SHARING SERVICES GLOBAL Corp - Quarter Report: 2020 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: January 31, 2020

or

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

Commission File Number 000-55997

SHARING SERVICES GLOBAL CORPORATION

(Exact name of registrant as specified in its charter)

(469) 304-9400

(Registrant’s telephone number, including area code)

None

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [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 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 Section 13(a) of the Exchange Act. [  ]

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

As of March 9, 2020, there were 126,072,386 shares of the issuer’s class A common stock and 10,000,000 shares of the issuer’s class B common stock outstanding.

TABLE OF CONTENTS

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

cautionary notice regarding forward-looking statements

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

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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The following condensed consolidated balance sheets as of January 31, 2020 and April 30, 2019, the condensed consolidated statements of operations for the three and nine months ended January 31, 2020 and 2019, and the condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity (deficit) for the nine months ended January 31, 2020 and 2019 are those of Sharing Services Global Corporation and subsidiaries.

Index to Unaudited Condensed Consolidated Financial Statements

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

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

SHARING SERVICES GLOBAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 –DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION

Sharing Services Global Corporation (“Sharing Services” or “the Company”) is a holding company, with Elepreneurs Holdings, LLC and Elevacity Holdings, LLC as its main operating subsidiaries. The Company is an emerging growth company that primarily markets and distributes health and wellness products under the Elevate brand through an independent sales force of distributors, or “Elepreneurs,” using a marketing strategy which is a form of direct selling. The Company’s Elevate health and wellness product line was launched in December 2017 and consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (which stands for: Dopamine, Oxytocin, Serotonin and Endorphins).

The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019.

Recent 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. The corporate name change was approved by the Company’s stockholders and by its Board of Directors. In connection with the name change, the Company adopted the over-the-counter trading symbol “SHRG.”

Going Concern

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, 2019, cash provided by operations was $6.0 million, on sales of $85.9 million while, for the nine months ended January 31, 2020, cash provided by operations was $7.7 million, on sales of $106.0 million. As of January 31, 2020, cash and cash equivalents were $8.2 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 there is no longer reasonable doubt as to the Company’s ability to continue as a going concern in the foreseeable future.

NOTE 2 –SIGNIFICANT ACCOUNTING POLICIES

We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses is based on full-year assumptions.

Reclassifications

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

Comprehensive Income

For the fiscal periods included in this Quarterly Report, the only component of the Company’s comprehensive income (loss) is the Company’s net earnings (loss). 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 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. Examples 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 measurement and recognition of right-of-use assets and related lease liabilities, the valuation and recognition of derivative liabilities, the measurement and recognition of stock-based compensation expense, the measurement and recognition of revenues, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, 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.

Revenue Recognition

The Company derives revenue only from the sale of its products and services and recognizes revenue net of amounts due to taxing authorities (such as local and state sales tax). Our customers place sales orders online and through our “back-office” operations, which creates a contract and establishes the transaction price. The Company recognizes revenue when (or as) it transfers control of the promised goods and services to the customer. With respect to products sold, our performance obligation is satisfied upon receipt of the products by the customer. With respect to subscription-based services, including Elepreneur membership fees, our performance obligation is satisfied over time (up to one year). The timing of our revenue recognition may differ from the time when we invoice and/or collect payment. The Company has elected to treat shipping and handling costs as an activity to fulfill its performance obligations, rather than a separate performance obligation.

Deferred revenue associated with product invoiced but not received by customers at the balance sheet date was $1.2 million and $2.5 million as of January 31, 2020 and April 30, 2019, respectively. In addition, as of January 31, 2020 and April 30, 2019, deferred revenue associated with our performance obligations for services offered on a subscription basis was $460,896 and $515,087, and deferred revenue associated with our performance obligations for customers’ right of return was $215,979 and $194,042, respectively. Deferred revenue is expected to be recognized over one year and is reported in accrued and other current liabilities on our consolidated balance sheets.

