ended April 30, 2019, approximately 97% of the Company’s consolidated net sales were from the sale of its Elevate health and wellness product line. In the fiscal year 2019 and 2018, approximately 96% and 99%, respectively, of the Company’s consolidated net sales were to customers located in the United States. The direct selling industry is normally impacted adversely during the third calendar quarter, when many individuals traditionally take vacations.

Competition

The direct selling industry is large and growing, highly competitive and dynamic, and there are few barriers to entering the industry. We compete with other direct selling organizations, many of which have a longer operating history, higher visibility, name recognition and with more financial resources than we do. These leading network marketing companies include Amway Corporation, Avon Products, Herbalife, Mary Kay and NuSkin Enterprises. We compete with these companies to attract and retain our independent sales distributors (Elepreneurs) on the strength of our product line, leadership training, compensation plan, marketing focus, corporate values and management leadership strengths.

The marketplace for health and wellness products is highly competitive. Our competitors include wide range of marketers from traditional retails stores both “brick and mortar” and online to other network marketing companies. We compete in this marketplace by emphasizing differentiators such as our exclusive access to unique products and ingredients, the quality and efficacy of our products, and the reliability and convenience of our distribution system and customer service experience. We offer products and services that aim to improve health, wealth and happiness of our distributors and customers, rather than one specific product line or service like many companies focus on.

Competitive Strengths

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

Elevate Product Brand

One of our key goals is and has been to empower the health-conscious global community with an emphasis on health and happiness. Consistent with this objective, in mid-December 2017, we launched our Elevate product line, an innovative line of health and wellness products marketed and distributed exclusively through our independent sales force of distributors. In the fiscal year ended April 30, 2019 and 2018, we had consolidated net sales of $85.9 million and $8.4 million, respectively, with approximately 97% resulting from the sale of our Elevate health and wellness product line.

Key Products and Services

The Company’s mission is to offer products and services that improve the health and happiness of its customers. We aim to do this by developing and marketing superior products and services and by distributing such products and services though our growing independent sales force. We purchase our products from independent formulators and manufacturers who specialize in unique nutritionals. We take pride in our commitment to offer the finest products and services in the industry, including, but not limited to:

Wellness Products

Elevate Smart Coffee - A delicious tasting micro-ground, functional coffee that contains a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory and energy. This beverage provides neuro-transmitter hormone creators for three of the hormones associated with happiness. Elevate Smart Coffee is part of the Elevacity D.O.S.E. duo and, when combined with XanthoMax, it completes the set of four hormones that are associated with happiness.

Choclevate^® - A delicious Nootropic Hot Chocolate beverage designed to assist in the elevation of mood, mental focus and energy. This beverage provides neuro-transmitter hormone creators for three of the hormones associated with happiness. Choclevate is part of the Elevacity D.O.S.E. duo and, when combined with XanthoMax, it completes the set of four hormones that are associated with happiness.

XanthoMax^® - An encapsulated dietary supplement, designed to deliver Xanthohumol, a powerful antioxidant shown to assist in elevating one’s mood. XanthoMax is the only natural ingredient that helps your body to release elevated amounts of oxytocin, commonly referred to as the hormone of happiness. XanthoMax is part of the Elevacity D.O.S.E. duo and, when combined with the Elevacity functional beverages, it completes the set of four hormones that are associated with happiness.

Elevate NITRO - This 100% Colombian Arabica coffee blooms with a bold, aromatic body. Using clinically proven naturally extracted polyphenols, Elevate NITRO promotes powerful natural nitric oxide production with extreme antioxidant capability.

KetoCre^® - A delicious Ketogenic creamer designed to support a healthy Keto diet.

Elevate Pure 2.0 - A unique, patent pending, dietary supplement designed to assist in the removal of toxins and heavy metals from the body. The Pure product is made from “mica” extract, part of the zeolite family. Pure supports the systemic detoxification of heavy metals and environmental toxins.

Sleep Patch – This patch contains a synergistic blend of all-natural ingredients that helps people to fall asleep more quickly, enhance overall sleep quality, improve morning alertness, and reduce daytime fatigue.

Hangover Defense Patch – This patch is designed to help alleviate headaches and migraines.

Energy Patch – This patch is designed to sustain a clear, focused stream of energy throughout the day.

Skincare Products

Timeless - An all-natural skin-tightening product designed for both men and women that results in immediate firming effects while promoting elasticity over time.

Elier Mud Mask - An organic anti-aging mask designed to infuse the skin with vital nutrients to help purify the skin while assisting in the reversal of age-related wrinkles and blemishes.

Elier Serum - Anti-aging skin-care cream designed to deeply nourish and regenerate at the cellular level, resulting in a more youthful look

Product Returns

If a customer is not completely satisfied with the products they purchased we offer a refund or exchange of the product within 30 days from the date of purchase. We also offer a generous product return policy that allows Elepreneurs to return unopened and unused items for up to 30 days.

Sales and Marketing

We rely on a direct selling model consisting of independent sales representatives, or Elepreneurs, and customer referrals to promote and sell our products. This is an effective selling model as our Elepreneurs are able to: personally educate consumers about our products, provide testimonials and provide higher levels of customer support.

We provide support to these marketers with marketing content, websites, events and through technology. We offer our products online and provide each Elepreneur with a virtual online Back Office website. This website is where Elepreneurs can manage, monitor, and operate their businesses 24 hours a day from any location.

Product Distribution

Distribution to our individual customers and distributors located throughout the United States and Canada is primarily handled by an independent logistics partner located in Addison, Texas. We also operate an internal smaller fulfillment center near our corporate headquarters. This allows the Company to improve our product distribution and delivery while capitalizing on cost savings and efficiencies. We intend to grow, in part, by offering and distributing our products to customers in other geographies.

Customers and Independent Distributors

The Company distributes its products through two basic groups: (1) our customers- individuals who buy our products from a distributor for personal consumption and (2) our distributors- individuals who buy product for personal consumption and for resale and who also recruit and train new sellers. The Company’s goal is to monitor and develop both of these groups using different strategies. To grow our customer base, we offer high-quality unique products. Our strategy for growing our independent sales force is to provide a meaningful business opportunity to them through sales compensations, incentives and bonuses.

Any person may join the Company as a distributor, or Elepreneur, by purchasing a Virtual Business System (“VBS”) for $99.00 USD. This kit includes the training and basic marketing materials which better enables our sales force to sell our products and build their organization. Elepreneurs may then purchase products for personal use or to build their sales organization. No product purchases are required upon enrollment.

