SHARING SERVICES GLOBAL Corp - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 30, 2021

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)

Securities registered pursuant to Section 12(b) 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 ☒ No ☐

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

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

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

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

As of November 5, 2021, there were 187,610,769 shares of the issuer’s Class A Common Stock outstanding.

TABLE OF CONTENTS

In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. 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 (the “Securities Act”), 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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The following condensed consolidated balance sheets as of September 30, 2021, and March 31, 2021, the condensed consolidated statements of operations for the three and six months ended September 30, 2021, and October 31, 2020, and the condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity for the six months ended September 30, 2021, and October 31, 2020, are those of Sharing Services Global Corporation and its 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 EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(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

(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

Description of Operations

Sharing Services Global Corporation and subsidiaries (“Sharing Services” or the “Company”) aims to build shareholder value by developing or investing in innovative emerging businesses that augment the Company’s product and services portfolio, business competencies, and geographic reach. The Company was incorporated in the State of Nevada in April 2015.

In its fiscal year 2021, the Company changed its fiscal year-end from a fiscal year ending on April 30 to a fiscal year ending on March 31. In connection with its change in fiscal year-end, the Company has decided not to restate the information reported for prior accounting periods, because: (a) the Company’s businesses are not inherently seasonal, (b) the change in fiscal years did not otherwise materially distort comparability of the Company’s results of operations and cash flows, and (c) the cost to restate the data reported for prior periods outweighs the usefulness of such restated data. Accordingly, the condensed consolidated financial statements included herein reflect the results of operations and cash flows for the six months ended September 30, 2021 (183 days) compared to the six months ended October 31, 2020 (184 days).

The Company, through its subsidiaries, aims to further develop and operate a multi-platform business, including: (a) the Company’s current health and wellness products businesses, (b) a subscription-based travel services business in the U.S. and international geographies under the banner Hapi Travel ^TM, (c) the operation and franchising of Hapi Cafe ^TM innovative destination cafes in North America, and (d) investing from time to time in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the Company’s business competencies and to participate in these businesses’ growth.

Health and Wellness Products - The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”. Currently, The Happy Co. ^TM markets and distributes its health and wellness products primarily in the United States, Canada, the Republic of Korea, and other countries in the Asia Pacific region. In addition, certain of the Company’s domestic subsidiaries market its health and wellness products on a “not-for-resale” basis to consumers in other countries outside the U.S.

Subscription-Based Travel Services - Through its subsidiary, Hapi Travel Destinations, the Company is preparing to launch a subscription-based travel services business under the proprietary brand “Hapi Travel.” The Hapi Travel ^TM services are designed to offer the opportunity to travel to destinations in the U.S. and abroad to people of all ages, demographics, and economic backgrounds. Hapi Travel ^TM will also provide entrepreneurial opportunities to its subscribers by capitalizing on both the direct selling model and the retail travel business model.

Company-Owned and Franchised Destination Cafes – Sharing Services recently entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and the ultimate Master Franchise Agreement. Each corporate-owned or franchised Hapi Café ^TM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi Travel ^TM subsidiary’s proprietary travel services.

Targeted Ownership Interests – Directly or through its subsidiaries, the Company from time to time will invest in emerging businesses, using a combination of debt and equity financing, in efforts to leverage the Company’s resources and business competencies and to participate in these businesses’ growth. As part of the Company’s commitment to these emerging businesses’ success, the Company, directly or through its subsidiaries, also offers non-traditional inventory financing, equity or debt financing, order fulfillment and logistic, CRM “Back Office” solutions, and other success-critical services to these businesses.

Basis of Presentation

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 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 Transition Report on Form 10-K for the transition period ended March 31, 2021. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for the transition period ended March 31, 2021.

During the 11-month transition period ended March 31, 2021, and the six months ended September 30, 2021, consolidated net loss was $1,235,021 and $6,262,772, respectively. During the 11-month transition period ended March 31, 2021, and the six months ended September 30, 2021, consolidated cash used in operating activities was $1,566,970 and $10,160,196, respectively. As of September 30, 2021, consolidated cash and cash equivalents are $28,841,283. In the near term, the Company anticipates continuing to use operating cash due to: (i) a sustained reduction in sales; (ii) investments in new geographic markets, new lines of business, and new products, and (iii) costs associated with the due diligence of purchasing strategic assets and companies. The Company believes that funds from the $30 million convertible loan received from Decentralized Sharing Systems, Inc. on April 5, 2021 (see Note 6 below), provides the Company with sufficient liquidity to sustain the Company’s plans and operations at current levels over the next twelve months.

