SHARING SERVICES GLOBAL Corp - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED: APRIL 30, 2020

-OR-

For the transition period from __________________ to _____________________

Commission File No. 000-55997

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: None

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

Common Stock, $0.0001 par value per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act. YES [  ] 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 every Interactive Data File required to be submitted 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 such files). YES [X] NO [  ]

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

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, 2019, 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 $5,187,600. As of June 30, 2020, there were 126,072,386 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 Proxy Statement related to the registrant’s 2020 Annual Meeting of Stockholders are incorporated into Part III of this Annual Report by reference where so 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 by reference therein which are not purely historical, or which depend upon future events, may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “potential,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “will likely,” “would,” or the negative of such words and/or similar expressions. However, not all forward-looking statements contain these words.

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

PART I

ITEM 1. BUSINESS.

Sharing Services Global Corporation (“Sharing Services”, “we,” or the “Company”), formerly Sharing Services, Inc., markets and distributes health and wellness products primarily in the United States and Canada. The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. It markets and distributes its products and services primarily through an independent sales force, which it refers to as “Elepreneurs,” using a marketing strategy which is a form of direct selling. The Company’s main operating subsidiaries are Elepreneurs Holdings, LLC and Elevacity Holdings, LLC.

The Company does not operate retail stores. It markets its products and services through its independent sales force and using its proprietary website: www.elevacity.com. The Company’s fiscal year ends on April 30.

Our History

Sharing Services, Inc. was originally formed in 2015 to develop and market two web applications but soon expanded its business development initiatives to include a wide range of health and wellness, and other products and services. During its fiscal year 2018, the Company intensified its efforts to develop an independent sales force and the infrastructure to procure, market and distribute its products and services, as further discussed below. As a result of these initiatives, several of the Company’s health and wellness products became market ready, and the Company launched its Elevate brand of health and wellness products in December 2017.

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

Future Growth

The Company plans to expand its product offerings from time to time in order to further grow its business and achieve sustained profitability. This growth strategy may also include strategic acquisitions, subject to the approval of the Company’s Board of Directors, of businesses that augment the Company’s product portfolio and complement its business competencies.

Key Industry and Business Trends

The Company believes the following demographic, industry and business trends may influence the direct selling industry, and provide it with opportunities to grow its business and achieve consistent financial results in the future:

Business Segments, Geographic Area Information and Seasonality

The Company operates primarily in one business segment: the sale of its health and wellness products and services primarily through its independent sales force. In each of the two fiscal years in the period ended April 30, 2020, approximately 98% of the Company’s consolidated sales were from the sale of its Elevate health and wellness products, and approximately 95% of the Company’s consolidated sales were to customers and/or independent distributors located in the United States. Please see Note 18 of the Notes to Consolidated Financial Statements contained in Item 8 — “Financial Statements and Supplementary Data” of this Annual Report for more details.

While the direct selling industry generally is not highly seasonal, sales activity is normally slower during the third calendar quarter of every year, when many residents of the U.S. and Canada traditionally take vacations.

Competition

The direct selling industry is highly fragmented, competitive and growing, and there are few barriers to entering the industry. Our competitors include a wide range of retailers, including traditional retail stores that offer their products both in “brick and mortar” outlets and online, and e-commerce-based retailers. These retailers include, CVS Health Corporation (Pharmacies), GNC Holdings (a specialty retailer), Target Corporation, The Vitamin Shoppe, Walgreen Boots Alliance (Pharmacies) and Walmart, to name a few. In addition, we compete with other direct selling businesses, including many of that have a longer operating history, higher visibility and name recognition, and more financial resources than we do. Among others, these network marketing companies include Amway Corporation, Avon Products, Herbalife, Mary Kay and NuSkin Enterprises.

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, the reliability and convenience of our Elepreneurs distribution system, and a personalized customer service experience. We offer products and services that aim to improve health and happiness of our customers and distributors.

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

Competitive Strengths

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

Our Elevate Product Line

The Company had no significant sales history prior to December 2017 when it launched its current health and wellness product line, under the name Elevate. The Company’s Elevate health and wellness product line consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (which stands for four hormones that are associated with happiness: Dopamine, Oxytocin, Serotonin and Endorphins). The Company’s mission is to offer products and services that improve the health and happiness of its customers and distributors. We aim to do this by developing and marketing superior products and services, and by distributing our products and services through our growing independent sales force.

The launch of this product line accelerated the Company’s growth and has enabled it to expand its sales volume and operations at a rapid pace. For example, during the fiscal years ended, April 30, 2020 and 2019, the Company had consolidated net sales of $131.4 million and $85.9 million, respectively. Of these amounts, approximately 98% resulted from the sale of the Company’s Elevate health and wellness product line.

Sales to customers and/or independent distributors located in the U.S. currently account for 95% or more of our consolidated net sales. However, the Company has commenced to more actively market and export its products to customers located in Canada and other countries. To date, substantially all the Company’s sales transactions to customers located outside the U.S. have been denominated in U.S. dollars.

Key Products and Services

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

Health & Wellness Products

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

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

Elevate NITRO™ Coffee - A delicious-tasting 100% Colombian Arabica coffee drink that blooms with a bold, aromatic body. Using clinically proven naturally extracted polyphenols, Elevate NITRO™ coffee promotes powerful natural nitric oxide production with great antioxidant capability. When combined with XanthoMax^®, Elevate NITRO™ coffee completes the set of four hormones that are associated with happiness.

Choclevate^® - A delicious Nootropic-infused hot chocolate drink 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. When combined with XanthoMax^®, Choclevate^® completes the set of four hormones that are associated with happiness.

Elevate ZEST^® - A refreshing, cool afternoon pick-me-up, Elevate ZEST^® is a lemon and lime citrus twist on a classic drink with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy. When combined with XanthoMax^®, Elevate ZEST^® completes the set of four hormones that are associated with happiness.

XanthoMax^® - An encapsulated wellness supplement designed to deliver Xanthohumol, a powerful antioxidant, and Turmeric. Xanthohumol is a natural ingredient that helps the body release elevated amounts of Oxytocin, commonly referred to as the “hormone of happiness.” Turmeric is specifically known for its anti-inflammatory properties. When combined with any of our Elevacity^® functional beverages (Elevate Smart Coffee™, Elevate MAX™ coffee, Elevate NITRO™ coffee, Choclevate^®, or Elevate ZEST^®), XanthoMax^® completes the set of four hormones that are associated with happiness.

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

Elevate Pure 2.0^® - A unique dietary supplement designed to assist in the removal of toxins and heavy metals from the body. Made from “mica” extract, part of the zeolite family, Elevate Pure 2.0^® supports the systemic detoxification of heavy metals and environmental toxins.

D.O.S.E.^® - A powerful combination of Elevate Smart Coffee™ and XanthoMax^® helps your body promote its own D.O.S.E.^® of “Happy Hormones”, Dopamine, Oxytocin, Serotonin, and Endorphins.

ElevaciTea™ - A flavorful afternoon pick-me-up, ElevaciTea™ is a tea with a proprietary blend of Nootropic ingredients designed to assist with mental clarity, memory, and energy.

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

Sound 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.

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

Skincare Products

Elier Facial Serum™ - Anti-aging skin-care cream designed for women and men that deeply nourishes and regenerates at the cellular level, resulting in a more youthful look, while enhancing skin hydration and smoothness.

Timeless Eye Gel™ - An all-natural skin-tightening, eye enhancer designed for women and men that provides immediate firming effects while promoting elasticity over time.

Elier Moor Mud Mask™ - An organic anti-aging mask designed for women and men that infuses the skin with vital nutrients to help purify it, while assisting in the reversal of age-related wrinkles and blemishes.