No individual customer, or related group of customers, represents 10% or more of our consolidated net sales. Over 94% of our consolidated net sales are from sales to our customers and/or independent distributors located in the United States. During the nine months ended January 31, 2020, approximately 50% of our consolidated net sales were to recurring customers, approximately 25% were to new customers, and approximately 25% were to our independent distributors.

During the nine months ended January 31, 2020, approximately 98% of our consolidated net sales are from our Elevate product line (including approximately 25% from the sales of coffee and coffee-related products and approximately 52% from the sale of all other D.O.S.E. Nutraceutical products). During the nine months ended January 31, 2020 and 2019, product purchases from one supplier accounted for approximately 98% and 95%, respectively, of our total product purchases.

Sales Commission

The Company recognizes sales commission expense, when incurred, in accordance with GAAP. During the three months ended January 31, 2020 and 2019, sales commission expense was $14.0 million and $12.7 million, respectively. During the nine months ended January 31, 2020 and 2019, sales commission expense was $47.6 million and $26.3 million, respectively. Sales commission expense is included in selling and marketing expenses in our consolidated statements of operations.

As of January 31, 2020 and April 30, 2019, accrued sales commission payable was $8,491,081 and $7,402,659, respectively; including $1,290,599 and $1,365,705, respectively, payable with stock warrants.

Accounting Changes

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases, which requires lessees to report on their balance sheets a right-of-use asset and a lease liability in connection with most lease agreements classified as operating leases under the prior guidance. As permitted, the Company adopted the new guidance, codified as Accounting Standards Codification (“ASC”) Topic 842, Leases, effective May 1, 2019 using the optional cumulative-effect transition method, and adoption resulted in an initial lease liability in the aggregate amount of approximately $1.4 million and right-of-use assets in the same aggregate amount. The Company’s right-of-use assets relate to leases involving office space, automobiles and office equipment, and are amortized over periods ranging from one to three years. The adoption of ASC Topic 842 did not otherwise have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements on fair value measurements under ASC Topic No. 820, Fair Value Measurement, as amended (“ASC 820”). For public companies, ASU 2018-13 removes (a) the prior requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy contained in ASC Topic 820, (b) the policy for timing of transfers between levels, and (c) the valuation processes used for level 3 fair value measurements. For public companies, ASU 2018-13 also adds, among other things, a requirement to disclose the range and weighted average of significant unobservable inputs used in Level 3 fair value measurements. The Company adopted ASU 2018-13 effective February 1, 2020 and such adoption did not have a material effect on its consolidated financial statements.

NOTE 3 – FAIR VALUE MEASURENTS OF FINANCIAL INSTRUMENTS

Our financial instruments consist of cash equivalents, if any, accounts receivable, notes receivable, investments in unconsolidated entities, accounts payable, notes payable and derivative liabilities. The carrying amounts of cash equivalents, if any, trade accounts receivable, notes receivable, and accounts payable approximate their respective fair values due to the short-term nature of these financial instruments.

Consistent with the valuation hierarchy contained in ASC Topic 820, we categorized certain of our financial assets and liabilities as follows:

NOTE 4 – EARNINGS (LOSS) PER SHARE

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

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

The following potentially dilutive securities and instruments were outstanding during the three months ended January 31, 2019 but excluded from the table above because their impact would be anti-dilutive:

NOTE 5 – NOTES RECEIVABLE

In March and April 2018, the Company entered into certain investment agreements with a third party pursuant to which the Company loaned an aggregate of $275,000 to the third party. The related promissory notes accrued interest at the rate of 12% per annum. In June 2019, the Company and the third party entered into a loan exchange agreement pursuant to which the Company received a promissory note for $309,309 in settlement of all amounts owed to the Company under the March and April 2018 loans, including loan principal of $275,000 and accrued interest of $34,309. Loans under the June 2019 promissory note bear interest at the rate of 8% per annum. In October 2019, after exhausting all efforts to collect the amounts due pursuant to the June 2019 promissory note, the Company recognized an impairment loss of $317,105 in connection therewith. For the nine months ended January 31, 2020 and 2019, interest income earned in connection with our promissory notes, excluding promissory notes from a related party, was $15,620 and $24,953, respectively.