Elepreneurs Agreement

Elepreneurs are independent contractors and the Company does not direct or control their efforts, but we do require them to abide by our policies and procedures as well as any applicable laws and regulations. To become a distributor an individual must affirmatively accept a standard Elepreneurs Agreement as well as Elepreneur Policies and Procedures. These documents govern the relationship between the Company and each Elepreneur. The Policies and Procedures outline the scope of permissible marketing activities and the Elepreneurs Agreement defines the relationship between the distributor and the Company. We require Elepreneurs to present our products as well as the business opportunity both ethically and professionally.

Compensation Plan

We believe that our Compensation Plan offers to our Elepreneurs an exciting and effective way to earn commissions. All of our Elepreneurs are independent businesspersons and earn commissions as they sell our products to their personal customers. Additionally, they can earn commissions as their own personally enrolled Elepreneurs sell products. There is no limit as to the number of personally enrolled Elepreneurs or customers that an Elepreneur may have.

Each Elepreneur begins by purchasing a Virtual Business System or VBS for $99.00 USD. This kit 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 Elepreneurs.

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

The “Plan” emphasizes customer acquisition and retention. The company provides a back-office web-site for our Elepreneurs to use in their ecommerce sales, but an affiliate may also sell directly to their customers.

We rely upon the affiliates to create customer demand and sales. We feel our plan is successful in helping to attract and motivate our sales force and key industry leaders.

Trademarks, Patents and Intellectual Property

The Company currently has six (6) trademarks registered with the U.S. Patent and Trademark Office and has applied for or intends to apply for additional trademark protection in the United States and in other countries where it currently does business or intends to do business in the future. The Company anticipates securing multiple U.S. trademarks and foreign trademarks in the future. In the event we expand our operations in international jurisdictions, trademark protection is increasingly important for brand recognition and protection, as well as for Elepreneurs and consumer loyalty.

Several of our products utilize proprietary formulations and processes. Although we do not directly hold any patents currently, some of our key vendors have secured or applied for patents to maintain exclusivity for the ingredients or integrated products they supply to us. 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 below for more information about the Company’s intellectual property.

Strategic Partnerships

We maintain good relationships with our key business partners to ensure the continuous supply, distribution, and quality of our products.

To date, we have relied primarily on three suppliers for our product purchases. Purchases from one of these suppliers accounted for 96% and 92% of the Company’s total product purchases in the fiscal year ended April 30, 2019 and 2018, respectively.

Our main distribution center is operated by a third-party logistics partner. We also operate a smaller fulfillment center located near our corporate headquarters from where we ship certain sales orders. Under the terms of its third-party product distribution agreement, the Company, in its sole discretion, may process some or all its sales orders internally or using other logistic partners in the future.

Regulatory Environment

Our business is regulated by various federal, state and local governmental agencies in the United States and by similar agencies in foreign markets. These laws and regulations relate to: (1) the manufacturing, labeling, distribution and sale of our products; (2) product claims and advertising; and (3) our network marketing program.

Direct Selling Activities

In the United States, direct selling programs are subject to a variety of federal and state regulations governed by the FTC. These regulations are generally intended to prevent fraudulent or deceptive practices involving sales to consumers. They also ensure that product sales are made to the ultimate consumers and that compensation within the organization is made based upon sales rather than recruitment into the organization.

The company monitors and, if necessary, responds to regulatory developments that may affect our network marketing program. Please see Risk Factors below for more information about our exposure to existing and potentially new laws and regulations. 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. Please see ITEM 1A. RISK FACTORS below for more information about our exposure to existing and potentially new laws and regulations.

Regulation of Personal Care and Nutritional Food Products

Our products and certain related marketing and advertising practices are subject to governmental regulation by various federal, state and local government agencies and authorities in the U.S. and Canada, and in other jurisdictions where we operate or intend to operate in the future. These agencies and authorities include the United States Food and Drug Administration (FDA), the United States Federal Trade Commission (FTC), the Consumer Product Safety Commission, the United States Department of Agriculture and State Attorneys General. 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 certain of our health and wellness products) 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. Accordingly, under the DSHEA, manufacturers and distributors of dietary supplements are responsible for the safety and labeling of their products prior to such products reaching the market. 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 U.S. Federal Trade Commission, which enforces consumer protection laws regarding truth in advertising, regulates how we advertise and market our products. The U.S. Consumer Product Safety Commission seeks to protect the public from unreasonable risks of injuries or death associated with consumer products.

In the U.S. and Canada, 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 requirements, register or qualify the products with the applicable government authorities, or obtain approvals or file required notifications prior to marketing such products. 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 products will help diagnose, cure, mitigate, treat, or prevent disease.

Employees

As of April 30, 2019, we had approximately 66 full-time employees, 30 of which provide direct support to our Elepreneurs and customers. This number does not include approximately 20,000 distributors who are independent contractors. Our employees are not represented by labor unions. We believe that our relationship with our employees is positive, and we do expect a shortage in qualified personnel to continue our business growth.

Access to Public Filings

Our Annual Report 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 1700 Coit Road, Suite 100, Plano, Texas 75075. You may also access copies of such reports, and other information about the Company, by visiting our corporate website: www.shrginc.com.

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

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.

Risks Incidental to our Business:

The highly competitive and dynamic nature of the direct selling industry.

The direct selling industry is highly competitive and dynamic, and there are few barriers to entering the industry. There are several companies, including many with more resources, that offer competing health and wellness products. Competing health and wellness products are sold by brick and mortar stores and internet-based businesses. Some of these businesses include online retailers, specialty health and wellness stores, drug stores, and supermarkets. The primary competitive factors for health and wellness products are (a) price; (b) the quality, perceived value, brand recognition and package appeal of the products; (c) the effectiveness and skills of the sales and customer service staff interacting with the customer or potential customer; and (d) the continuous availability of enough product to fulfill orders promptly. There can be no assurance that we can remain competitive or that competition in our industry will not intensify. If we do not remain competitive, and promptly and effectively respond to increased competition and industry changes in the future, our financial condition, results of operations and cash flows may be adversely affected.

The success of our growth initiatives, including our efforts to attract new customers and build brand awareness.

We are an emerging growth company, as defined by Rule 12b-2 of the Exchange Act, with no significant sales history prior to December 2017. We have made significant investments in strategic growth initiatives, including several marketing initiatives designed to attract new customers and build brand awareness. There can be no assurance that these strategic initiatives will result in the consolidated sales growth we anticipate or at all, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Anticipating and effectively responding to changes in consumer preferences and buying trends 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. We expect that continuously changing consumer preferences and buying trends will affect future demand for health and wellness products. If we do not effectively identify and respond in a timely manner to evolving consumer trends and consumer demands for these products and services, our financial condition, results of operations and cash flows may be adversely affected.