Sales and Marketing

We rely on a direct selling model consisting of independent sales representatives, or Elepreneurs, and on customer referrals to promote and sell our products. We believe this is an effective selling model since our Elepreneurs can educate consumers about our products in person, provide testimonials, and provide higher levels of customer support, compared to more traditional selling models. In addition, the Company markets its products and services using its proprietary websites, including: www.elevacity.com.

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

As part of its efforts to help contain the spread of the COVID-19 virus, the Company currently holds its sales conventions digitally only. The Company intends to resume also holding sales conventions in public places once it is safe to do so.

Product Distribution

Distribution and delivery to our retail customers and independent distributors located in the United States and Canada is primarily handled by an independent logistics partner located in Addison, Texas.

Historically, we have also operated a Company-staffed smaller fulfillment center near our corporate headquarters. This has allowed the Company the opportunity to customize its product distribution and delivery efforts to suit a customer’s needs, while capitalizing on cost savings and efficiencies available through a larger logistics operation. However, in response to the recent COVID-19 health crisis, including the resulting economic slowdown in the U.S., the Company has temporarily consolidated all order fulfilment operations at its third-party distributor in Addison. The Company intends to resume operating its Company-staffed smaller fulfillment center once the health crisis fully subsides.

We intend to grow, in part, by also offering and distributing our products to customers in geographic areas outside the U.S. and Canada. To date, substantially all the Company’s sales transactions outside the U.S. have been denominated in U.S. dollars.

Retail Customers and Independent Distributors

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

Any person may join the Company as a distributor, or Elepreneur, by purchasing a Virtual Business System (“VBS”) for $49.00 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 and Compensation

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, and to comply with all applicable laws and regulations. To become a distributor an individual must affirmatively accept our standard Elepreneurs Agreement, as well as our Elepreneurs 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.

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

Each Elepreneur begins by purchasing a Virtual Business System for $49.00 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 Company’s compensation plan emphasizes customer acquisition and retention. The Company provides a back-office website for our Elepreneurs to use in their ecommerce sales, but an affiliate may also sell directly to their customers.

We rely upon our Elepreneurs to create customer demand and sales. We believe our plan is successful in helping to attract and motivate our sales force and key industry leaders. Please see ITEM 1A. - “RISK FACTORS” – “Our dependence upon a direct selling system to sell our products, and the highly competitive and dynamic nature of the direct selling industry” below for more information.

Full Customer Satisfaction Product Return Policy

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

Trademarks, Patents and Intellectual Property

We have obtained 16 U.S. trademark registrations in the U.S. We have published for opposition 8 trademarks with the U.S. Patent and Trademark Office, and 4 of those have passed the opposition period and are in the process of receiving registration status. We have filed an additional 5 applications for trademarks in the U.S. We anticipate success in obtaining U.S. trademark registrations for this latter category.

Additionally, we have filed for trademark protection in three foreign markets: Canada, Australia, and New Zealand. We also anticipate filing for and securing additional foreign trademark registrations in various additional countries. Trademark protection is increasingly important to our growing business.

In addition, several of our products are manufactured under formulations and processes owned by some of our key vendors. Some of our key vendors have registered or applied for patent registrations to maintain exclusivity over the ingredients, formulation and processes, and the integrated products they supply to us. Such potential patents, the underlying ingredients, formulation and processes, and integrated products are material to the Company’s business. The Company reserves the right to join in any future actions to defend against any infringement on such patents that could adversely affect the products the Company sells. If our vendors and us were unsuccessful in protecting such intellectual property rights, this could have a material adverse effect on our business. Please see ITEM 1A. – “RISK FACTORS” – “Our dependence on one supplier for a substantial amount of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.”

To protect our own intellectual property and proprietary processes that are material to the long-term health and profitability of the Company, we maintain disciplined business practices to manage trade secrets and use various forms of confidentiality and non-disclosure agreements. We consider trademark protection to be very important to our business and utilize an internal compliance team to closely monitor the usage of our intellectual property. Please see ITEM 1A. – “RISK FACTORS” – “The success of our efforts to register our trademarks and protect our intellectual property rights.”

Strategic Supply Chain Partnerships

We maintain good relationships with key business partners to ensure the continuous supply, distribution, and quality of our products. In the fiscal year ended April 30, 2020 and 2019, product purchases from one supplier accounted for 98% and 96%, respectively, of our product purchases. Please see ITEM 1A. – “RISK FACTORS” – “Our dependence on one supplier for a substantial amount of the products we sell and the potential for material disruptions in our supply chain or potential increases in the prices of the products we purchase beyond what we can pass along to our customers.”

Our main product distribution center is in Addison, Texas and is operated by a third-party logistics partner, as discussed above. Under the terms of our third-party product distribution agreement, the Company, in its sole discretion, may process some or all its sales orders internally or use 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 Canada and other jurisdictions in which we operate. These laws and regulations related to: (1) the manufacturing, labeling, distribution and sale of our products; (2) product claims and advertising; and (3) our network marketing program.

Regulation of Direct Selling Activities

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

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

Regulation of Personal Care and Nutritional Food Products

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

The FDA regulates both finished dietary supplement products (including 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. Generally, such regulations apply prior to a product reaching the market. Once a product reaches the market, the FDA is responsible for taking enforcement action against any product found to be an adulterated or misbranded dietary supplement. Unlike medications, dietary supplements and dietary ingredients, such as those sold by the Company, do not require FDA approval before such products can be marketed and sold.

The FTC, which enforces consumer protection laws regarding truth in advertising, and certain similar state and foreign agencies, regulate how we advertise and market our products. The U.S. Consumer Product Safety Commission, and similar state and foreign agencies, seek to protect the public from unreasonable risks of injuries or death associated with consumer products. In the U.S. 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 description requirements, register or qualify the products with the applicable government authorities, or obtain approvals or file required notifications prior to marketing such products within certain jurisdictions. Many of the jurisdictions where we operate also regulate product capability claims and advertising content. These regulations control the type of claims and representations that can be made regarding the capabilities of products. For example, in the United States, it is unlawful to make claims that nutritional supplements will help diagnose, cure, mitigate, treat, or prevent disease. Please see ITEM 1A. - “RISK FACTORS” – “Our ability to comply with current laws and regulations or our becoming subject to new or more stringent laws and regulations in the future, including applicable laws and regulations in jurisdictions outside the United States” below for more information.

Employees

As of April 30, 2020, we had approximately 80 full-time employees, of which 35 employees provide direct support to our Elepreneurs and customers, and 45 are involved in marketing, product management, information technology, finance, executive and other support functions. These numbers do not include the Company’s approximately 24,000 distributors who are independent contractors. Our employees are not represented by labor unions. We believe that our relationship with our employees is positive, and we do not expect a shortage in qualified personnel to continue our business growth.

Access to Public Filings

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports, are available to any person, without charge, upon written request to our Investor Relations Department at 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.

A - Risks Incidental to our Business:

Our dependence upon a direct selling system to sell our products, and the highly competitive and dynamic nature of the direct selling industry.

We market and distribute our products and services through a sales force of independent distributors, which we refer to as “Elepreneurs,” using a marketing strategy that is a form of direct selling. The direct selling industry generally experiences a relatively high rate of salesforce turnover. The distribution of our products and services depends upon our efforts to recruit, train and retain successful distributors. The success of our efforts to recruit and retain distributors may be affected by the competitive environment among direct-to-consumer companies, the conditions in the general labor market, including levels of employment, demographic and cultural changes in the workforce, and our level of marketplace penetration in the geographies in which we operate. There can be no assurance that we will remain competitive in recruiting and retaining enough successful distributors to grow our business.

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 than the Company, that offer competing health and wellness products. Competing health and wellness products are offered by brick and mortar stores and online-based businesses. These businesses include online retailers, specialty health and wellness stores, drug stores and supermarkets, among others. The primary competitive factors for health and wellness products are (a) price; (b) the quality, perceived value, brand recognition and package appeal of the product; (c) the 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 will 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, including competition for independent distributors, and industry changes in the future, future sales of our products and services could decline. This could have a material adverse effect on our financial condition, results of operations and cash flows.