The accompanying condensed consolidated financial statements include the accounts of the Company and its 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 to the current period’s presentation, primarily consisting, as of March 31, 2021, reclassification of the liability associated with uncertain tax positions of $904,643 and, for the six months ended October 31, 2020, reclassification of the gain on employee warrants liability of $906,375.

Correction of Errors

In the three months ended January 31, 2021, the Company identified two errors in amounts previously reported in its Quarterly Report on Form 10-Q for the interim periods ended July 31, 2020, and October 31, 2020, concerning the method used to capitalize work-in-progress for projects and errors in its stock-based compensation expense related to employment contracts. Accordingly, in the three months ended January 31, 2021, the Company made the following corrections to previously reported amounts:

Capitalization of Costs for Ongoing Projects and Development of a New Business Brand. - In the fiscal quarter ended January 31, 2021, the Company capitalized costs incurred in connection with ongoing upgrades to its information technology systems, the development of the new business brand “The Happy Co” and office renovations, in the aggregate, of $816,116. Of this amount, $58,038 should have been capitalized in the quarter ended July 31, 2020, and $469,219 should have been capitalized in the quarter ended October 31, 2020.

Stock-based Compensation Expense - In the fiscal quarter ended January 31, 2021, the Company conducted a detailed review of the terms and conditions of stock warrants awarded to its employees in connection with employment agreements. As a result of this review, the Company concluded that stock-based compensation expense reported in the quarter ended July 31, 2020, was understated by approximately $5,587 and stock-based compensation expense reported in the quarter ended October 31, 2020, was overstated by $80,981.

The after-tax impact on previously reported Net Earnings for the affected periods indicated is:

SCHEDULE OF PREVIOUSLY REPORTED NET EARNINGS

The Company has identified the impacted internal controls for both errors and has implemented additional internal controls in order to assess and mitigate the risk of error in the future.

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 notes and 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 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 stock-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 are 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, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its consolidated cash and cash equivalents credit card receivables due from its merchant processors, which are expected to be settled within 24 to 72 hours. At September 30, 2021, and March 31, 2021, such credit card receivables were $3,702,567 and $6,225,139, respectively. In addition, as of September 30, 2021, and March 31, 2021, cash and cash equivalents held in bank accounts in foreign countries in the ordinary course of business were $2,288,156 and $1,612,026, respectively. Amounts held by merchant processors or held in bank accounts located in foreign countries are generally not insured by any federal agency.

Inventory

Inventory consists of finished goods and promotional materials and are stated at the lower of cost, determined using the first-in, first-out (“FIFO”) method, or net realizable value. The Company periodically assesses its consolidated inventory levels when compared to current and anticipated sales levels. During the six months ended September 30, 2021, and October 31, 2020, the Company recognized a consolidated provision for excess (slow-moving) or obsolete inventory of $336,181 and $42,609, respectively, in connection with health and wellness product of certain Company subsidiaries that is damaged, expired or otherwise in excess of forecasted outputs, based on its current and anticipated sales levels. The Company reports its provisions for inventory losses in cost of goods sold in its consolidated statements of operations.

Note Payable

In May 2020, Sharing Services was granted a loan (the “PPP Loan”) by a commercial bank in the amount of approximately $1.0 million, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”).

At March 31, 2021, loan principal in the amount of approximately $1.0 million was outstanding. The Company’s borrowings under the PPP Loan were eligible for loan forgiveness under the provisions of the CARES Act. In June 2021, the Company was formally notified by the lender that the Company’s obligations under the loan were forgiven effective May 25, 2021. The loan forgiveness applied to all principal and interest accrued through the loan forgiveness effective date. The Company recognized a gain on extinguishment of debt of $1,040,400 in connection with such loan forgiveness.

Foreign Currency Translation

Prior to April 1, 2021, substantially all consolidated revenues and expenses were denominated in U.S. dollars. As part of our growth initiatives, we are in the process of expanding operations outside the United States. The functional currency of each of our foreign operations is generally their respective local currency. Balance sheet accounts are translated into U.S. dollars (our reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individually material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are reported in cumulative translation adjustments in our consolidated balance sheets.

Comprehensive Income

For the three and six months ended September 30, 2021, the Company’s consolidated comprehensive income was comprised of currency translation adjustments and net earnings (loss). Prior to April 1, 2021, the only component of the Company’s comprehensive income was its net earnings (loss).