The timing and acceptance of new products we introduce.

Our success depends in part on our ability to develop (or acquire) and introduce new products and services that appeal to our targeted customer base. If we do not timely develop (or acquire) and successfully introduce new products and services, or if the products and services we introduce are not received well by consumers, our financial condition, results of operations and cash flows may be adversely affected.

Our ability to attract and retain talented employees and management.

As a new business, our success depends in large part on our ability to attract and retain talented employees, and senior executives who have knowledge, experience and managerial skills in the direct selling industry. From time to time, key employees may leave our business and we may experience delays or be unsuccessful in attracting, integrating and retaining the new staff required to grow and operate our business profitably. In addition, 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 adversely affect future execution of those initiatives and our performance. Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

Our ability to effectively manage and control our operating expenses.

We are an emerging growth company and have not achieved sustained consolidated earnings and positive cash flows from operations. Our ability to grow profitably and consistently generate positive cash flows depends in large part on our ability to successfully control our operating expenses, while we continue to expand our sales volume and business infrastructure. In furtherance of this goal, we have engaged in ongoing activities to control costs, including the implementation of detailed operating budgets and cash projections, and management reporting systems. There can be no assurance that our strategic initiatives and cost control efforts will result in the levels of profitable growth, or positive cash flows, that we expect, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Potential fluctuations in our quarterly financial performance.

Our quarterly sales and financial results may fluctuate from time to time, and adversely affect the price of our common stock, often for reasons outside our control. For example, consumer demand for our products and services and, as a result, our quarterly consolidated sales, may increase or decrease materially as a result of, among other things, increased competition, changes in actual or anticipated levels of employment on the U.S., changes in interest rates applicable to credit cards, inflation, national and local political uncertainty, and changes in consumer sentiment in general. In addition, our results of operations and cash flows may fluctuate as a result of potential increases in our product costs, changes in the willingness or ability of our suppliers to provide product to us in a timely manner, changes in labor rates and in payroll tax rates in the U.S., and changes in the regulatory environment we operate. Any of these conditions could have a material adverse effect on our quarterly financial performance.

If we incur losses and/or are unable to generate sustained positive cash flows from operations to fund our working capital needs, including servicing our debt.

The Company is an emerging growth company. Prior to its fiscal quarter ended October 31, 2018, the Company had not generated positive cash flows from operations. Historically, the Company has experienced periodic cash flow shortages, or has otherwise depended on the issuance of equity securities and debt, including convertible notes and short-term borrowings under financing arrangements, to meet its working capital needs and to finance acquisitions. If we are unable to generate sustained positive cash flows from operations or to obtain additional equity or debt financing, if needed, this could inhibit our ability to implement our business strategies, service our debt and meet our business goals. This could, in turn, slow our current financial momentum and could have a material adverse effect on our financial condition, results of operations and cash flows.

Our ability to obtain additional financing to implement our business strategies.

Historically, the Company has depended on the issuance of debt, including convertible notes and short-term borrowings under financing arrangements, to meet its working capital needs and to finance acquisitions. As of April 30, 2019, the Company had an aggregate principal amount of convertible notes of $905,000 and borrowing under short-term financing arrangements of $2,502,985 outstanding, before debt discount. In order to implement its business strategies and grow its business, the Company will need to obtain additional financing from time to time. Our ability to obtain additional financing could be adversely affected, among other things, by increases in interest rates in the future. There can be no assurance that we will be able to obtain enough additional financing to meet our needs in the future, or that any financing made available to us will be on favorable terms, which could limit our ability to implement our growth strategies. Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

Our ability to attract and retain key personalities to promote our products, the ability of a key personality to successfully perform his or her role, and the existence of negative publicity surrounding a key personality engaged in promoting our products.

The direct-to-consumer sales industry often relies on the marketability of key personalities to promote its products and services. We rely on the marketability certain key personalities, including several of our Elepreneurs, as part of our independent distribution network and to promote our brand, and our products and services. Our inability to attract and retain qualified key personalities in the future, the inability or failure of a key personality to fulfill his or her role, the ineffectiveness of a key personality as a spokesperson for our products, a reduction in the exposure of a key personality due to the discontinuance of a marketing program, or otherwise, or the existence of negative publicity about a key personality may adversely affect the sales of our product associated with that key personality and could adversely affect future sales of our products and services. The resulting decline in sales could have a material adverse effect on our financial condition, results of operations and cash flows.

The use of social media may adversely impact our reputation and business.

In recent years, there has been a significant increase in the use by businesses of social media platforms, including blogs, social media websites and other forms of internet-based communications. Social media can facilitate access to 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 the company’s reputation and business. Most consumers 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 for redress and correction of the information may be slow and costly. If we were the victim of negative, inaccurate or false information circulated through social media, this could adversely impact our reputation and business.

The Company also uses social media platforms, including Facebook and Instagram, to communicate with existing and prospective customers, Elepreneurs, 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 Elepreneurs, 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.

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

Our dependence on three suppliers for substantially all the products we sell.

We depend on three suppliers for substantially all the products we sell. Any disruption or substantial decrease in the supply chain by any of these suppliers, as a result of a shortage of raw materials or otherwise, could disrupt or substantially decrease our inability 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. This, in turn, could reduce our future sales. In such event, we may not be able to offset the lost in sales through substitution of product, price increases, or otherwise.

In addition, if any of these suppliers implemented unilateral price increases, we may not be able to pass such price increases to our customers and our profitability may be reduced. Further, if any of these suppliers failed to continue to supply product of adequate quality and in a timely fashion to us, this could adversely affect our future sales.

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

Our compliance with current laws and regulations or becoming subject to new or more stringent laws and regulations in the future.

The products we sell are subject to several federal, state and local laws and regulations in the U.S. and in other jurisdictions where we operate. These laws and regulations generally govern the composition, packaging, labeling and consumer safety of the products we sell, as well as the methods 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 other state laws and regulations, there can be no assurance that we will not be adversely affected by future enforcement or other actions relating to this or similar legislation. Continued compliance with new and existing federal or state “safe-consumer-product” regulations, could also require the review and possible reformulation or relabeling of our products, as well as the possible removal of some products from the marketplace. If we were found to be in violation of new and existing regulations in the future, this could result in significant fines or damages and other enforcement actions, in addition to costs and expenses to defend the resulting claims.

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

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

We have applied for, or are in the process of applying for, trademark protection in the United States and in other jurisdictions where we operate or intend to operate in the future. We have secured U.S. trademarks and anticipate securing additional U.S. trademarks and foreign trademarks. Trademark protection is increasingly important to our growing business. If we failed to register or enforce our intellectual property rights under trademark registrations or our intellectual property rights were successfully challenged, this could have a material adverse effect on our financial condition, results of operations and cash flows.