Our ability to attract and retain key personalities and independent distributors to promote our products; the ability of a key personality or distributor to successfully perform his or her role; and the potential adverse effect of the loss of a high-level distributor or a significant number of distributors for causes out of our control.

The direct-to-consumer sales industry relies on key personalities, including social media influencers, and independent distributors to promote its products and services. We rely on the marketability and skills of key personalities and our distributors to promote our brand, and to distribute our products and services. Our inability to attract and retain qualified key personalities and distributors in the future, the inability or failure of a key personality or distributor to fulfill his or her role, the ineffectiveness of a key personality or distributor 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, the existence of negative publicity about a key personality, or the loss of a high-level distributor or a significant number of distributors for causes out of our control may adversely affect future sales of our products and services. This could have a material adverse effect on our financial condition, results of operations and cash flows.

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

We modify aspects of our sales compensation plan from time to time in order to keep our sales compensation plan competitive and attractive to our existing and future sales force, to address changing market conditions, to provide incentives that we believe will help grow our business, and to conform to changing government regulations, among other reasons. For example, we modified our sales force compensation plan in November 2018 and again in August 2019. In addition, we may be required to modify our sales compensation plan from time to time to comply with existing or new regulations in the future. Changes to our sales compensation plan, including changes perceived to reduce sales commissions earned by our sales force, could be negatively received by our sales force, could fail to achieve the desired long-term goals, and could adversely impact our business, financial condition, results of operations and cash flows.

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

We are an emerging growth company and had no significant sales history prior to December 2017. Our long-term success is dependent on our ability to grow our business. We have made significant investments in strategic growth initiatives, including several marketing initiatives designed to attract new customers, build brand awareness and generate recurring customer orders, which we call “SmartShip” orders. 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 business, financial condition, results of operations and cash flows.

Our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in 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 anticipate 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 preferences and buying trends, and consumer demands for health and wellness products and services, our business, financial condition, results of operations and cash flows may be adversely affected.

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

We depend on one supplier for a substantial amount of the products we sell. Any disruption or substantial decrease in the supply of product by this supplier, as a result of a shortage of raw materials or otherwise, could disrupt or substantially decrease our ability to fulfill customer orders. If this occurred, particularly for an extended period, we may not be able to continue to offer these or similar products and our future sales may decline. In such event, we may not be able to offset the decline in sales through substitution of product, price increases, or otherwise. In addition, if this supplier or any of our suppliers implemented unilateral price increases, we may not be able to pass along such price increases to our customers and our profitability may be reduced. Further, if this supplier or any of our suppliers failed to continue to supply product of adequate quality and in a timely fashion to us, this could adversely affect our future sales.

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

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

A substantial portion of our credit card sales is processed by one merchant processor and, at April 30, 2020 and 2019, the Company’s accounts receivable includes $4.0 million and $4.1 million, respectively, from this merchant processor. Any disruption in the operations of this merchant processor, as a result of natural disasters, acts cyberterrorism or otherwise, could disrupt or substantially decrease our cash flows from operation. If this occurred, particularly for an extended period, we may not be able to meet our obligations. The occurrence of any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to attract and retain talented employees and management.

As an emerging growth business, our success depends in large part on our ability to attract and retain talented employees and senior executives who have strong knowledge, experience and managerial skills, including in the direct selling industry. From time to time, key employees may retire or otherwise leave our business, and we may experience delays or be unsuccessful in attracting and integrating the new staff required to grow and operate our business profitably. In addition, as an emerging growth company with a relatively limited number of executives currently on staff, our ability to develop effective management succession plans is limited. Effective management succession planning is important to our long-term success, because failure to effectively transfer knowledge and to complete a smooth management transition could hinder or disrupt our strategic planning initiatives and adversely affect future execution of those initiatives and our performance. The occurrence of any of these conditions could have a material adverse effect on our business, 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 consistent, sustained profitability. Our ability to consistently generate earnings from operations depends in large part on our ability to successfully control our operating costs and expenses, while we continue to invest in strategic initiatives intended to expand our sales volume and business infrastructure. In furtherance of this goal, we have engaged in ongoing activities to control operating costs and expenses. 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 business, financial condition, results of operations and cash flows.

Our quarterly financial performance and potential fluctuations therein.

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. 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 in the U.S., changes in interest rates applicable to credit cards, inflation, national and local political uncertainty, and changes in consumer sentiment in general. For example, consumer demand for our products and services may decrease, over the short-term, during and following a national health crisis, such as the recent crisis associated with the COVID-19 virus outbreak. Further, 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. The occurrence of any of these conditions could have a material adverse effect on our quarterly financial performance.

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

The Company is an emerging growth company and, prior to its fiscal quarter ended October 31, 2018, had not generated positive cash flows from operations. More recently, the Company has not consistently generated sustained, positive cash flows from operations, has experienced significant fluctuation in its quarterly cash flows from operations, 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. If the Company is unable to generate sustained, positive cash flows from operations or to obtain additional equity or debt financing, if needed, it could inhibit the Company’s ability to implement its business strategies and to grow its business, service its debt, now or in the future, and otherwise meet its business goals. This could, in turn, slow the Company’s recent financial momentum and could have a material adverse effect on its financial condition, results of operations and cash flows.

Our financial performance could be adversely affected by economic slowdowns, particularly over extended periods.

Our results of operations may be materially impacted by changes in economic conditions in general, mainly in the U.S. and Canada. The economy in the U.S. and Canada may be adversely affected by government action and/or by current and future consumer concerns about, among other things, current and future levels of employment, changes in local, state, provincial and federal tax law, increases in energy costs, geopolitical conflict, natural disasters or acts of terrorism, widespread health crises, changes in interest rates applicable to credit cards, and inflation. For example, as further discussed below, in efforts to stop the spread of the COVID-19 virus, business activity in several sectors of the economy in the U.S. and Canada were severely reduced or completely halted, as a result of government action or otherwise, and significant numbers of workers were laid off in the affected businesses. As the affected businesses resume normal operations, there can be no assurance the economic recovery will be complete or, for some businesses, at all. In the event of a significant economic downturn, particularly over an extended period, whether as a result of the COVID-19 virus or otherwise, consumer spending habits could be adversely affected over a longer term, and we could experience lower than expected sales. Any economic downturn could also materially affect one or more of our key suppliers. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

Potential impact of COVID-19 virus outbreak.

In early March 2020, the World Health Organization declared the coronavirus outbreak (currently known as the “COVID-19” virus) a pandemic. Actions taken in the U.S., Canada and other affected countries, to help mitigate the aggressive spread of this pandemic, included restrictions on travel and movement, mandated quarantines in certain geographic areas, and forced closures for certain public places and businesses. As a result, business activity in several sectors of the economy in the U.S. and Canada (including restaurants, bars and nightclubs, hotels, movie theaters, cruise lines, and other entertainment sectors) were severely reduced or completely halted and significant numbers of workers have been laid off. We believe the COVID-19 virus and actions taken to mitigate it have had, and will continue to have, a potentially adverse material impact on the economies and financial markets of several countries, including the countries in which we operate. Given the widespread, persistent, and evolving nature of the COVID-19 health crisis and the significant degree of uncertainty associated with the disease, including ongoing efforts to develop an effective treatment and a vaccine, the Company cannot reasonably estimate the magnitude of the impact to the Company’s business, if any, and to its consolidated results of operations. In addition, as stated above, there can be no assurance that all the businesses affected will resume normal operations soon or that full economic recovery in the U.S. and Canada will occur soon. Accordingly, it is reasonably possible that estimates made in the Company’s consolidated financial statements have been, or will be, materially impacted in the near term as a result of these conditions. This may include estimates regarding losses on inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the valuation of loss contingencies. The ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to maintain a positive image and brand acceptance in the dynamic and sometimes unpredictable social media environment.