Revenue Recognition

The Company’s subsidiaries operating in the health and wellness products industry, which accounted for substantially all the Company’s consolidated net sales during the periods included in this Quarterly Report, market their products primarily through an independent sales force, using a direct selling business model under the proprietary brand “The Happy Co.”. As of September 30, 2021, and March 31, 2021, consolidated deferred sales revenue associated with product invoiced but not received by customers at the balance sheet date was $346,448 and $1.2 million, respectively. In addition, as of September 30, 2021, and March 31, 2021, consolidated deferred sales revenue associated with unfulfilled performance obligations for services offered on a subscription basis was $90,398 and $153,216, and consolidated deferred sales revenue associated with performance obligations for customers’ right of return was $67,378 and $95,780, respectively. Deferred sales revenue is expected to be recognized over one year.

During the six months ended September 30, 2021, no individual customer, or affiliated group of customers, represents 10% or more of consolidated net sales, and approximately 69% of consolidated net sales were to consumers (including 32% to recurring customers, which we refer to as “SmartShip” sales, and approximately 37% to new customers) and approximately 31% of consolidated net sales were to independent distributors.

During the six months ended September 30, 2021, and October 31, 2020, approximately 84% and 94%, respectively, of consolidated net sales were to customers and/or independent distributors located in the United States. No other country accounted for 10% or more of consolidated net sales.

During the six months ended September 30, 2021, approximately 99% of consolidated net sales are from health and wellness products (including approximately 42% from the sale of Nutraceutical products, 28% from the sale of coffee and other functional beverages, 14% from the sale of weight management products, and approximately 15% from the sale of all other health and wellness products). During the six months ended October 31, 2020, approximately 99% of consolidated net sales are from the sale of health and wellness products (including 57% from the sale of Nutraceutical products, 29% from the sales of coffee and other functional beverages, and 13% from the sale of all other health and wellness products). See Description of Operations above.

During the six months ended September 30, 2021, approximately 55% of consolidated product purchases were from a third-party manufacturer based in the U.S., while 45% of consolidated product purchases were from a related-party supplier located in the Republic of Korea. During the six months ended October 31, 2020, product purchases from a third-party manufacturer (the same U.S.-based supplier discussed in the preceding sentence) accounted for approximately 98% of total consolidated product purchases.

Sales Commissions

The Company’s subsidiaries recognize sales commission expense, which is included in selling and marketing expenses in our consolidated statements of earnings and comprehensive income, when incurred, in accordance with GAAP. During the three months ended September 30, 2021, and October 31, 2020, consolidated sales commission expense was $4.9 million and $8.6 million, respectively, and during the six months ended September 30, 2021, and October 31, 2020, $9.9 million and $18.1 million, respectively.

Recently Issued Accounting Standards - Recently Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12, among other things, (a) eliminates the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income (or a gain) from other items, (b) eliminates the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the year, (c) requires than an entity recognize a franchise tax (or a similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, and (d) requires than an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation for the interim period that includes the enactment date. The Company adopted ASU 2019-12 effective April 1, 2021, and adoption did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards - Pending Adoption

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain convertible instruments. Among other things, under ASU 2020-06, the embedded conversion features no longer must be separated from the host contract for convertible instruments with conversion features not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. ASU 2020-06 also eliminates the use of the treasury stock method when calculating the impact of convertible instruments on diluted Earnings per Share. For the Company, the provisions of ASU 2020-06 are effective for its fiscal quarter beginning on April 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its consolidated financial statements.

NOTE 2 – 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 shares issuable upon the conversion or exercise of outstanding convertible preferred stock, convertible notes payable, stock warrants, and other commitments to issue common stock, except where the impact would be anti-dilutive.

The calculation of diluted earnings per share also reflects an adjustment to net earnings for the potential reduction to a reporting period’s interest expense, net of applicable income tax, which would result if the Company’s convertible notes payable were converted at the beginning of such reporting period.

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

SCHEDULE OF COMPUTATIONS OF BASIC AND DILUTED EARNINGS PER SHARE

The following potentially dilutive securities and instruments were outstanding as of September 30, 2021, but were excluded from the table above because their impact would be anti-dilutive:

SCHEDULE OF POTENTIALLY DILUTIVE INSTRUMENTS OUTSTANDING

The preceding table does not include 4,250,000 and 19,450,000 stock warrants held by employees which are not vested (or exercisable) at September 30, 2021, and October 31, 2020, respectively.