In the fiscal year 2019, the Company received a promissory note for $106,404 from a prior merchant processor in connection with amounts owed to the Company. The Company and the issuer have been in negotiations aimed at settling this balance. On March 2, 2020, the Company and the issuer of the note reached an agreement pursuant to which the Company expect to collect $60,000 in full payment of the balance owed to it. In January 2020, the Company recognized an impairment loss of $46,404 in connection therewith.

NOTE 6 – OTHER CURRENT ASSETS

Other current assets consist of the following:

NOTE 7 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation and amortization expense was $40,264 and $22,850 for the three months ended January 31, 2020 and 2019 and, for the nine months ended January 31, 2020 and 2019, $87,506 and $54,760, respectively.

NOTE 8 – INVESTMENTS IN UNCONSOLIDATED ENTITIES

In the fiscal year ended April 30, 2019, the Company recognized an impairment loss in the aggregate amount of $4.4 million in connection with its investments in unconsolidated entities as a result of a less than temporary decline in the value of the Company’s investment. In addition, in the nine months ended January 31, 2020, the Company recognized an impairment loss in the amount of $187,500 in connection with its investments in an unconsolidated entity as a result of a less than temporary decline in the value of the Company’s investment. The information contained in Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2019 is incorporated herein by reference. See Note 16 below for contingencies and other matters associated with the Company’s investments in unconsolidated entities.

NOTE 9 - NOTES PAYABLE

On December 11, 2018, the Company entered into a Loan Agreement and Promissory Note (the “loan agreement”) with Global Payroll Gateway pursuant to which the Company borrowed the principal amount of $1,000,000. Borrowings under the loan agreement were payable in 52 weekly installments. Consistent with the terms of the loan agreement, on December 11, 2019, the Company paid in full all principal and interest outstanding thereunder.

In the nine months ended January 31, 2020, the Company paid in full all borrowings under financing arrangements with third-party lenders, including borrowings under the loan agreement discussed above. At April 30, 2019, notes payable, consisting of short-term 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.

NOTE 10 - ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:

Lease liability, current portion, represent obligations under leases that are payable within one year for office space, automobiles and office equipment. See Note 2 of the Condensed Notes to the Consolidated Financial Statements above for information about the Company’s adoption of ASC Topic 842, Leases.

NOTE 11 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consists of the following:

The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s common stock. Borrowings on the Company’s convertible note issued in October 2017 bear interest at the annual rate of 12%.

On December 6, 2019, the Company and the holder of the Company’s convertible note dated April 13, 2018 (the “April 2018 Note”) entered into an addendum to the underlying promissory note. Pursuant to the addendum, the parties extended the maturity date of the April 2018 Note to April 13, 2021. In addition, after giving effect to the addendum, the April 2018 Note is non-interest bearing. All other terms of the April 2018 Note remain unchanged. The Company recorded the transaction as an exchange of debt instruments with substantially different terms. In connection therewith, the Company recognized a gain on extinguishment of debt of $13,672. The new debt was recorded net of an initial unamortized debt discount of $13,672, which will be amortized over the term of the April 2018 Note, as amended.

During the nine months ended January 31, 2020, the Company settled in full all its obligations under convertible notes with an aggregate principal amount of $755,000, excluding accrued but unpaid interest of $136,315. During the nine months ended January 31, 2020, the holder of one of the Company’s convertible promissory notes converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s class A common stock pursuant to the terms of the promissory note.

During the three months ended January 31, 2020 and 2019, interest expense in connection with the Company’s convertible notes was $1,500 and $27,767, respectively, excluding amortization of debt discount of $4,103 and $221,599, respectively. During the nine months ended January 31, 2020 and 2019, interest expense in connection with the Company’s convertible notes was $45,211 and $140,049, respectively, excluding amortization of debt discount of $9,141 and $1,066,611, respectively.