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 enable a business to reach a wide selection of consumers and other targeted audiences, generally in a more cost-effective way than more traditional forms of marketing and advertising. However, negative, inaccurate or false information about a company or the products it sells may be circulated through social media quickly and may damage 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.

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

Our ability to comply with current laws and regulations or our becoming subject to new or more stringent laws and regulations in the future, including applicable laws and regulations in jurisdictions outside the United States.

The products we sell are subject to several federal, state and local laws and regulations, mainly in the U.S. and Canada. These laws and regulations generally govern the composition, packaging, labeling and consumer safety of the products we sell, as well as the information we use to market these products. In addition, the laws and regulations applicable to us and our products may become more stringent in the future. For example, the State of California enforces recent legislation that requires that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we actively seek to comply with the requirements of this and all other laws and regulations applicable to our products, there can be no assurance our products would not be found to be defective in labeling or content, or that the labeling and content of products we sell will not be challenged in civil or enforcement actions in the future. Our continued compliance with new and existing federal and 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 existing or new 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.

The occurrence of any of these conditions 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, given the increase in product liability claim activity in recent years and the increased application of a “strict liability” legal standard to those claims in the U.S., we purchase product liability insurance to minimize the financial risks associated with such claims or potential claims. The sources of product liability insurance coverage in the U.S. are limited and product liability insurance policies contain many exclusions. 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 to a consumer, we might be subjected to liability substantially in excess of our insurance coverages. Any of these conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The success of our efforts to register our trademarks and protect our 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 obtained 16 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 if our intellectual property rights were successfully challenged, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

Our potential unintended infringement 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 a third party, or cease using the intellectual property altogether. Moreover, any intellectual property claim, regardless of its merits, could be expensive and time-consuming to defend against. As a result, claims based on allegations of infringement or other violations of intellectual property rights, regardless of the outcome, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are a party to lawsuits and other claims that may result in adverse outcomes.

We are a party to several claims and lawsuits that arise from a wide variety of business initiatives, including acquisition-related contingencies, disputes between the Company and certain former officers, and disputes between the Company and certain shareholders, as further detailed elsewhere in this Annual Report. Adverse outcomes in any of these claims may result in significant monetary damages or injunctive relief that could adversely affect our business. Litigation and other claims are subject to inherent uncertainties and management’s assessment of these uncertainties may change in the future, including as a result of new information. A material adverse impact in our consolidated financial position and results of operations could occur in the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable, and a material adverse cash flow could occur in the period when these lawsuits or claims are settled.

Past or future reformulations of our products, including as a result of potential governmental enforcement action, could be negatively received by our sales force and customers and adversely impact future sales.

As part of our commitment to continuously improve our products, we introduce product reformulations and other product enhancements from time to time. In addition, we may be required to modify our product formulations from time to time to comply with existing or new regulations in the future or in response to potential governmental enforcement action. Changes to our product formulations, whether as a result of potential governmental enforcement action or not, could be negatively received by our sales force and customers, and could adversely impact our business, 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, approximately 95% or more of our sales have been to customers and/or independent distributors located in the U.S. As part of our growth strategies, however, 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 applicable foreign currency exchange rates, and by economic and other conditions in the non-U.S. geographic areas we expand into. For example, international operations may result in exposure to more restrictive consumer safety, product labeling and other product regulations, more restrictive labor laws and regulations, frequent or unexpected changes in the regulatory environments, higher inflation rates, and political instability compared to the U.S. In addition, international operations may result in exposure to higher income tax rates, import and export restrictions and tariffs, and restrictions on the expatriation of cash. The occurrence of any of these conditions could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

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

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

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

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

During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we would be required to implement remediation procedures aimed at mitigating the control weakness or weaknesses. Until such remediation procedures succeed in mitigating the control weakness or weaknesses, we would be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to timely and accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, 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 executed, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

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.

As an emerging market issuer, the trading market for our common stock would be influenced by the research and reports that securities or industry analysts publish about our business in the future. 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 in the future 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 in the future 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.

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

We have not declared or paid cash dividends on our capital stock at any time since our inception. We currently intend to retain 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 or may materially restrict the amount of such dividends. As a result, capital appreciation, if any, of our securities likely 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 growth. 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 currently outstanding or granted in the future and any additional shares issued in connection with acquisitions, if any, may result in material dilution to the equity interests of our existing stockholders. In addition, as a result of such future sales, new investors could gain rights, preferences and privileges senior to those of current holders of our common stock.

Our Board of Directors expects to adopt an equity compensation plan in the future to attract and reward employees, executives 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 result in material dilution to the equity interests of our existing investors and have an adverse effect on the market price of our securities.

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, including significant legal, accounting and other expenses, as a result of operating as a public company, and our management will be required to devote substantial time to incremental compliance requirements as a result of our disclosed efforts to uplist our stock in the NASDAQ Capital Market. For example, we have incurred and will continue to incur costs associated with the preparation and filing of annual, quarterly and current reports pursuant to the Exchange Act. Furthermore, after our disclosed efforts to uplist our stock in the NASDAQ Capital Market, we will be subject to mandatory incremental corporate governance and other compliance requirements. In addition, the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the NASDAQ Capital Market have imposed various demanding reporting and corporate governance 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 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.

B - 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 an extended 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. For example, we are currently in the process of implementing an information system upgrade that can accommodate the Company’s current and anticipated growth. 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.

C - Risk Incidental to our Preferred Shareholder Rights:

Certain rights of our preferred stockholders may limit your rights as a common stockholder.

The Company capital stock structure is comprised of multiple classes of Common Stock (Class A and Class B) as well as Preferred Stock ( Series A, B and C). These various classes of common stock and series of preferred stock purport to establish certain preferential rights as to voting, Board member election, and decision-making processes. As of April 30, 2020, there are 136,072,386 shares of our common stock (including the Class A and the Class B) and 45,968,750 shares of our convertible preferred stock (including the Series A, the Series B, and the Series C preferred stock) issued and outstanding.

The rights of the holders of Series A, B and C Preferred Stock are set out in a Certificate of Designation (for each such series) filed in the State of Nevada. Given the questionable circumstances under which the Series B Certificate of Designation (“COD”) was created as well as the inclusion of provisions in such COD which are in contravention of the rights of the shareholders as established by the Amended And Restated Article of Incorporation and Nevada law, the Company caused the filing of a corrected COD for such Series B Preferred Class. In a related action, in order to protect the rights of the other shareholders, the Company subsequently filed a lawsuit against the two shareholders holding the entirety of this series of Preferred Stock seeking a declaratory action to establish: (i) the propriety of the Amended Series B COD and (ii) the infirmities of the original Series B COD. The nature and scope of this litigation is described in ITEM 3. – “LEGAL PROCEEDINGS” below.

In a related action, the Company further filed a lawsuit against Bear Bull Market Dividends, Inc. in Texas state court seeking a determination that this entity is properly designated as a shareholder of the Company. The basis for this lawsuit, which has been subsequently transferred to the Clark County, Nevada District Court, is the determination by the Company that the purported award of stock to Bear Bull Market Dividends, Inc. was improper on the basis of fraud in the inducement and the failure of consideration for the original stock transfer transaction. The underpinning of lawsuit is to contest the status of Bear Bull Market Dividends, Inc. as a shareholder of any class or series of stock of the Company. The nature and scope of this litigation is described in ITEM 3. – “LEGAL PROCEEDINGS” below.

As further reported in ITEM 3. – “LEGAL PROCEEDINGS” below, an entry of default in favor of the Company has been recorded in the Nevada proceedings, in both cases.