NOTE 3 – INVENTORY

The Company provides an allowance for any slow-moving or obsolete inventory. Inventory consists of the following:

 SCHEDULE OF INVENTORY

The increase in finished goods as of September 30, 2021, compared to as of March 31, 2021, reflects the inventory of our South Korean subsidiary, which started selling product in June 2021, of $2.0 million.

NOTE 4 – OTHER CURRENT ASSETS

Other current assets consist of the following:

 SCHEDULE OF OTHER CURRENT ASSETS

NOTE 5 – INVESTMENT IN UNCONSOLIDATED ENTITIES

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

The Company carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. During the three months ended September 30, 2021, the Company recognized unrealized gains, before income tax, of $1,655,218 in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.

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

Investment in unconsolidated entities consists of the following:

SUMMARY OF INVESTMENT IN UNCONSOLIDATED ENTITIES

NOTE 6 – ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:

  SUMMARY OF ACCRUED AND OTHER CURRENT LIABILITIES

Lease liability, current portion, represent obligations due withing one year under operating leases for office space, automobiles, and office equipment.

NOTE 7 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consists of the following:

 SCHEDULE OF CONVERTIBLE NOTES PAYABLE

The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s Common Stock at the conversion prices shown above.

In October 2017, the Company issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. See Note 9 below.

In December 2019, the Company and the holder of the Company’s $100,000 convertible note dated April 13, 2018 (the “April 2018 Note”) entered into an amendment to the underlying promissory note. Pursuant to the amendment, the parties extended the maturity date of the note to April 2021. In addition, after giving effect to the amendment, the April 2018 Note is non-interest bearing. All other terms of the April 2018 Note remain unchanged. As of the date of this Quarterly Report, the Company and the holder of the note are discussing options, which may include the conversion in full or in part of the note, and the repayment of any remainder of the note. The Company intends to conclude these discussions and to settle the April 2018 Note in the foreseeable future.

On April 5, 2021, the Company and Decentralized Sharing Systems, Inc. (“DSSI”) entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. DSSI, is a subsidiary of DSS, Inc. (formerly Document Security Systems, Inc.) (“DSS”), and, together with DSS, is a major shareholder of the Company. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. The Note bears interest at the annual rate of 8% and matures on April 5, 2024, subject to certain acceleration provisions upon the occurrence of an Event of Default, as defined in the Note. At any time during the term of the Note, all or part of the Note, including the principal amount less unamortized prepaid interest, if any, plus any accrued interest can be converted into shares of the Company’s Class A Common Stock at the rate of $0.20 per share, at the option of the holder. Interest on the Note is pre-payable annually in cash or in shares of the Company’s Class A Common Stock, at the option of the Company, except that interest for the first year is pre-payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share.

In connection with the issuance of the Note and the detachable Warrant, the Company allocated $15.0 million of the net proceeds from the loan to the detachable Warrant, allocated $12.0 million of the net proceeds to the beneficial conversion feature embedded in the Note and recognized deferred financing costs of $3.0 million. The resulting debt discount and the deferred financing costs are being amortized into interest expense over the term of the note (three years). During the six months ended September 30, 2021, the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and 12,000,000 shares in prepayment of interest for the first year. In connection therewith, the Company recognized a deemed dividend of $1,080,000 for the excess of the fair value of the shares issued over the amounts settled.

During the three months ended September 30, 2021, and October 31, 2020, interest expense in connection with the Company’s convertible notes was $606,444 and $1,512, respectively, excluding amortization of debt discount of $2,269,312 and $5,120, respectively, and, in the three months ended September 30, 2021, amortization of deferred financing costs of $251,825. During the six months ended September 30, 2021, and October 31, 2020, interest expense in connection with the Company’s convertible notes was $1,173,419 and $3,025, respectively, excluding amortization of debt discount of $4,390,417 and $10,242, respectively, and, in the six months ended September 30, 2021, amortization of deferred financing costs of $487,226. These amounts are included in interest expense in our consolidated statements of operations.

NOTE 8 – INCOME TAXES

The statutory rates for our domestic and our material foreign operations are as follows for the periods shown:

 SCHEDULE OF STATUTORY RATES FOR OUR DOMESTIC AND FOREIGN OPERATION

For the six months ended September 30, 2021, and October 31, 2020, the consolidated effective tax rate was 0.07% and 30.7%, respectively. The consolidated effective tax rate for the six months ended September 30, 2021, was different from the federal statutory rate primarily due to the valuation allowance of $1,866,779 placed on certain deferred tax assets being carried forward or projected to reverse in future years due to the uncertainty of the Company generating sufficient taxable income in the foreseeable future to make realization probable. Income taxes applicable to our foreign operations are not material in the periods presented.