Several our products utilize proprietary formulations and processes. Although currently we do not directly hold any patents, 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. 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 financial condition, results of operations and cash flows.

Products sold by us being found to infringe on the intellectual property rights of others.

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

Potential product liability claims could harm our business.

Historically, product liability claims have not been material to our business. However, 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 U. S. are limited, product liability insurance policies contain many exclusions, and insurance rates are generally high, due to insurance industry trends and the rising cost of insurance in general. We believe our product liability insurance policies significantly reduce 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 was found to have caused personal injury or damage 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 financial condition, results of operations and cash flows.

We may not be able to successfully identify acquisition candidates or to successfully finance, complete and integrate desirable acquisitions.

In the past two years, we completed several acquisitions. We intend to to continue to grow our business both organically and by making strategic acquisitions of businesses and technologies that augment our product portfolio and complement our business competencies. However, there can be no assurance that we will identify suitable acquisition candidates, successfully finance and complete acquisitions, and successfully integrate the acquired businesses in the future. If suitable candidates are identified, we may be unable to reach agreeable terms to acquire such candidates or unable to obtain enough funds to finance such acquisitions. If we complete any acquisition in the future, we may be unable to successfully integrate the businesses acquired into our operations and business. Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

Our stated intension to expand into foreign markets may expose us to foreign currency exchange rate fluctuations and other risks inherent to foreign operations.

Historically, a substantial portion of our sales have been to customers located in the U.S. As part of our growth strategies, we intend to pursue opportunities to also sell our products and services outside the U.S. As a result, our reported sales, expenses and cash flows in the future may be affected by fluctuations in foreign currency exchange rates and by conditions in the non-U.S. geographies we expand into. International operations can result in exposure to risks unique to such operations, including restrictive local label and other consumer regulations, exposure to import and export restrictions and tariffs, restrictive labor laws and regulations, frequent or unexpected changes in the regulatory environments, restrictions on the expatriation of cash, and potentially more recessionary conditions, higher inflation rates and political instability, compared to the U.S. Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

The occurrence of natural disasters or acts of violence or terrorism.

The occurrence of natural disasters or acts of violence or terrorism in the geographies we operate now and in the future, could result in physical damage to our property, the temporary 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 or an increase in the cost of those products sold in the future, and/or the temporary reduction in consumer demand for our products and services. In addition, if one or more natural disasters or acts of violence or terrorism were to impact our business, our insurance costs may rise significantly afterwards. Any of these conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

If we are unable to comply with the financial reporting requirements mandated by the SEC’s regulations, investors may lose confidence in our financial reporting and the price of our common stock could decline.

If we fail to maintain effective internal controls over financial reporting, our ability to produce timely, accurate and reliable periodic financial statements could be impaired. If we do not maintain adequate internal control over financial reporting, investors could lose confidence in the accuracy of our periodic reports filed under the Exchange Act. Additionally, our ability to obtain additional financing could be impaired or a lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock price to decline.

If securities or industry analysts do not publish research or reports about our business, if our operating results do not meet their expectations, or if they adversely change their recommendations regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by securities analysts. We do not have any control over these reports or analysts. If any of the analysts who cover the Company downgrades our stock, or if our operating results do not meet the analysts’ expectations, our stock price could decline. Moreover, if any of these analysts ceases coverage of the Company or fails to publish regular reports on our business, we could lose visibility in the financial markets, which in turn could cause our stock price and trading volume to decline.

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. In our Annual Reports on Form 10-K, we are required, under Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment needed to include disclosure of any material weaknesses identified by our management in 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 annual or interim financial statements will not be prevented or detected on a timely basis. Section 404(b) of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain a non-accelerated filer, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accounting firm attestation requirement.

Our compliance with Section 404 of the Sarbanes-Oxley Act requires that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to timely and accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

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

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under 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 operated, 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 error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

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

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our securities will be your sole source of gain for the foreseeable future.

Future sales and issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans, will result in additional dilution of the percentage ownership of our stockholders and could cause our trading price to decline.

We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of equity or equity-linked securities, together with the exercise of stock options and warrants granted in the future and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our existing investors. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.

Our Board of Directors also expects to adopt an equity compensation plan to reward employees and consultants with grants of our common stock. Future equity incentive grants and issuances of common stock under our potential future equity compensation plans may have an adverse effect on the market price of our securities.

If there is significant downward pressure on the price of our common stock, it may encourage shareholders to sell shares by means of short sales or otherwise. Short sales involve the sale, usually with a future delivery date, of securities the seller does not own. Covered short sales are sales made in an amount not greater than the number of shares subject to the short seller’s right to acquire the securities, such as upon exercise of warrants. A holder of warrants may close out any covered short position by exercising all, or a portion, of its warrants, or by purchasing shares in the open market. In determining the source of shares to close out the covered short position, a holder of warrants will likely consider, among other things, the price of the securities available for purchase in the open market as compared to the exercise price of the warrants. The existence of a significant number of short sales generally causes the price of the security to decline, in part because it indicates that a number of market participants are taking a position that will be profitable only if the price of the security declines.

We will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements as a result of our disclosed efforts to uplist our stock in the NASDAQ Capital Market.

We will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements as a result of our planned uplisting to the NASDAQ Capital Market. As a public company, we will continue to incur significant legal, accounting and other expenses. For example, as a result of our planned uplisting to the NASDAQ Capital Market, we will be subject to mandatory reporting requirements of the Exchange Act which require, among other things, that we continue to file with the SEC annual, quarterly and current reports with respect to our business and financial condition, that we were not required to file as a voluntary reporting company (though we did file such reports with the SEC on a voluntary basis). We have incurred and will continue to incur costs associated with the preparation and filing of these SEC reports. Furthermore, after our planned uplisting to the NASDAQ Capital Market, we will be subject to mandatory new corporate governance and other compliance requirements. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the NASDAQ Capital Market have imposed various other requirements on public companies. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate) the way we operate our business. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we will incur additional expense to increase our director and officer liability insurance.

In addition, if and when we cease to be a smaller reporting company and become subject to Section 404(b) of the Sarbanes-Oxley Act, we will be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed time period, we will continue to be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to dedicate substantially greater internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that our independent registered public accounting firm, when required, will not be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Our ability to uplist our common stock to the NASDAQ Capital Market is contingent on us meeting applicable initial listing criteria.