NOTE 12 - DERIVATIVE LIABILITIES

The Company analyzed the conversion option for derivative accounting consideration under ASC 815 and determined that the Company’s convertible notes and stock warrants outstanding at April 30, 2018 should be classified as a liability, under the ASC 815 guidance, since the conversion options became effective at issuance and there was no explicit limit to the number of shares issuable upon conversion due to contingencies affecting the conversion rate.

The Company classifies its derivative liabilities under Level 3 of the three-level hierarchy for measuring fair value (see Note 3 above) and uses a multi-nominal lattice model to calculate the fair value of these liabilities. The multi-nominal lattice model requires six data inputs including: (1) the exercise or conversion price, (2) the expected term (in years), (3) the expected volatility for the Company’s common stock, (4) the current stock price, (5) the risk-free interest rate, and (6) the expected dividend yield. Changes to these inputs could result in a significantly higher or lower fair value measurement.

During the three months ended October 31, 2018, the Company repaid the convertible notes with a variable conversion rate, a conversion rate tied to the market price of the Company’s common stock. The remaining convertible notes and warrants outstanding had a fixed conversion rate and, accordingly, the number of shares issuable upon conversion was determinable with certainty. As a result, the Company recognized a decrease in its derivative liability resulting in the beneficial conversion feature associated with the remaining convertible notes and warrants of $1,187,242 (recognized as an increase to additional paid-in capital) and a gain on fair value of derivatives liabilities of $20,015,840. The Company has no similar derivative liabilities outstanding during the nine months ended January 31, 2020.

The following weighted-average assumptions were used when valuing our derivative liabilities:

The following table summarizes the changes in the Company’s derivative liabilities during the nine months ended January 31, 2019:

The following table summarizes the (loss) gain on derivative liability included in our consolidated statement of operations:

NOTE 13 – INCOME TAXES

The Company is an emerging growth company and, prior to its fiscal quarter ended October 31, 2018, had not generated earnings from its operations or pre-tax earnings. During its fiscal year ended April 30, 2019 and 2018, the Company’s consolidated operating loss was $1.1 million and $6.0 million, respectively. During the nine months ended January 31, 2020, the Company’s consolidated operating earnings were $6.5 million. The Company believes that it is probable it will utilize its available net operating losses entirely in the foreseeable future. During the nine months ended January 31, 2020, the Company recognized a provision for income taxes of $1.6 million.

NOTE 14 - RELATED PARTY TRANSACTIONS

Alchemist Holdings, LLC

In connection with the Company’s acquisition of Total Travel Media, Inc. in May 2017, the Company issued 7,500,000 shares of its Series B preferred stock and 7,500,000 shares of its common stock (Class B) to Alchemist Holdings, LLC (“Alchemist”), an entity which was under the operational control of the then Chairman of our Board of Directors. In connection with the Company’s acquisition of Four Oceans Holdings, Inc. in September 2017, the Company issued 50,000,000 shares of its Series A preferred stock to Alchemist. Such shares of Series A preferred stock have since been converted to shares of the Company’s Class A common stock. The information contained in Note 1 of Notes to the Consolidated Financial Statements located in ITEM 8 – Financial Statements and Supplementary Data in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 is incorporated herein by reference.

Bear Bull Market Dividends, Inc.

In connection with the Company’s acquisition of Total Travel Media, Inc., the Company issued 2,500,000 shares of its Series B preferred stock and 2,500,000 shares of its Class B common stock to Bear Bull Market Dividends, Inc. In connection with the Company’s acquisition of Four Oceans Holdings, Inc., the Company issued 20,000,000 shares of its Series A preferred stock to Bear Bull Market Dividends, Inc.

See Note 16 below for more information about our related parties.