The effective tax rate for the six months ended October 31, 2020, was different from the federal statutory rate primarily due to the provision for state income and franchise tax liabilities.

NOTE 9 - STOCKHOLDERS’ EQUITY

Common Stock

On July 28, 2021, the Company held its Annual Meeting of Stockholders. At the meeting, the Company’s Shareholders ratified the Second Amended and Restated Articles of Incorporation of the Company, which was previously approved by the Board of Directors. The Second Amended and Restated Articles of Incorporation, among other things, increased the authorized number of shares of the Company’s stock to 1,000,000,000 shares, including: (a) 800,000,000 shares of Common Stock having a par value of $0.0001 per share, and (b) 200,000,000 shares of Preferred Stock having a par value of $0.0001 per share and comprised of the Company’s Convertible Series A Preferred Stock and Convertible Series C Preferred Stock.

During the six months ended September 30, 2021, the Company issued to DSSI 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan Origination Fee and 12,000,000 shares in prepayment of interest for the first year, as more fully discussed in Note 6 above. In addition, during the six months ended September 30, 2021, the holders of 10,000 shares of the Company’s Series C preferred stock converted such holdings into 10,000 shares of the Company’s Class A Common Stock, and the Company issued 500,000 shares of its Class A Common Stock in connection with the exercise of stock warrants by its employees.

As of September 30, 2021, 187,610,769 shares of our Class A Common Stock are issued and outstanding.

NOTE 10 - RELATED PARTY TRANSACTIONS

Decentralized Sharing Systems, Inc.

In July 2020, Sharing Services and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $3.0 million in the Company in exchange for 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 per share. On the stock warrant issuance date, the closing price for the Company’s common stock was $0.177 per share and the Company recognized a deemed dividend of $2.4 million. Simultaneously with the SPA Agreement, Mr. Chan and Decentralized Sharing Systems, Inc. (“DSSI”), a subsidiary of DSS, Inc. (“DSS”), and, together with DSS, a major shareholder of the Company, entered into an Assignment and Assumption Agreement pursuant to which Mr. Chan assigned to DSS all interests in the SPA Agreement. In July 2020, the Company issued 30.0 million shares of its Class A Common Stock to DSS, an “accredited investor” as defined in the Securities Act, pursuant to the SPA Agreement. Under the terms of the SPA Agreement, the shares of Class A Common Stock issued to DSS are subject to a one (1) year restriction. The Stock Warrant issued pursuant to the SPA Agreement expires on the third anniversary from the issuance date, unless exercised earlier.

On April 5, 2021, Sharing Services and DSSI entered into a Securities Purchase Agreement, pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $30.0 million (the “Note”) in favor of DSSI, and (b) a detachable Warrant to purchase up to 150,000,000 shares of the Company’s Class A Common Stock, at $0.22 per share, and DSSI loaned to the Company $30.0 million. Under the terms of the loan, the Company agreed to pay to DSSI a loan Origination Fee of $3.0 million, payable in shares of the Company’s Class A Common Stock, at the rate of $0.20 per share. See Note 6 for more information.

As of September 30, 2021, DSS and its affiliates owned 91.4 million shares of the Company’s Class A Common Stock, excluding 160.0 million shares issuable upon the exercise of warrants held by DSS and 150.0 million shares issuable upon conversion of the Note discussed in the preceding paragraph. Heng Fai Ambrose Chan, Frank D. Heuszel, and John (“JT”) Thatch, each a Director of the Company, also serve on the Board of Directors of DSS. Mr. Chan also serves as Chairman of the Board of Directors of the Company. Mr. Thatch also serves as President, CEO and Vice Chairman of the Board of Directors of the Company.

Alset Title Company, Inc.

In July 2021, the Company entered into a purchase agreement pursuant to which the Company intends to purchase an office building subject to certain significant limiting conditions including, among other things, the delivery to the Company by Alset Title Company, Inc. (“Alset Title”) of an Owner’s Policy of Title Insurance. The purchase price is anticipated to be approximately $8.8 million. Alset Title would also act as escrow and closing agent for the transaction. Alset Title is a subsidiary of DSS which, together with another of DSS’ subsidiaries, is a major shareholder of the Company.