The result of these legal actions will be to establish that the party which controls all votes under the Common B and Series B Preferred shares is Alchemist Holdings, LLC, which, in turn, is subject to a series of agreements favorable to the Company regarding the voting of those classes of stock and the prohibition of such shareholder of taking actions which are adverse to the Company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2. PROPERTIES

The following table provides information about our material facilities:

The Company’s corporate headquarters are located on leased space. The Company’s main distribution center, which is not listed on the table above, is controlled and operated by a third-party 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.

(a) Cause No. 416-01969-2019; Larry Thompson, Sonya “Taylor” Thompson and Taylor Made Enterprises, Inc. v. Sharing Services Global Corporation f/k/a Sharing Services, Inc., filed in the 416th Judicial District of Collin County, Texas. On April 10, 2019, Larry Thompson, Sonya “Taylor” Thompson and Taylor Made Enterprises, Inc. filed a lawsuit against the Company, alleging they were due compensation as contractors on an oral contract. The Plaintiffs had signed a written contract with the Company that expired on November 30, 2018. A settlement was reached in this matter and the lawsuit was dismissed on October 3, 2019.

(b) Cause No. 296-02516-2019; Elepreneur, LLC and Elevacity Global LLC v. Larry Thompson, Sonya “Taylor” Thompson and Taylor Made Enterprises, Inc., filed in the 296^th Judicial District of Collin County, Texas. On May 8, 2019, Elevacity and another of the Company’s subsidiaries, Elepreneur, LLC (“Elepreneur”) filed a lawsuit against Larry Thompson, Sonya “Taylor” Thompson and Taylor Made Enterprises, Inc. for disparagement of one of Elevacity’s products and the interference of Elevacity and Elepreneur’s distribution and sale of products. A settlement was reached in this matter and the lawsuit was dismissed on October 3, 2019.

(c) Case No. 4:19-cv-00386; Sharing Services Global Corporation, f/k/a Sharing Services, Inc. v. Taylor Made Enterprises, Inc., filed in the United States District Court for the Eastern District of Texas. On May 29, 2019, the Company filed a lawsuit in federal court asserting claims for violations of the Lanham Act and related claims arising from the Defendant’s claims relating to the trademark Elevate Pink™. A settlement was reached in this matter and the lawsuit was dismissed on October 3, 2019.

(d) Opposition No. 91249474; Sharing Services IP Holdings, LLC and Sharing Services Global Corporation v. Taylor Made Enterprises, Inc. On July 10, 2019, SHRG IP Holdings, LLC (“SHRG IP”) a subsidiary of the Company, and the Company filed a trademark opposition with the United States Patent and Trademark Office, relating to the pending registration of certain trademarks by Taylor Made Enterprises, Inc. due to the Company’s pending trademark applications for Elevate Pink™. A settlement was reached in this matter and a Withdrawal of Notice of Opposition was filed with the USPTO Trademark Trial and Appeal Board on October 2, 2019.

(e) Cause No. 416-02428-2019; Sharing Services Global Corporation, f/k/a Sharing Services, Inc. v. XIP Technologies, LLC, pending in the 416^th Judicial District of Collin County, Texas. On May 6, 2019, the Company filed a lawsuit against XIP Technologies, LLC to recover money held by XIP Technologies, LLC that was owed to the Company. The Company obtained a writ of garnishment against a third-party holding funds for XIP Technologies, LLC. XIP Technologies, LLC has filed an answer denying the claims asserted against it. A settlement was reached in this matter and, upon final payment of the amounts due to the Company under the Settlement Agreement, the lawsuit will be dismissed.

(f) Cause No. 296-03925-2019; Elepreneur, LLC v. 212 Technologies, LLC, filed in the 296^th Judicial District of Collin County, Texas. On July 23, 2019, Elepreneur filed a lawsuit against 212 Technologies, LLC for issues arising from a software license agreement. A settlement was reached in this matter and the lawsuit was dismissed on March 23, 2020.

(g) Cause No. 296-03589-2019; Pruvit Ventures, Inc. v. Elevacity, LLC, pending in the 296^th Judicial District of Collin County, Texas. On July 3, 2019, Pruvit Ventures, Inc. filed a lawsuit against Elevacity, alleging a breach of contract claim. Elevacity has denied the claim of breach contract.

(h) Cause No. 219-04726-2019; Sharing Services Global Corporation v. Kenyatto M. Jones, Bear Bull Market Dividends, Inc. and Research and Referral, BZ, filed in the 219^th Judicial District of Collin County, Texas. On August 22, 2019, the Company filed a lawsuit against Kenyatto M. Jones, Bear Bull Market Dividends, Inc. and Research and Referral, BZ for breach of contract, statutory fraud in a stock transaction, and violations of the Texas Securities Act. On April 13, 2020, the court issued a Final Default Judgment in favor of the Company finding Research and Referral, BZ (“R&R”) liable for the Company’s claims of fraud in the inducement and statutory fraud in a stock transaction. Further, the court ordered that the stock transaction between the Company and R&R be rescinded and the Company’s stock transferred in such transaction be returned to the Company. Due to the pending lawsuits in Nevada, described below, the Company elected to dismiss its claims against Kenyatto M. Jones and Bear Bull Market Dividends, Inc. without prejudice in Texas.

(i) Case No. A-19-802861-B; Sharing Services Global Corporation v. Bear Bull Market Dividends, Inc., Alchemist Holdings, LLC and Kenyatto M. Jones, pending in the District Court of Clark County, Nevada. On October 1, 2019, the Company filed suit against two shareholders, Bear Bull Market Dividends, Inc. and Alchemist Holdings, LLC, and the key principal of Bear Bull Market Dividends, Inc., Kenyatto M. Jones, concerning an amended certificate of designation filed by the Company, and for allegations of self-dealing by the two shareholders. An entry of default was made against two of the defendant shareholders as well as Mr. Jones, as a key principal. This matter remains pending.

(j) Case No. A-20-811265-C; Sharing Services Global Corporation v. Bear Bull Market Dividends, Inc., Research and Referral, BZ and Kenyatto M. Jones, pending in the District Court of Clark County, Nevada. On February 27, 2020, the Company filed suit against two shareholders, Bear Bull Market Dividends, Inc. and Research and Referral BZ, as well as a key principal of Bear Bull Market Dividends, Inc., Kenyatto M. Jones, concerning breach of contract, fraud, violations of state securities laws and alter ego relating to a stock exchange/transfer transaction, involving the Company’s stock. An entry of default was made against the two shareholders and key principal Jones and the matter remains pending.

(k) Cause No. 366-04941-2019; Sharing Services Global Corporation, Elepreneurs U.S., LLC and Elevacity, LLC v. Robert Oblon, filed in the 366^th Judicial District of Collin County, Texas. On August 30, 2019, the Company and its affiliated entities filed a lawsuit against Robert Oblon for breach of contract, tortious interference with business relationships, and misappropriation of trade secrets, and sought injunctive relief. A settlement was reached in this matter and the lawsuit was dismissed on March 2, 2020. As part of the settlement, the Company agreed to pay amounts that were due to Oblon under a prior settlement agreement in the approximate amount of $2,000,000, to be paid in installments through June 1, 2020. The Company completed its final payment obligation in accordance with the settlement agreement.

(l) Cause No. 380-01007-2020; Elepreneurs Holdings, LLC, d/b/a Elepreneur, LLC v. Carissa Rogers and Barbie Williams, filed in the 380^th Judicial District of Collin County, Texas. On February 20, 2020, Elepreneurs Holdings, LLC filed a lawsuit against two of its former distributors for breach of contract, tortious interference with business relationships, tortious interference with contracts, and disparagement of a perishable food product, and sought injunctive relief. A settlement was reached in this matter and Agreed Final Judgment and Permanent Injunction was entered on April 8, 2020.