NOTE 15 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

Series A Convertible Preferred Stock

During the nine months ended January 31, 2020, holders of 10,400,000 shares of the Company’s Series A convertible preferred stock converted their holdings into 10,400,000 shares of the Company’s common stock.

As of January 31, 2020, 32,478,750 shares of our Series A convertible preferred stock remained issued and outstanding.

Series B Convertible Preferred Stock

As of January 31, 2020, 10,000,000 shares of our Series B convertible preferred stock remained issued and outstanding.

Series C Convertible Preferred Stock

During the nine months ended January 31, 2020, holders of 50,000 shares of the Company’s Series C convertible preferred stock converted their holdings into 50,000 shares of the Company’s common stock. In addition, the Company issued 20,000 shares (in exchange for cash in the aggregate amount of $5,000) in connection with prior stock subscription agreements.

As of January 31, 2020, 3,490,000 shares of our Series C convertible preferred stock remained issued and outstanding.

Common Stock

As described above, during the nine months ended January 31, 2020, holders of 10,400,000 shares of the Company’s Series A convertible preferred stock and holders of 50,000 shares of the Company’s Series C convertible preferred stock converted their holdings into a respectively equal number of shares of the Company’s common stock.

During the nine months ended January 31, 2020, the Company issued 10,000,000 shares of its class A common stock to a director in connection with his exercise (at an exercise price of $0.0001 per share) of stock warrants granted under his employment agreement. In addition, the Company issued 215,325 shares of its class A common stock in exchange for professional or consulting services valued at $57,000, and 30,000 shares of its class A common stock, in exchange for $7,500 in cash, in connection with stock subscription agreements.

During the nine months ended January 31, 2020, the holder of one of the Company’s convertible promissory notes converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s class A common stock pursuant to the terms of the promissory note. In addition, during the nine months ended January 31, 2020, the Company repurchased from a third-party, in exchange for $500 in cash, and retired 1,500,000 shares of its class A common stock.

As of January 31, 2020, 126,072,386 shares of our class A common stock and 10,000,000 shares of our Class B common stock remained issued and outstanding.

Stock Warrants

The following table summarizes the activity relating to the Company’s warrants during the nine months ended January 31, 2020:

The following table summarizes certain information relating to outstanding and exercisable warrants:

During the nine months ended January 31, 2020, the Company issued warrants to purchase up to 144,000 shares of the Company’s common stock to its independent sales force (with an aggregate fair value of $95,267). In addition, the Company issued warrants to purchase, in the aggregate, up to 27,500,000 shares of the its common stock to two new directors and an employee, with an aggregate fair value of $5,500,000. The exercise price of these stock warrants is $0.0001 per share.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company from time to time is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

Acquisition-Related Contingencies

In October 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 25% equity interest in 561 LLC. Pursuant to the terms of the Share Exchange Agreement, in May 2018, the Company increased its cumulative equity interest in 561 LLC to 40% in exchange for 2,500,000 shares of its Series A Preferred Stock. Under the terms of the Share Exchange Agreement, the sellers would be entitled to an additional 2,500,000 shares of our Series A Preferred Stock if/when both of the following conditions have been met: (a) one year has passed from the Closing Date and (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets. In accordance with GAAP, the Company has not recorded a liability in connection with this contingency.

In October 2017, the Company entered into a Share Exchange Agreement pursuant to which it acquired a 25% equity interest in America Approved Commercial LLC (“AAC”). Pursuant to the terms of the Share Exchange Agreement, in May 2018, the Company increased its cumulative equity interest in AAC to 40% in exchange for 2,500,000 shares of its Series A Preferred Stock. Under the terms of the Share Exchange Agreement, the sellers would be entitled to an additional 2,500,000 shares of the Company’s Series A Preferred Stock in/when both of the following conditions have been met: (a) one year has passed from the Closing Date and (b) the closing bid price of the Company’s common stock equals or exceeds $5.00 per share, as reported by OTC Markets. In accordance with GAAP, the Company has not recorded a liability in connection with this contingency.