We intend to apply for our common stock to be listed on the NASDAQ Capital Market, a national securities exchange. Each exchange requires companies desiring to list their common stock to meet certain listing criteria including total number of stockholders; minimum stock price, total value of public float, and in some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing criteria could prevent us from listing our common stock on either exchange. In the event we are unable to uplist our common stock, our common stock will continue to trade on the OTCQB market, which is generally considered less liquid and more volatile than a national securities exchange. Our failure to uplist our common stock could make it more difficult for you to trade our common stock, could prevent our common stock trading on a frequent and liquid basis and could result in the value of our common stock being less than it would be if we were able to uplist.

We intend to apply to uplist our securities to the NASDAQ Capital Market. The NASDAQ Capital Market may not list our securities for quotation that could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

We intend to apply to be listed on the NASDAQ Capital Market, a national securities exchange. After giving effect to this offering, we expect to meet, on a pro forma basis, the NASDAQ Capital Market’s minimum initial listing standards, which generally only mandate that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares bid price and distribution requirements. We cannot assure you that we will be able to meet those initial listing requirements. If the NASDAQ Capital Market does not list our common stock for trading on its exchange, we could face significant material adverse consequences, including:

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our common stock will be listed on the NASDAQ Capital Market, such securities will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on the NASDAQ Capital Market, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

If our application to uplist is approved, our failure to meet the continued listing requirements of the NASDAQ Capital Market could result in a delisting of our common stock.

If our application to list our common stock on the NASDAQ Capital Market is approved, and thereafter we fail to satisfy the continued listing requirements of the NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement, the Nasdaq Capital Market may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we anticipate that we would take actions to restore our compliance with the NASDAQ Capital Market’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to remain listed on the NASDAQ Capital Market, stabilize our market price, improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ Capital Market’s minimum bid price requirement, or prevent future non-compliance with the NASDAQ Capital Market’s listing requirements.

Risks Incidental to our Information Technology Systems and Cybersecurity

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

We depend on our information technology systems to manage most of our major business functions, including sales processing, Elepreneur 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, Elepreneurs, employees, vendors and other business partners that we received in the ordinary course of our business. A substantial disruption in our information technology systems, particularly for any prolonged period, could result in delays in receiving product and in filling customer orders, and adversely affect our relationships with our customers, Elepreneurs, 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. Any expansion or upgrade to our systems and infrastructure 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 provide us with 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.

Threats to information technology security can take a variety of forms. Individual and groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states, frequently 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, employee, vendor or other information.

Cyberthreats are constantly evolving, making it increasingly difficult to prevent, detect and successfully defend against. A potential breach of our facilities, network 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. Any of these things could harm our reputation or competitive position, require us to allocate more resources to improve our systems, technologies and infrastructure, or otherwise adversely affect our business, financial condition, results of operations and cash flows.

Risks Incidental to our Preferred Shareholder Rights:

As of April 30, 2019, in the aggregate, there are 114,077,061 shares of our common stock (including the Class A common stock and the Class B convertible common stock) and 56,398,750 shares of our convertible preferred stock (including the Series A, the Series B, and the Series C preferred stock) issued and outstanding. The voting rights of each class of the Company’s securities are as follows: (a) each share of Class A common stock entitles the holder to one vote, (b) each share of Class B common stock entitles the holder to one vote, (c) each share of Series A preferred stock entitles the holder to one vote, (d) each share of Series B preferred stock entitles the holder to 1,000 votes, and (e) each share of Series C preferred stock entitles the holder to one vote. Each share of the Company’s Class B common stock, Series A preferred stock, Series B preferred stock, and Series C preferred stock is convertible into one share of the Company’s Class A common stock.

Pursuant to the Company’s articles of incorporation and the instruments governing the Company’s preferred stock, the consent of the holders of at least 86% of the shares of our Series B preferred stock outstanding is required for the Company to take certain corporate actions, including:

In addition, pursuant to the instruments governing the Company’s preferred stock, the affirmative vote of the holders of at least 86% of the shares of the Series A, the Series B, 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, the Series B, 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 the dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary. The preferred shareholder rights discussed above may constitute a material limitation on our ability to take certain corporate actions, including the payment of cash dividends and other distributions, if any, to our common stockholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2. PROPERTIES

The following table provides the location for our most significant leased and owned facilities, as of April 30, 2019:

The Company’s main distribution center is controlled and operated by an independent logistics partner and is located near the Company’s corporate headquarters. That facility is not owned or leased by the Company.

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.

Contingencies

In late January, 2019, the Company became aware of an unliquidated amount of potential liability arising out a series of cash advance loan transactions (“Transactions”) entered into by eight different sources and an entity owned by a former Company employee-insider. Without the knowledge of the Company and in contravention of the express provisions of the Nevada Revised Statutes and Bylaws of the Company, this former employee purported to obligate the Company (and two of the Company’s affiliates) to repay the amounts owed in connection with the Transactions.

At this time, the Company has resolved all of the debt associated with the Transactions at a substantial discount from the amounts alleged by the holders of such debt. Additionally, the Company has entered into a comprehensive agreement, secured by substantial assets, with the former employee-insider and the entity owned by the former Company employee-insider. Pursuant to such agreement, the former employee-insider and the entity owned and controlled by such former Company employee-insider are obligated jointly and severally to repay the Company all sums expended by the Company in the resolution of the Transactions. The amount expended by the Company, in connection with such resolution, is the sum of $3.4 million. At April 30, 2019, the Company has recorded a receivable of $3.4 million from the former employee-insider and the entity owned by the former Company employee-insider and is reported in accounts receivable, related party in our consolidated balance sheet.

Based on the foregoing, the Company does not believe that the ultimate resolution of this matter will have a material effect on its financial statements.

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 Registrant’s Common Equity

Market Information

Our common stock is traded under the symbol “SHRG” on the OTCQB Market, an over-the-counter stock market operated by OTC Markets Group Inc. Readers should be aware that over-the-counter market quotations may reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

Sharing Services, Inc.’s common stock commenced trading on March 7, 2017 under the symbol SHRV. As disclosed earlier, in January 2019 the Company changed its corporate name to Sharing Services Global Corporation. The Company believes the new corporate name more closely reflects the Company’s strategic intent to grow its business both inside and outside the United States. In connection with the name change, effective April 4, 2019, the Company’s common stock commenced trading under symbol SHRG.

Holders

As of June 30, 2019, there were 127 stockholders of record of our common stock.

Dividends

We have not declared or paid dividends at any time during the two-year period ended April 30, 2019. We currently anticipate that we will retain future earnings to support reinvestments in our business and/or to repay outstanding debt from time to time. 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.

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act. Accordingly, we have omitted certain other information required by Item 5 of this Annual Report as permitted by applicable scaled disclosure rules.