Hapi Café, Inc.

In August 2021, Sharing Services entered into a Letter of Intent (the “LOI”) to acquire the exclusive franchise rights in North America to the brand “Hapi Café” from Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, subject to formalization of a Master Franchise Agreement. Under the proposed terms, Sharing Services, directly or through its subsidiaries, will operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the LOI and ultimate Master Franchise Agreement. Each corporate or franchised Hapi Café ^TM store will offer to customers and Brand Partners seeking a healthier lifestyle: (a) a selection of functional and healthy food and beverages, (b) a pleasant workspace with free Wi-Fi service, (c) extensive physical fitness, nutrition management and personal workout print and video content, and (d) our Hapi Travel ^TM subsidiary’s proprietary travel services.

HWH International, Inc.

In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. As of the date of this Quarterly Report, the Company and HWH are jointly reviewing the Note and the detachable stock warrant. The number of shares that HWH may acquire upon conversion of the HWH Note and exercise of the detachable stock warrant may be greater than the amounts described in this paragraph, depending on the results of such review.

HWH World, Inc.

A subsidiary of the Company operating in the Republic of Korea subleases office space from HWH World, Inc., a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company. Pursuant to the terms of the sublease agreement, the Company recognized a right-of-use asset and an operating lease liability of $303,322 in connection therewith. As of September 30, 2021, accounts payable includes payments due to HWH World under the lease of $164,400.

In September 2021, the Company and HWH World, Inc., a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into an Advisory Agreement pursuant to which the Company provides strategic advisory services to HWH World, Inc. in connection with its North America expansion plans in exchange for a monthly fee of $10,000.

K Beauty Research Lab. Co., Ltd

In the six months ended September 30, 2021, a wholly owned subsidiary of the Company purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.7 million, respectively. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans.

Premier Packaging Corporation

In the six months ended September 30, 2021, a wholly owned subsidiary of the Company issued purchase orders to Premier Packaging Corporation, a subsidiary of DSS, to acquire printed packaging materials in the aggregate amount of $151,509.

NOTE 11 – STOCK-BASED COMPENSATION

Stock Warrants

Stock Warrants Issued to Directors, Officers and Employees

In July 2020, Sharing Services and Heng Fai Ambrose Chan, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan invested $3.0 million in the Company in exchange for 30.0 million shares of the Company’s Class A Common Stock and a fully vested Stock Warrant to purchase up to 10.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.20 per share. In July 2020, Mr. Chan assigned to DSS all interests in the SPA Agreement and the transactions contemplated in the SPA Agreement were completed. Mr. Chan is also a Director of DSS.

In October 2017, Sharing Services issued a convertible note in the principal amount of $50,000 to HWH International, Inc (“HWH”) and a detachable stock warrant to purchase up to 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. The Note is convertible into 333,333 shares of the Company’s Common Stock and expires in October 2022. HWH is affiliated with Heng Fai Ambrose Chan, who in April 2020 became a Director of the Company.

During the fiscal year 2020; certain domestic subsidiaries of the Company entered multi-year employment agreements with its key employees. In general, each employment contract contained a fully vested initial grant of warrants exercisable at a fixed exercise price and, provided for subsequent grants that were exercisable at a discounted price based on the 10-day average stock price determined at the time of exercise. The subsequent grants would vest at each anniversary date of the employment agreement effective date. The Company begins recognizing the compensatory nature of the warrants at the service inception date and ceases recognition at the vesting date. Due to the variable nature of the exercise price for some grants, the Company will continue to recognize expense (or benefit) after the end of the service period until the warrants are exercised or expire. As such, the Company disclosures below are based on either (i) the fixed exercise price of the warrant; or (ii) the variable exercise price of the warrant as determined on the last day of the period.

During the six months ended September 30, 2021, and October 31, 2020, the Company recognized a compensatory gain of $1,781,100 and $906,375, respectively, in connection with grants with a variable exercise price after service is completed.

NOTE 12 – LEASES

The Company leases space for its offices and warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842. The weighted-average remaining lease term and discount rate related to the Company’s lease liabilities as of September 30, 2021, were 1.3 years and 12% respectively. The Company’s discount rate is generally based on estimates of its incremental borrowing rate, as discount rates implicit in the Company’s leases cannot be readily determined.

The following information pertains to the Company’s leases as of the balance sheet dates indicated:

SCHEDULE OF OPERATING LEASE ASSETS AND LIABILITIES