As of September 16, 2019, the Company and 212 Technologies, LLC (“212 Technologies”) entered into a Release and Settlement Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties: (i) rescinded a certain “Stakeholder & Investment Agreement” dated May 21, 2017 (resulting in the return of 5,628,750 shares of the Company’s Series A Preferred Stock by 212 Technologies and the return of a 24% ownership stake in 212 Technologies by the Company) and (ii) terminated a certain “Software License Agreement” dated June 12, 2018 (the “SLA”) by and between 212 Technologies and Elepreneurs, LLC, a wholly owned subsidiary of the Company (“Elepreneurs”). In connection with the Settlement Agreement, Elepreneurs agreed to pay 212 Technologies the amount of $425,000 and to dismiss with prejudice a lawsuit it had previously filed concerning the functionality of the mobile application produced by 212 Technologies under the SLA, and the parties reached mutually accommodating terms and resolved all issues between their respective companies. As of the date hereof, the shares returned by 212 Technologies remain outstanding and are held under the terms of a custodian agreement for the benefit of the Company.

Other Matters

In January 2019, the Company became aware of an unliquidated amount of potential liability arising from a series of cash advance loan transactions (the “Loan Transactions”) entered into by eight different lending sources and a Related Party entity (the “debtor entity”) owned and/or controlled by a former Company officer. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this former officer also purported to obligate the Company (and two of the Company’s affiliates) to repay the amounts owed by the debtor entities under the Loan Transactions. At this time, the Company has resolved all of the debt associated with the Loan Transactions at a substantial discount from the amounts alleged by the holders of such debt. Additionally, the Company has entered into a comprehensive agreement, secured by substantial assets, with the former officer and the entity owned and/or controlled by the former officer. Pursuant to such agreement, the former officer and the entity owned and controlled by such former officer are obligated jointly and severally to repay the Company all sums expended by the Company in the resolution of the Loan Transactions. The amount expended by the Company, in connection with such resolution, is the sum of $3.4 million. The Company has recorded an accounts receivable of $3.4 million from the former officer and the entity owned and/or controlled by the former officer. This amount is reported in accounts receivable, related party in our consolidated balance sheet.

In June 2019, the Company became aware of a potential liability arising out of certain previous transactions involving the formation and capitalization of two legal entities affiliated with a Company consultant who was, at the time, considered the Company spokesperson. Without the knowledge of the Company and in contravention of the express provisions of both the Company’s Bylaws and the controlling Nevada Revised Statutes, this Company consultant purportedly solicited investment funds from various persons, who at the time, were independent contractors of the Company. While this matter is still currently under investigation, the Company has reason to believe that this Company consultant, possibly acting in concert with others, sought to leverage the assets and resources of the Company in furtherance of these ventures, to their personal pecuniary benefit. Upon learning of these allegations from various of these investors, the Company launched an immediate internal investigation into these transactions. In addition, the Company secured the services of a Dallas-based law firm with experience in financial impropriety and forensic investigations to assist in that process. The Company believes that it is probable that these actions have resulted in a material loss to the investing parties and is evaluating the potential exposure of these events to the Company. The Company is continuing to finalize its evaluation and to pursue settlements with the impacted investing parties.

On July 26, 2019, the Company and certain of its subsidiaries entered into a Settlement Agreement (the “Agreement”) with Company co-founder and former consultant Robert Oblon. Pursuant to the Agreement and in compromise of a dispute concerning a prior contractual obligation and various competing claims, the Company agreed to pay Mr. Oblon the aggregate amount of $2.2 million, payable in 96 equal semi-monthly installments, and stock warrants to purchase up to 7.0 million restricted shares of the Company’s common stock, subject to limiting conditions. On August 30, 2019, the Company ceased making the installment payments and filed a lawsuit against Mr. Oblon claiming, among other things, Mr. Oblon’s breach of contract related to this Agreement, as further discussed below. During the three and nine months ended January 31, 2020, the Company made payments under the Agreement of $0.0 and $235,000, respectively. The Company has recognized an estimated settlement liability of $2.9 million in connection with the Agreement. Please see Note 17 below.