ITEM 6. SELECTED FINANCIAL DATA

We are a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act and, accordingly, have omitted the information required by Item 6 of this Annual Report as permitted by applicable scaled disclosure rules.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section reflects management’s views on the financial condition as of April 30, 2019 and 2018, and the results of operations and cash flows for the fiscal year ended April 30, 2019 and the period from May 5, 2017 (inception) to April 30, 2018, of Sharing Services Global Corporation (formerly Sharing Services, Inc.) and consolidated subsidiaries. This section is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements and related notes to the consolidated financial statements contained in ITEM 8 of this Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. Please see “Cautionary Notice Regarding Forward-Looking Statements” located at the front of this report.

Highlights for the Fiscal Year Ended April 30, 2019:

Overview

Summary Description of Business

Sharing Services Global Corporation (“Sharing Services” or “the Company”) is a diversified company focused on reshaping how modern entrepreneurs succeed. The Company, through its subsidiaries, markets and sells its products and services directly to consumers, through its independent, entrepreneurial sales force. The Company’s current product offerings include its health and wellness product line. The Company currently operates several websites, including www.shrginc.com, www.elepreneur.com and www.elevacity.com.

The Company had no significant sales history prior to December 2017, when the Company launched its current health and wellness product line under the name “Elevate.” The Company’s Elevate product line consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (which stands for: Dopamine, Oxytocin, Serotonin and Endorphins) and was developed by a wholly-owned subsidiary of the Company. The launch of this product line accelerated the Company’s growth and enabled the Company to expand its consolidated sales volume and operations at a rapid pace.

The Company has completed several acquisitions and purchases of equity interests in development stage businesses. The Company intends to continue to grow its business both organically and, subject to approval by its Board of Directors (the “Board”), 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.

Recent Corporate Name Change

As disclosed earlier, 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. The corporate name change was approved by the Company’s shareholders and by its Board.

Convertible Notes and Borrowing Under Short-term Financing Arrangements

The Company had no significant sales history prior to December 2017 and, prior to the second quarter of its fiscal year ended April 30, 2019, had not generated positive cash flows from operations. Historically, the Company has funded a substantial portion of its liquidity and cash needs through the issuance of convertible notes and borrowings under short-term financing arrangements, as well as through the issuance of equity securities from time to time. Please see “Liquidity and Capital Resources” below for more information about the Company’s convertible notes and borrowings under short-term financing arrangements.

Results of Operations

Net Sales

For the fiscal year ended April 30, 2019, our consolidated net sales were $85.9 million, compared to $8.4 million for the period from May 5, 2017 (inception) to April 30, 2018. During each, the fiscal year ended April 30, 2019 and the period from May 5, 2017 (inception) to April 30, 2018, the Company derived approximately 97% of its consolidated net sales from the sale of its Elevate health and wellness product line, launched in December 2017.

Gross Profit

For the fiscal year ended April 30, 2019, our consolidated gross profit was $57.1 million, compared to $4.4 million for the period from May 5, 2017 (inception) to April 30, 2018, and our consolidated gross margin was 66.5% and 52.3%, respectively. During the fiscal year ended April 30, 2019, our consolidated gross margin benefited from economies of scale, as the volume of product shipped increased compared to the prior year period, and selective price increases implemented in the current fiscal year, partially offset by expenses associated with ramping up warehousing capacity to meet increased sales activity in the current fiscal year.

Selling and Marketing Expenses

For the fiscal year ended April 30, 2019, our consolidated selling and marketing expenses were $44.0 million, or 51.2% of consolidated net sales, compared to $5.4 million, or 65.0% of consolidated net sales. The increase in consolidated selling and marketing expenses principally consists of incremental sales commissions of $36.5 million and higher expenses primarily associated with promotional trade shows of $1.7 million.

Research and Development expenses

In the period from May 5, 2017 (inception) to April 30, 2018, our consolidated research and development expenses were $836,640, and consisted of marketing and consulting services, tools, websites, video production, and event management services provided to the Company by Alchemist Holdings. Please see related party transactions in Note 14 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report. There we no comparable expenses incurred in the fiscal year ended April 30, 2019.

General and Administrative Expenses

For the fiscal year ended April 30, 2019, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, share-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) were $14.3 million, or 16.6% of consolidated net sales compared to $4.1 million, or 49.1% of consolidated net sales, in the fiscal year 2018. The increase in consolidated general and administrative expenses principally consisted of employee compensation and benefits of $3.5 million, incremental consulting and contract labor expenses of $1.5 million, higher legal and other professional fees of $1.6 million, higher state and local taxes of $1.1 million, higher rent and other occupancy costs of $0.7 million, and higher insurance and other administrative expenses.

Interest Expense

For the fiscal year ended April 30, 2019, our consolidated interest expense (including amortization of debt discount of $1.1 million) was $1.7 million. Excluding amortization of debt discount, consolidated interest expense primarily includes interest charges of $254,367 associated with our convertible notes and interest charges of $348,639 associated with short-term borrowings under financing arrangements.

For the period from May 5, 2017 (inception) to April 30, 2018, our consolidated interest expense (excluding amortization of debt discount of $448,884) was $122,643 and consisted primarily of interest charges associated with our convertible notes.

Loss on Impairment of Assets and Other Non-operating Expenses

In the fiscal year ended April 30, 2019, the Company recognized an impairment loss in the aggregate amount of $4.4 million in connection with its investments in unconsolidated entities as a result of an other than temporary decline in the value of the Company’s investment in 212 Technologies, LLC; 561 LLC; America Approved Commercial LLC; Medical Smart Care LLC; and LEH Insurance Group LLC, as further discussed on Note 8 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report. In addition, the Company recognized a provision for losses of $655,789 in connection with a note receivable, a loss contingency of $300,000 and impairment losses of $245,250 in connection with certain other investment assets.

Net Change in Fair Value of Derivative Liabilities

For the fiscal year ended April 30, 2019, the change in the fair value of our derivative liabilities resulted in a net gain of $29.9 million, compared to a net loss of $29.2 million for the period from May 5, 2017 (inception) to April 30, 2018. The Company accounts for the conversion features of its convertible notes, stock options and stock warrants under Accounting Standards Codification (“ASC”) Topic No. 815.

Provision for Income Taxes

The Company is an emerging growth company with a history of operating losses and has not generated pre-tax earnings in the past. The Company has not recorded an income tax provision (benefit) in its consolidated financial statements for the periods included in this Annual Report. Please see Note 2 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for information about the Company’s accounting policies regarding accounting for income taxes.