(m) Cause No. DC-19-20587; Sharing Services Global Corporation f/k/a Sharing Services, Inc. v. Amber-Lynn Beers-Hutchinson, n/k/a Amber-Lynn Cantrell, pending in the 192^nd Judicial District of Dallas County, Texas. On December 30, 2019, the Company filed a lawsuit against a former contractor for breach of contract. The defendant in this matter filed a counterclaim, asserting defamatory conduct engaged in by the Company. This matter remains pending.

(n) On December 4, 2019, Entrepreneur Media, Inc. (“EMI”) filed a Notice of Opposition in response to the “Elepreneurs” trademark application filed by SHRG IP Holdings, LLC, a wholly owned subsidiary of the Company. This opposition proceeding is now before the Trademark Trial and Appeal Board of the United States Patent and Trademark Office (“TTAB”). On April 13, 2020, SHRG IP Holdings, LLC filed an answer to the Notice of Opposition. Legal counsel for the parties held a mandatary discovery conference on May 12, 2020. This matter remains pending.

(o) On May 20, 2020, the Company (through its legal counsel, Jones, Davis & Jackson, PC) received a demand letter from legal counsel representing a former employee of the Company. The Company has denied the claim of this at-will employee and this matter remains pending.

(p) Company subsidiaries Elevacity Holdings, LLC, Elevacity U.S., LLC, Elepreneurs Holdings, LLC and Elepreneurs U.S., LLC (collectively, the “Subsidiaries”) received notice of a dispute with a former officer of such Subsidiaries regarding severance payments allegedly due under an executive employment agreement. The Company and its Subsidiaries have disputed this matter, and the issues between the parties remain outstanding.

(q) In March 2019, the Company engaged in preliminary discussions with various independent contractor distributors of the Subsidiaries regarding a previously reported dispute concerning the issuance of stock warrants based on the satisfaction of certain individual sales production metrics. The Company previously recorded a liability of $0.1644 per share for the projected resolution of this matter, which remains pending.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for the Company’s Common Stock

(a) - Market Information

The principal U.S. market for our common stock is the OTCQB Market, an over-the-counter stock market operated by OTC Markets Group Inc. Readers should be aware that over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

Our common stock is traded under the symbol “SHRG.” Sharing Services, Inc.’s common stock commenced trading on March 7, 2017 under the symbol SHRV. In January 2019 the Company changed its corporate name to Sharing Services Global Corporation, as discussed elsewhere in this Annual Report. In connection with the name change, effective April 4, 2019, the Company’s common stock commenced trading under symbol SHRG.

(b) - Holders

As of June 30, 2020, there were 133 stockholders of record of our common stock.

(c) - Dividends

We have not declared or paid dividends at any time during the two-year period ended April 30, 2020. 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.

(d) Securities Authorized for Issuance Under Equity Compensation Plans

The information contained under the caption “Equity Compensation Plans” in ITEM 12 – “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS” is incorporated herein by reference.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

During the fiscal year ended April 30, 2020, holders of the Company’s convertible promissory notes converted $28,000 in notes principal and/or accrued interest into 2,800,000 shares of the Company’s Class A common stock, pursuant to the terms of the underlying debt instruments. During the fiscal year ended April 30, 2020, the Company issued 20,000 shares of its Series C preferred stock in exchange for cash in the amount of $5,000 in connection with stock subscription agreements in the ordinary course of its business.

During the fiscal year ended April 30, 2019, holders of the Company’s convertible promissory notes converted $16,000 in notes principal and/or accrued interest into 3,200,000 shares of the Company’s Class A common stock, pursuant to the terms of the underlying debt instruments. During the fiscal year ended April 30, 2019, the Company issued 7,500,000 shares of its Series A preferred stock (with an aggregate fair value of $1,875,000) in connection with purchases of equity interest in unconsolidated entities, and 170,000 shares of its Series C preferred stock in exchange for cash in the amount of $42,500 in connection with stock subscription agreements in the ordinary course of its business.

During the period from inception (May 5, 2017) to April 30, 2018, the Company issued 10,628,750 shares of its Series A preferred stock (with an aggregate fair value of $2,657,188) in connection with purchases of equity interest in unconsolidated entities, and 1,065,790 shares of its Series A preferred stock in exchange for consulting and other services with a fair value of $266,448. During the period from inception (May 5, 2017) to April 30, 2018, the Company also issued 3,950,000 shares of its Series C preferred stock in exchange for cash in the amount of $987,500 in connection with stock subscription agreements in the ordinary course of its business. In May 2017, the Company issued 10,000,000 shares of its Class B common stock and 10,000,000 shares of its Series B preferred stock in connection with the acquisition of Total Travel Media, Inc. and, in September 2017, the Company issued 75,000,000 shares of its Series A preferred stock in connection with the acquisition of Four Oceans Holdings, Inc.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

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

ITEM 6. 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 of the consolidated financial condition as of April 30, 2020 and 2019, and the consolidated results of operations and changes in financial condition for the fiscal year ended April 30, 2020 and 2019 of Sharing Services Global Corporation (formerly Sharing Services, Inc.) and 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 contained in ITEM 8 of this Annual Report. This section may contain forward-looking statements. Please see “Cautionary Notice Regarding Forward-Looking Statements” located at the front of this Annual Report for a discussion of forward-looking statements and the inherent uncertainties, risks and assumptions associated therewith, which could cause actual results to differ materially from the assertions contained in such forward-looking statements.

Highlights for the Fiscal Year Ended April 30, 2020:

Overview

Summary Description of Business

Sharing Services Global Corporation (“Sharing Services”, “we,” or the “Company”) markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. It markets and distributes its products and services primarily through an independent sales force, which it refers to as “Elepreneurs,” using a marketing strategy which is a form of direct selling. The Company’s main operating subsidiaries are Elepreneurs Holdings, LLC and Elevacity Holdings, LLC.

The Company does not operate retail stores. It markets its products and services through its independent sales force and using its proprietary website: www.elevacity.com. The Company’s fiscal year ends on April 30.

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). 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 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.

Corporate Name Change

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

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.

Significant Uncertainty Regarding the Potential Impact of Ongoing COVID-19 Virus Outbreak

In early March 2020, the World Health Organization declared the coronavirus outbreak (currently known as the “COVID-19” virus) a pandemic. Actions taken in the U.S., Canada and other affected countries, to help mitigate the aggressive spread of this pandemic, included widespread restrictions on travel and movement, mandated quarantines in certain geographic areas, and forced closures for certain public places and businesses. As a result, business activity in several sectors of the economy in the U.S. and Canada (including restaurants, bars and nightclubs, hotels, movie theaters, cruise lines, and other entertainment sectors) were severely reduced or completely halted and significant numbers of workers were laid off. We believe the COVID-19 virus and actions taken to mitigate it have had, and will continue to have, a potentially adverse material impact on the economies and financial markets of several countries, including the countries in which we operate. Given the widespread, persistent and evolving nature of the COVID-19 health crisis and the significant degree of uncertainty associated with the disease, including ongoing efforts to develop an effective treatment and a vaccine, the Company cannot reasonably estimate the magnitude of the potential impact to the Company’s business, if any, and to its consolidated results of operations.

In addition, there can be no assurance that all the businesses affected will resume normal operations soon or that full economic recovery in the U.S. and Canada will occur soon. Accordingly, it is reasonably possible that estimates made in the Company’s consolidated financial statements have been, or will be, materially impacted as a result of the ultimate resolution of these uncertainties. This may include estimates regarding losses on inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the valuation of loss contingencies.