On March 28, 2019, Elepreneur, LLC, a wholly owned subsidiary of the Company, and Jordan Brock, a co-founder and former officer of the Company, entered into a Founder Consulting Agreement pursuant to which Mr. Brock agreed to provide certain business consulting services to the Company. Under the terms of the Founder Consulting Agreement, the Company agreed to pay Mr. Brock a consultancy fee at the rate of $15,000 per month. Effective as of July 15, 2019, the Company and Mr. Brock amended the Founder Consulting Agreement which resulted in the increase of the consultancy fee to $37,000 per month in exchange for Mr. Brock’s willingness to forgo significant previously negotiated income-earning opportunities with the Company. During the three and nine months ended January 31, 2020, the Company made payments under the Founder Consulting Agreement of $111,000 and $248,500, respectively.

In July 2019, Pruvit Ventures, Inc. filed a lawsuit against Elevacity U.S., LLC, a wholly owned subsidiary of the Company, alleging breach of contract by Elevacity. Elevacity has denied the Plaintiff’s claim. Discovery was propounded on the Plaintiff specifically related to the alleged act of wrong-doing, responses were received by the Company on December 6, 2019 and the Company is currently evaluating the responses.

In August 2019, Entrepreneur Media, Inc. (“EMI”) notified the Company that EMI believes that the Company’s pending trademark application for “Elepreneurs” would confuse consumers due to the purported similarity to EMI’s existing trademark for the word “Entrepreneur.” The Company believes that this claim is without merit and intends to vigorously defend its trademark application. EMI has reached out to the Company and the parties are now engaged in dialogue intended to achieve a possible amicable resolution.

In August 2019, the Company filed a lawsuit in the District Court of Collin County, Texas 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. The three defendants purport to be beneficial owners of shares of the Company’s equity securities, which purported ownership is the subject of the referenced lawsuit. The relief sought in the lawsuit includes both recovery of damages and rescission of the underlying shares of the Company’s equity securities. Defendants Bear Bull and Jones filed a Motion to Transfer the complaint in September 2019. A hearing on the Defendants’ Motion to Transfer has been set for April 2, 2020.

On August 30, 2019, the Company and certain of its affiliated entities filed a lawsuit in the District Court of Collin County, Texas against Company co-founder and former consultant, Robert Oblon. The lawsuit claims breach of contract related to the Settlement Agreement dated July 26, 2019 discussed above, tortious interference with business relationships, and misappropriation of trade secrets, and sought injunctive relief. The Company and such affiliated entities filed an amended petition in September 2019 and were awarded temporary injunctive relief protecting their intellectual property. The Company and such affiliated entities filed a second amended petition in December 2019 and were awarded injunctive relief requiring the turnover of certain intellectual and other property to the Company. Please see Note 17 below.

On October 1, 2019, the Company filed a complaint in the District Court of Clark County, Nevada entitled Sharing Services Global Corporation v. Bear Bull Market Dividends, Inc., Alchemist Holdings, LLC, Kenyatto M. Jones, et al. The lawsuit asserts that the Certificate of Designation for its Series B Preferred Stock filed on or about April 24, 2017 (the “Defective Certificate”) was in contravention of both the Company’s Articles of Incorporation and Nevada law. Additionally, the lawsuit alleges that the Defective Certificate was improperly approved through the self-dealing actions of certain former Company executives, working in collusion with outside shareholders. The lawsuit seeks relief in the form of an injunction enjoining the defendants from attempting to enforce the provisions of the Defective Certificate and a declaratory judgment that will invalidate the improper portions of the Defective Certificate. The lawsuit also requests declaratory judgment relief regarding the terms of the Amended and Restated Certificate of Designation filed by the Company on or about September 26, 2019 (the “Amended Certificate”) which seeks to correct the improper provisions of the Defective Certificate and to properly realign the rights of the shareholders which were improperly diminished by the terms of the Defective Certificate. The District Court of Clark County issued a default judgment against Defendant Bear Bull Market Dividends, Inc. on November 14, 2019 and against Defendant Kenyatto M. Jones on November 15, 2019. The Company is in negotiations with Defendant Alchemist Holdings, LLC and anticipates that a favorable outcome will be reached in connection with those negotiations.