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

As a result of the foregoing, for the fiscal year ended April 30, 2019, our consolidated net earnings were $21.4 million compared to a consolidated net loss was $35.8 million for the period from May 5, 2017 (inception) to April 30, 2018. For the fiscal year ended April 30, 2019, fully diluted earnings per share were $0.09 compared to basic and fully diluted loss per share of $0.56 for the period from May 5, 2017 (inception) to April 30, 2018.

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.

Cash and Cash Equivalents

As of April 30, 2019 and 2018, cash and cash equivalents were $3.9 million and $768,268, respectively. Based upon the current level of operations and investments necessary to grow our business, we anticipate that existing cash balances and funds expected to be generated by operations will likely not be sufficient to consistently meet our working capital requirements and to fund potential acquisitions and anticipated capital expenditures, including investments in information technology infrastructure, over the next 12 months. Accordingly, we intend to obtain additional financing from time to time through the issuance of equity securities, and secured and unsecured debt, including convertible notes and borrowings under short-term financing arrangements, as needed to fund our working capital needs and our growth. Please see “If we incur losses and/or are unable to generate sustained positive cash flows from operations to fund our working capital needs, including servicing our debt” and “Our ability to obtain additional financing to implement our business strategies” contained in ITEM 1A – Risk Factors of this Annual Report.

Historical Cash Flows

Historically, our primary sources of cash have been capital transactions, involving the issuance of equity securities and debt (please see “Recent Issuances of Equity Securities” and “Short-term Borrowings and Convertible Notes” below) and funds provided by operating activities, while our primary uses of cash have been for operating activities, capital expenditures and debt service in the ordinary course of our business.

The following table shows our sources and uses of cash for the fiscal year ended April 30, 2019, compared to the period from May 5, 2017 (inception) to April 30, 2018:

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities changed by $7.0 million to $6.0 million for the fiscal year ended April 30, 2019, compared to net cash used in operating activities of $1.0 million for the period from May 5, 2017 (inception) to April 30, 2018. This change was primarily due to a decrease of $4.9 million in our consolidated operating loss and net changes in operating assets and liabilities of $2.3 million.

Net Cash Used in Investing Activities

Net cash used in investing activities increased by $4.5 million to $4.87 million for the fiscal year ended April 30, 2019, compared to the period from May 5, 2017 (inception) to April 30, 2018. The increase is primarily due to increase in due to/from related parties of $3,746,314, incremental issuances of notes receivable of $530,986 and an increase of $170,896 in capital expenditures, consisting primarily of furniture and fixtures, computer equipment, and leasehold improvements.

Net Cash Provided by Financing Activities

Net cash provided by financing activities decreased by $212,891 to $2.0 million for the fiscal year ended April 30, 2019, compared to the period from May 5, 2017 (inception) to April 30, 2018. This decrease was due to lower net proceeds of $922,545 from issuances of equity securities, partially offset by higher net proceeds of $709,654 from borrowings under promissory notes (including convertible notes and short-term financing arrangements).

Acquisitions

The Company has completed several acquisitions and purchases of equity interest in development stage businesses as part of the Company’s growth strategy. The Company had no significant sales history prior to December 2017 and has funded a substantial portion of these acquisitions through the issuance of equity securities.

Subject to approval by the Board, the Company intends to continue to make strategic acquisitions and purchases of equity interests in business that complement its business competencies and growth strategy. Such acquisitions and purchases of equity interests are expected to be funded with cash and cash equivalents, cash provided by operations, and the issuance of equity securities and debt.

Recent Issuances of Equity Securities

Common Stock (Classes A and B)

Series A and Series B Convertible Preferred Stock

Series C Convertible Preferred Stock

Short-term Borrowings and Convertible Notes

Borrowings Under Short-term Financing Arrangements

During the fiscal year ended April 30, 2019, our aggregate borrowings under short-term financing arrangements with third-party institutions were $5.6 million (resulting in net cash proceeds of $4.6 million). As of April 30, 2019, outstanding borrowings under short-term financing arrangements were $2.1 million, net of unamortized debt discount of $379,777. Please see Note 9 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for more information about the Company’s’ short-term financing arrangements.

In May 2018, the Company entered into an agreement with Global Payroll Gateway (“GPG”) pursuant to which GPG provides certain wholesale merchant services to the Company and its subsidiaries. In connection with the agreement, in May 2018, GPG granted Sharing Services an interest-free loan in the amount of $500,000 and, in August 2018, GPG granted Sharing Services an interest-free loan in the amount of $500,000. Borrowings under both loans were paid in full in the fiscal year 2019.

On November 2, 2018, the Company entered into a financing agreement with Funders Cloud LLC, d/b/a Syndimate (“Syndimate”), pursuant to which the Company agreed to sell to Syndimate certain future trade receipts in the aggregate amount of $330,000. Net proceeds from this transaction were $239,000 and were net of an initial financing fee of $11,000 and applicable financing costs, calculated at an annual percentage rate (“APR”) of 86%. Under the terms of the agreement, borrowings are payable in equal daily installments of approximately $2,063 over a term of approximately five and one-half months. Borrowings under the agreement were paid in full in the fiscal year 2019.

On November 27, 2018, the Company entered into a financing agreement with Libertas Funding LLC (“Libertas”) pursuant to which the Company agreed to sell to Libertas certain future trade receipts in the aggregate amount of $635,000. Net proceeds from this transaction were $490,000 and were net of an initial financing fee of $10,000 and applicable financing costs, calculated at an APR of 76%. Under the terms of the agreement, borrowings are payable in equal daily installments to Libertas of approximately $4,320, subject to change at the Company’s discretion, over a term of approximately five months. At April 30, 2019, the unpaid balance remaining under the loan was $169,709, net of unamortized debt discount of $13,114 and unamortized debt origination fees of $2,925.

On November 30, 2018, the Company entered into a financing agreement with eMerchant Advance LLC (“eMerchant”) pursuant to which the Company agreed to sell to eMerchant certain future trade receipts in the aggregate amount of $635,000. Net proceeds from this transaction were $485,000 and were net of an initial financing fee of $15,000 and applicable financing costs, calculated at an APR of 76%. Under the terms of the agreement, borrowings are payable in equal daily installments to eMerchant of approximately $4,320, subject to change at the Company’s discretion, over a term of approximately five months. As of April 30, 2019, the unpaid balance remaining under the loan was $192,994, net of unamortized debt discount of $18,272 and unamortized debt origination fees of $4,694.

On December 11, 2018, the Company entered into a Loan Agreement and Promissory Note (“loan agreement”) with GPG pursuant to which the Company borrowed the principal amount of $1,000,000. Borrowings under the loan agreement bear interest at 10% per annum and are payable in 51 equal weekly installments of $21,153.85 and a final installment of $21,153.65, with all amounts due and payable by December 11, 2019. Borrowings are pre-payable without penalty, at the option of the Company. As of April 30, 2019, the unpaid balance remaining under the loan was $634,615, net of unamortized debt discount of $63,462.