The Fiscal Year Ended April 30, 2020 Compared to the Fiscal Year Ended April 30, 2019

Results of Operations

Net Sales

For the fiscal year ended April 30, 2020, our consolidated net sales increased by $45.5 million, to $131.4 million, compared to $85.9 million for the fiscal year ended April 30, 2019. This increase in net sales was driven by significant growth the first nine months of the fiscal year 2020, partially offset by lower sales in the fourth quarter of the fiscal year 2020, compared to the fourth quarter of the prior fiscal year. For the fiscal quarter ended April 30, 2020, our consolidated net sales were $25.4 million, compared to $29.1 million for the fiscal quarter ended April 30, 2019. The Company believes the decrease in quarterly sales performance is temporary in nature and reflects, in part, the impact of the coronavirus outbreak and actions taken to help mitigate the spread of the outbreak in the U.S. and Canada. Please see Significant Uncertainty Regarding the Potential Impact of Ongoing COVID-19 Virus Outbreak above.

The $45.5 million increase in consolidated net sales reflects an increase in number of units sold and an increase in average unit sales prices, compared to the fiscal year ended April 30, 2019, as well as the impact of products introduced in the fiscal year ended April 30, 2020. The increase in average unit sales prices mainly reflects the impact of selective price increases implemented in the second half of the fiscal year 2019 and in the first nine months of the fiscal year ended April 30, 2020.

The Company is an emerging growth company and had no significant sales history prior to December 2017. During the fiscal year ended April 30, 2020 and 2019, the Company derived approximately 98% and 97%, respectively, of its consolidated net sales from the sale of its Elevate health and wellness product line, launched in December 2017.

During the fiscal year ended April 30, 2020, approximately 47% of our consolidated net sales were to recurring customers (which we refer to as “SmartShip” sales), approximately 26% were to new customers and approximately 27% were to our independent distributors.

Gross Profit

For the fiscal year ended April 30, 2020, our consolidated gross profit increased by $36.4 million, to $93.5 million, compared to $57.1 million for the fiscal year ended April 30, 2019, and our consolidated gross margin was 71.2% and 66.5%, respectively. During the fiscal year ended April 30, 2020, our consolidated gross margin benefited from selective price increases implemented in the second half of the fiscal year 2019 and in the first nine months of the fiscal year ended April 30, 2020 and a favorable shift in product mix (towards the sale of products with a relatively higher average gross margin) resulting from changes costumer preferences in the ordinary course of business.

Selling and Marketing Expenses

For the fiscal year ended April 30, 2020, our consolidated selling and marketing expenses increased to $60.8 million, or 46.3% of consolidated net sales, compared to $44.0 million, or 51.2% of consolidated net sales, for the fiscal year ended April 30, 2019. The increase in consolidated selling and marketing expenses is due primarily to higher sales commissions of $17.6 million (which reflects increases in our consolidated net sales and in our sales commission payout rate implemented in November 2018 and in August 2019), partially offset by lower promotional trade show and sales convention expenses of $1.0 million.

General and Administrative Expenses

For the fiscal year ended April 30, 2020, 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 $23.0 million, or 17.5% of consolidated net sales compared to $14.3 million, or 16.6% of consolidated net sales, for the fiscal year ended April 30, 2019. The increase in consolidated general and administrative expenses was due primarily to higher employee compensation and benefits of $6.2 million, and higher share-based compensation expense of $4.1 million. This increase was partially offset by lower consulting fees of $1.0 million and legal and other professional fees of $0.4 million.

Interest Expense, Net

For the fiscal year ended April 30, 2020, our consolidated interest expense was $380,991, excluding amortization of debt discount of $54,277 and interest income of $4,414. Consolidated interest expense of $380,991 primarily consists of $333,559 associated with short-term borrowings under financing arrangements and $47,360 associated with our convertible notes.

For the fiscal year ended April 30, 2019, our consolidated interest expense was $603,006, excluding amortization of debt discount of $1.15 million and interest income of $33,119. Consolidated interest expense of $603,006 consists of interest charges of $254,367 associated with our convertible notes and interest charges of $348,639 associated with short-term borrowings under financing arrangements.

Litigation Settlements and Other Non-operating Expenses

For the fiscal year ended April 30, 2020, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $6.0 million, including, among other things, a loss of $4.8 million from the settlement of legal claims and related legal expenses; a loss of $425,000 in connection with the Release and Settlement Agreement by and between the Company and 212 Technologies; a loss of $309,309 on impairment of a promissory note receivable; legal and other professional fees of $251,721 associated with settlement of various legal claims; and an impairment loss in the amount of $187,500 in connection with the Company’s investment in an unconsolidated entity.

For the fiscal year ended April 30, 2019, we recognized an impairment loss in the aggregate amount of $4.44 million in connection with our 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

The Company had no derivative liabilities during its fiscal year ended April 30, 2020. For the fiscal year ended April 30, 2019, the changes in the fair value of our derivative liabilities resulted in a net gain of $29.9 million. 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

During its fiscal year ended April 30, 2019, the Company’s consolidated operating loss was $1.1 million. During the fiscal year ended April 30, 2020, the Company’s consolidated operating earnings were $9.7 million. The Company believes it is probable it will utilize its available net operating losses in the foreseeable future and, for the fiscal year ended April 30, 2020, recognized a current provision for income taxes of $2.1 million and a deferred income tax benefit of $1.6 million. 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, 2020, our consolidated net earnings were $2.8 million compared to $21.4 million for the fiscal year ended April 30, 2019 (please see “Net Change in Fair Value of Derivative Liabilities” above). For the fiscal year ended April 30, 2020, fully diluted earnings per share were $0.01 compared to $0.09 for the fiscal year ended April 30, 2019.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our obligations and commitments. We believe that, for this purpose, liquidity cannot be considered separately from capital resources.

Working Capital

At April 30, 2020 and 2019, cash and cash equivalents were $11.7 million and $3.9 million, respectively. Based upon the current level of operations and anticipated investments necessary to grow our business, we believe that existing cash balances and anticipated funds from operations will likely be sufficient to meet our working capital requirements, and to fund potential acquisitions and capital expenditures, including potential investments in information technology, over the next 12 months. However, when needed to compensate for any temporary fluctuations in our working capital needs, compared to our operating cash flows, we may obtain occasional additional financing through the issuance of equity securities and secured and unsecured debt, including borrowings under convertible notes and short-term financing arrangements. Please see ITEM 1A – “RISK FACTORS” - “Our ability to generate sustained, positive cash flows from operations or to obtain additional financing, if needed, with which to fund our working capital needs, including servicing or refinancing our debt, now and in the future.”

Historical Cash Flows

Historically, our primary sources of cash have been capital transactions involving the issuance of equity securities and secured and unsecured debt (See “Recent Issuances of Equity Securities” and “Short-term Borrowings and Convertible Notes” below) and cash flows from operating activities; and our primary uses of cash have been for operating activities, capital expenditures, acquisitions, net cash advances to related parties, and debt repayments in the ordinary course of our business.

The following table shows our cash flow activities for the fiscal year ended April 30, 2020, compared to the fiscal year ended April 30, 2019:

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities increased by $5.3 million, to $11.3 million, for the fiscal year ended April 30, 2020, compared to the fiscal year ended April 30, 2019. This increase was mainly due to an increase in profitability of $9.2 million, excluding non-cash items, such as depreciation and amortization, change in fair value of derivative liabilities, share-based compensation expense, deferred income tax benefit, amortization of debt discount, losses on impairment of investments in unconsolidated entities and notes receivable, and estimated settlement liability. This increase was partially offset by net changes in operating assets and liabilities of $3.9 million.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased by $4.6 million, to $229,146, for the fiscal year ended April 30, 2020, compared to the fiscal year ended April 30, 2019. This decrease was due to change in accounts receivable from related parties of $3.7 million, lower issuances of notes receivable of $747,940, lower capital expenditures (consisting mainly of furniture and fixtures, computer equipment and software, and leasehold improvements) of $135,496, and a $20,000 decrease in cash paid for acquisitions.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by (used in) financing activities changed by $5.2 million, to cash used of $3.3 million, for the fiscal year ended April 30, 2020, compared to cash provided of $2.0 million for the fiscal year ended April 30, 2019. This change was mainly due to higher net repayments of borrowings under short-term financing arrangements and convertible promissory notes, in the aggregate, of $5.0 million, and lower proceeds from issuances of stock of $204,547.