NOTE 17 - SUBSEQUENT EVENTS

On February 27, 2020, the Company filed a lawsuit in the District Court of Clark County, Nevada against Kenyatto M. Jones and Bear Bull Market Dividends, Inc. regarding the matters and courses of action set out in the previously discussed lawsuit filed in August 2019 in the District Court of Collin County, Texas. In the Clark County Nevada lawsuit, the Company is seeking (a) rescission of the stock transactions described therein, (b) actual, consequential and incidental damages, (c) punitive/exemplary damages, as well as (d) declaratory and injunctive relief.

Effective as of February 28, 2020, (a) the Company and the relevant subsidiaries; (b) Robert Oblon (“Oblon”), a Co-Founder of the Company; (c) Jordan Brock, a Co-Founder of the Company; (d) certain officers and directors of the Company; and (e) certain other corporate parties entered into a Multi-Party Settlement Agreement (the “Settlement Agreement”) pursuant to which the foregoing parties agreed to settle all prior disputes among them. This Settlement also resulted in an Order of Dismissal entered by the various courts in Denton and Collin County, Texas dismissing all litigation matters with prejudice, including an order dated March 3, 2020 vacating the two previously reported Show Cause Orders. Under the terms of the Settlement Agreement, the Company agreed to pay Oblon an aggregate amount of $2.3 million and to issue to Oblon 10.0 million restricted shares of its Class A common stock, $0.0001 par value. In connection with the Settlement Agreement, the parties also exchanged comprehensive, reciprocal, mutual releases. In addition, the Company and Oblon, terminated the previously announced July 26, 2019 settlement agreement between them.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following section discusses management’s views of the financial condition and the results of operations and cash flows of Sharing Services Global Corporation (formerly Sharing Services, Inc.) and consolidated subsidiaries. This section should be read in conjunction with (a) our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, and (b) our condensed consolidated financial statements included elsewhere in this Quarterly Report. This section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” above 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 projections contained in such forward-looking statements.

Highlights for the Three Months Ended January 31, 2020:

Overview

Summary Description of Business

Sharing Services Global Corporation (“Sharing Services” or “the Company”) is a holding company, with Elepreneurs Holdings, LLC. and Elevacity Holdings, LLC. as its primary operating subsidiaries. The Company markets and distributes health and wellness products that are sold under the Elevate brand through a sales force of independent distributors, or Elepreneurs, using a marketing strategy which is a form of direct selling. The Company operates several websites, including www.shrginc.com, www.elepreneur.com and www.elevacity.com.

The Company had no significant sales history prior to December 2017, when the Company launched its current Elevate health and wellness product line. The Company’s Elevate product line consists of Nutraceutical products that the Company refers to as “D.O.S.E.” (an acronym for the four mood-enhancing hormones that our body produces: 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.

Recent 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. The corporate name change was approved by the Company’s stockholders and its Board.

Convertible Notes and Borrowing Under Short-term Financing Arrangements

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, and through the intermittent issuance of equity securities. See “Liquidity and Capital Resources” below for additional information about the Company’s convertible notes and borrowings under short-term financing arrangements.

Information Technology System Upgrade

During the nine months ended January 31, 2020, the Company conducted a comprehensive assessment of its principal information technology system, with a view of implementing a system upgrade that can accommodate the Company’s current and anticipated growth. We expect to implement a system upgrade in the calendar year 2020, at a projected cost of approximately $200,000.

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