On March 5, 2019, the Company entered into a financing agreement with Trust Capital LLC (“Trust Capital”) pursuant to which the Company agreed to sell to Trust Capital certain future trade receipts in the aggregate amount of $650,000. Net proceeds from this transaction were $460,715 and were net of an initial financing fee of $39,285 and applicable financing costs calculated at an APR of 80%. Under the terms of the agreement, borrowings are payable in equal daily installments to Trust Capital of approximately $5,159, subject to change at the Company’s discretion, over a term of approximately six months. As of April 30, 2019, the unpaid balance remaining under the financing agreement was $373,012, net of unamortized debt discount of $80,586 and unamortized debt origination fees of $10,714.

On March 5, 2019, the Company entered into a financing agreement with eMerchant pursuant to which the Company agreed to sell to eMerchant certain future trade receipts in the aggregate amount of $650,000. Net proceeds from this transaction were $460,000 and were net of an initial financing fee of $40,000 and applicable financing costs calculated at an APR of 79%. Under the terms of the agreement, borrowings are payable in equal daily installments to eMerchant of approximately $5,159, subject to change at the Company’s discretion, over a term of approximately six months. As of April 30, 2019, the unpaid balance remaining under the financing agreement was $379,852, net of unamortized debt discount of $83,918 and unamortized debt origination fees of $10,833.

On March 6, 2019, the Company entered into a financing agreement with Libertas pursuant to which the Company agreed to sell to Libertas certain future trade receipts in the aggregate amount of $650,000. Net proceeds from this transaction were $460,000 and were net of an initial financing fee of $40,000 and applicable financing costs calculated at an APR of 80%. Under the terms of the agreement, borrowings are payable in equal daily installments to Libertas of approximately $5,159, subject to change at the Company’s discretion, over a term of approximately six months. As of April 30, 2019, the unpaid balance remaining under the financing agreement was $373,026, net of unamortized debt discount of $80,545 and unamortized debt origination fees of $10,714.

Convertible Notes Payable

As of April 30, 2019 and 2018, convertible notes payable of $870,567 and $253,175, respectively, were outstanding, net of unamortized debt discount of $34,433 and $816,825, respectively. Please see Note 11 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for more information about our Convertible Notes Payable.

Capital Resources

As of April 30, 2019, the Company does not have material commitments for capital expenditures. During the fiscal year ended April 30, 2019, our consolidated capital expenditures were $296,353, consisting of the purchase of primarily furniture and fixtures, computer equipment, and leasehold improvements in the ordinary course of our business.

Contractual Obligations

The following table summarizes the payments due by fiscal year under our contractual obligations outstanding at April 30, 2019:

Off-Balance Sheet Financing Arrangements

As of April 30, 2019 and 2018, the Company was not a party to letters of credits or off-balance sheet financing arrangements, other than operating leases incurred in the ordinary course of its business. Under accounting principles generally accepted in the United States, future obligations under operating leases are not currently reported on the balance sheet. The Company’s minimum contractual obligation under operating leases are included in the Contractual Obligations table shown above.

Inflation

We believe inflation did not have a material effect on our operations during the periods covered by this Annual Report.

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, assessment of long-lived assets for impairment and the valuation of derivative liabilities.

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

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

Valuation of Derivative Liabilities - Our convertible notes and stock warrants are classified as a liability, under GAAP, since the conversion options are effective at issuance. Prior to the fiscal year 2019, there was no explicit limit to the number of shares issuable upon conversion of certain of our convertible notes due to material contingencies affecting the conversion rate. The Company uses a multi-nominal lattice pricing model to calculate the fair value of these liabilities. The multi-nominal lattice pricing model requires six data inputs: (1) the contractual exercise, conversion 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.

Recent Accounting Pronouncements and Accounting Changes

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, using the cumulative effect transition method, effective May 1, 2018. The Company derives revenue from the sale of health and wellness product line, and subscription-based travel and similar services. The Company receives sales orders online and through its “back-office” operations, which creates a contract and establishes the transaction price. The Company recognizes revenue upon satisfaction of its performance obligation when it transfers control of the promised goods and services to the customer. With respect to products and services sold, the performance obligation is satisfied upon shipment of the product and delivery of the service to the customer. With respect to subscription-based services, including Elepreneur membership fees, the performance obligation is satisfied over time (generally one year or less). The timing of revenue recognition may differ from the time when we invoice and/or collect payment under the terms of the contract. Deferred sales revenue (refund liability) associated with our customers’ right of return was $194,042 and $0.0 at April 30, 2019 and 2018, respectively, and was reported in accrued and other liabilities on our consolidated balance sheets. A right to recover asset (for the cost of goods sold) associated with such right of return was $65,257 at April 30, 2019 and is reported in other current assets on our consolidated balance sheet. In addition, at April 30, 2019, deferred revenue associated with performance obligations to be satisfied was $1,598,162 and a right to recover asset (for the cost of goods sold) associated with such product sales was $600,401 and is reported in inventory on our consolidated balance sheet.

Deferred revenue associated with our performance obligation for services offered on a subscription basis was $515,087 as of April 39, 2019, is expected to be recognized over one year and was reported in accrued and other liabilities on our consolidated balance sheets.

Please see Note 2 of the Notes to Consolidated Financial Statements in ITEM 8 — “Financial Statements and Supplementary Data” contained elsewhere in this Annual Report for additional information about recent accounting pronouncements.

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

SHARING SERVICES GLOBAL CORPORATION

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 April 30, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the fiscal year ended April 30, 2019 and the period from inception (May 5, 2017) to April 30, 2018 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and the results of its operations and its cash flows for the fiscal year ended April 30, 2019 and the period from inception (May 5, 2017) to April 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter – Going Concern

The accompanying consolidated financial statements have been prepared to assume the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s losses from operations raise doubt about its ability to continue as a going concern. The 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 audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ Ankit Consulting Services, Inc.

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

Rancho Santa Margarita, California

July 10, 2019

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

April 30, 2019 and 2018

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 30, 2019 AND PERIOD FROM

INCEPTION (MAY 5, 2017) to APRIL 30, 2018

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FISCAL YEAR ENDED APRIL 30, 2019 AND PERIOD FROM

INCEPTION (MAY 5, 2017) to APRIL 30, 2018

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FISCAL YEAR ENDED APRIL 30, 2019 AND PERIOD FROM INCEPTION (MAY 5, 2017) to APRIL 30, 2018