Legal Proceedings

The information contained in PART I, ITEM 3 - “Legal Proceedings,” of this Annual Report is incorporated herein by reference.

Potential Future Acquisitions

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

Recent Issuances of Equity Securities

In the fiscal year ended April 30, 2020:

Short-term Borrowings and Convertible Notes

Borrowings Under Short-term Financing Arrangements (Notes Payable)

In the fiscal year ended April 30, 2020, the Company paid in full all borrowings under financing arrangements with third-party lenders. As of April 30, 2020, there were no borrowings outstanding under financing arrangements. At April 30, 2019, borrowings under financing arrangements, in the aggregate, were $2,123,208, net of unamortized debt discount of $379,777. Borrowings under the Company’s financing arrangements were secured by a lien on the Company’s accounts receivable, inventory and property and equipment.

Convertible Notes Payable

At April 30, 2020 and 2019, convertible notes payable of $115,745 and $870,567, respectively, were outstanding, net of unamortized debt discount of $34,255 and $34,433, 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

During the two fiscal years in the period ended April 30, 2020, the Company did not have material commitments for capital expenditures. During the fiscal year ended April 30, 2020, our consolidated capital expenditures were $160,857, consisting of the purchase of primarily furniture and fixtures, computer equipment and software, and leasehold improvements in the ordinary course of our business.

Contractual Obligations

At April 30, 2020, the Company’s contractual obligations consist of (a) future principal and interest payments in the aggregate amount of $180,033 in connection with the Company’s debt and (b) obligations associated with Type B leases (as defined by Accounting Standards Codification (“ASC”) Topic 842, Leases) of $820,898. Please see Notes 11 and 13 of the Notes to Consolidated Financial Statements contained in Item 8 — “Financial Statements and Supplementary Data” of this Annual Report for more details.

On May 13, 2020, a commercial bank granted to the Company a loan (the “Loan”) in the amount of $1,040,400 pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company’s borrowings may be eligible for loan forgiveness if used for specified qualifying expenses incurred during the “covered period,” as defined in the CARES Act, except that the amount of any loan forgiveness is limited to the amount of qualifying expenses incurred during the 8-week period commencing on the loan effective date, and otherwise subject to limitations. The Company’s indebtedness, after any such loan forgiveness, is payable in 18 equal monthly installments commencing on December 13, 2020, with all amounts due and payable by May 13, 2022.

The Company is a Smaller Reporting Company, as defined in Rule 12b-2 of the Exchange Act, and, accordingly, has omitted the tabular presentation of its contractual obligations as permitted by applicable scaled disclosure rules.

Off-Balance Sheet Financing Arrangements

During the two fiscal years in the period ended April 30, 2020, the Company was not a party to letters of credits or off-balance sheet financing arrangements. Please see “Recent Accounting Pronouncements and Accounting Changes” below for information about the Company’s recent adoption of Accounting Standards Codification Topic 842, Leases.

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, the valuation of derivative liabilities, and the valuation of share-based compensation awards.

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.

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

Recent Accounting Pronouncements and Accounting Changes

The information contained in Note 2 of the Notes to Consolidated Financial Statements, under the sub-headings: “Recently Issued Accounting Standards - Pending Adoption” and “Recently Issued Accounting Standards – Recently Adopted,” in ITEM 8 — “Financial Statements and Supplementary Data” below, is incorporated herein by reference.

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, 2020 and 2019, and the related consolidated statements of operations, cash flows and stockholders’ equity (deficit), for the each of the years in the two-year period ended April 30, 2020 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two year period ended April 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

/s/ Ankit Consulting Services, Inc.

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

Rancho Santa Margarita, California

July 8, 2020

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF OPERATIONS

Sharing Services Global Corporation (“Sharing Services”, “we,” or the “Company”), formerly Sharing Services, Inc., markets and distributes its health and wellness products primarily in the United States and Canada. The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. It markets and distributes its products and services primarily through an independent sales force, which it refers to as “Elepreneurs,” using a marketing strategy which is a form of direct selling. The Company’s main operating subsidiaries are Elepreneurs Holdings, LLC and Elevacity Holdings, LLC.

The Company does not operate retail stores. It markets its products and services through its independent sales force and using its proprietary websites, including: www.elevacity.com. The Company’s fiscal year ends on April 30.

Corporate Name Change

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

Going Concern Reporting

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and settle its liabilities in the ordinary course of its business for the foreseeable future. The Company is an emerging growth company and, prior to its fiscal quarter ended January 31, 2018, the Company had virtually no sales. However, the Company’s net sales and/or gross margin generally have increased each quarter since the December 2017 launch of its Elevate health and wellness product line. For the full fiscal year ended April 30, 2020 and 2019, cash provided by operations was $11.3 million and $6.0 million, on sales of $131.4 million and $85.9 million, respectively. As of April 30, 2020, cash and cash equivalents were $11.7 million.

The Company believes it will be able to fund its working capital needs for the next 12 months with existing cash and cash equivalents, cash to be provided by operations, secured and unsecured debt, including through the issuance of convertible notes and short-term borrowings under financing arrangements, and capital transactions from time to time. Accordingly, the Company believes it will be able to continue to operate as a going concern, as defined by U.S. generally accepted accounting principles (“GAAP”), in the foreseeable future.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with GAAP and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the prior year data to conform with the current period’s presentation.

Comprehensive Income

For the fiscal periods covered by this Annual Report, the only component of the Company’s comprehensive income (loss) is the Company’s net earnings. Accordingly, the Company does not present a consolidated statement of comprehensive income.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with GAAP requires the use of judgment and requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures about contingent assets and liabilities, if any. Matters that require the use of estimates and assumptions include: the recoverability of accounts receivable, the valuation of inventory, the useful lives of fixed assets, the assessment of long-lived assets for impairment, the nature and timing of satisfaction of multiple performance obligations resulting from contracts with customers, allocation of the transaction price to multiple performance obligations in a sales transaction, the measurement and recognition of right-of-use assets and related lease liabilities, the valuation of derivative liabilities, the valuation of share-based compensation awards, the measurement and recognition of uncertain tax positions, and the valuation of loss contingencies, if any. Actual results may differ from these estimates in amounts that may be material to our consolidated financial statements. We believe that the estimates and assumptions used in the preparation of our consolidated financial statements are reasonable.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits in banking institutions, and cash equivalents, if any. At April 30, 2020 and 2019, cash and cash equivalents also include $11.1 million and $3.5 million, respectively, of deposits with our merchant processors, consisting of proceeds from recent sales transactions, which are unrestricted and are not insured by any federal agency.

Cash equivalents, if any, represent highly liquid short-term investments with an original maturity of 90 days or less and are stated at cost, which approximates fair value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consists primarily of amounts due from our merchant processors of $4.2 million and $4.5 million, as of April 30, 2020 and 2019, respectively, including $4.0 million and $4.1 million, respectively, receivable from one merchant processor. We assess the adequacy of our allowance for doubtful accounts, if any, on the basis of our historical collection data and current information. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventory and Cost of Goods Sold

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

Physical inventory counts are performed at all facilities at least annually. Upon completion of physical inventory counts, our consolidated financial statements are adjusted to reflect actual quantities on hand. Between physical counts, we estimate inventory shrinkage based on our historical experience. We have policies and processes in place that are intended to minimize inventory shrinkage.

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

Property and Equipment

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

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