SHARING SERVICES GLOBAL Corp - Quarter Report: 2021 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, 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)

None

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

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 [X] 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 [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 8, 2021, there were 160,063,369 shares of the issuer’s Class A 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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

The following condensed consolidated balance sheets as of January 31, 2021 and April 30, 2020, the condensed consolidated statements of operations for the three and nine months ended January 31,2021 and 2020, the condensed consolidated statements of cash flows and condensed consolidated statements of stockholders’ equity for the nine months ended January 31, 2021 and 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 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

(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”, “we,” or the “Company”), formerly Sharing Services, Inc., markets and distributes its health and wellness products primarily in the United States and Canada. The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. It markets and distributes its products and services through its wholly owned subsidiaries, using a marketing strategy driven by a form of direct selling.

The Company does not operate retail stores. It markets its products and services through an independent contractor sales force and using its proprietary websites, including: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division.

In 2019, Sharing Services, Inc. changed its corporate name to Sharing Services Global Corporation to better reflect the Company’s strategic intent to grow its business globally. In connection with the name change, the Company adopted the over-the-counter trading symbol “SHRG.”

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 Annual Report on Form 10-K for the fiscal year ended April 30, 2020. Unless so stated, the disclosures in the accompanying condensed consolidated financial statements do not repeal the disclosures in our consolidated financial statements for the fiscal year ended April 30, 2020.

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, including our provision for income taxes, is based on full-year assumptions.

Reclassifications

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

Comprehensive Income

For the fiscal periods included in this Quarterly Report, the only component of the Company’s comprehensive income is the Company’s net earnings. Accordingly, the Company does not present a consolidated statement of comprehensive income.

Correction of Errors

The Company identified two errors in amounts previously reported in its Quarterly Reports 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 three months 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 the amount capitalized in the current quarter, $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 three months 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, before income taxes, by approximately $5,587 and stock-based compensation expense reported in the quarter ended October 31, 2020 was overstated, before income taxes, by $80,981. See Note 14 – Stock Warrants for additional details and changes in presentation.

The impact on our previously reported Net Earnings for the affected periods is:

The Company has identified the impacted internal controls for both errors and has implemented additional internal controls in order to identify and mitigate 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 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 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.

We believe that the public’s fear of exposure to and/or the actual impact of the COVID virus, as well as past actions taken to mitigate the spread of the virus, have had and continue to have a materially adverse impact on the economy of the U. S. and Canada. Accordingly, it is possible that estimates made in the Company’s consolidated financial statements have been, or will be, materially impacted as a result of these uncertainties. These may include, among other things, estimates regarding losses on inventory, impairment losses related to long-lived assets, the nature and timing of satisfaction of performance obligations resulting from contracts with customers, and the valuation of loss contingencies, if any.

Revenue Recognition

The Company derives revenue 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 revenue, including independent distributor membership fees, our performance obligation is satisfied over time (generally, up to one year). The timing of our revenue recognition may differ from the time when we invoice the customer 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 sales revenue associated with product invoiced but not received by customers at the balance sheet date was $1.3 million and $2.7 million as of January 31, 2021 and April 30, 2020, respectively. In addition, as of January 31, 2021 and April 30, 2020, deferred sales revenue associated with our unfulfilled performance obligations for services offered on a subscription basis was $188,342 and $433,386, and deferred sales revenue associated with our performance obligations for customers’ right of return was $67,289 and $263,117, respectively. Deferred sales revenue is expected to be recognized over one year.

During the nine months ended January 31, 2021, no individual customer, or affiliated group of customers, represents 10% or more of our consolidated net sales, and approximately 71% of our net sales were to customers (including 45% to recurring customers, which we refer to as “SmartShip” sales, and approximately 26% to new customers) and approximately 29% of our net sales were to our independent distributors. During both the nine months ended January 31, 2021 and 2020, approximately 94% of our consolidated net sales were to our customers and/or independent distributors located in the United States.

During the nine months ended January 31, 2021, approximately 99% of our consolidated net sales are from our health and wellness products (including approximately 55% from the sale of Nutraceutical products, and approximately 27% from the sale of all other health and wellness products and 17% from the sale of coffee and coffee-related products). During the nine months ended January 31, 2020, approximately 98% of our consolidated net sales are from the sale of our health and wellness products (including 55% from the sale of Nutraceutical products, 25% from the sales of coffee and coffee-related products, and approximately 18% from the sale of all other health and wellness products).

During both the nine months ended January 31, 2021 and 2020, product purchases from one third-party manufacturer accounted for approximately 98% of our total product purchases.

Inventory and Cost of Goods Sold

The Company periodically assesses its inventory levels when compared to current and anticipated sales levels. During the nine months ended January 31, 2021, the Company recognized a provision for excess (slow-moving) inventory of $924,973 in connection with health and wellness product that is damaged, expired or otherwise in excess of forecasted outputs, based on our current and anticipated sales levels. The Company reports the provision for excess (slow-moving) inventory in cost of goods sold in its condensed consolidated statements of operations.

Sales Commissions

The Company recognizes sales commission expense, when incurred, in accordance with GAAP. During the three months ended January 31, 2021 and 2020, sales commission expense was $7.0 million and $14.0 million, respectively. During the nine months ended January 31, 2021 and 2020, sales commission expense was $25.1 million and $47.6 million, respectively.

In the nine months ended January 31, 2021, the Company issued to members of its independent sales force who had been offered stock warrants under the 2019 Sales-Related Warrants program more fully discussed in Note 2 of the Notes to Consolidated Financial Statements for our fiscal year ended April 30, 2020 and met other qualifications (mainly related to remaining active distributors), fully vested warrants to purchase up to 4,013,000 shares its common stock with an estimated aggregate fair value of $1.5 million (the “2020 Sales-Related Warrants”). The 2020 Sales-Related Warrants are exercisable for a period of one year from the issuance date at the exercise price of $0.01 per share. At the time of issuance, the rights conferred by the 2020 Sales-Related Warrants were not subject to service conditions and all other conditions necessary to earn the award had been satisfied. The Company deems the fair value of the warrants granted to members of its independent contractor sales force to be an element of sales compensation expense and, as such, includes this expense in selling and marketing expenses in its consolidated statements of operations. The Company recognized incremental sales compensation expense of $140,911 in connection with stock warrants issued under the 2020 Sales-Related Warrants program to holders of unexercised equity-based awards under the predecessor plan that are deemed modified, as defined by GAAP. In addition, the Company recognized sales compensation expense of $1.4 million in connection with stock warrants issued under the 2020 Sales-Related Warrants program to participants of the predecessor plan who had not yet accepted the terms of the 2019 Sales-Related Warrants (but accepted the new award).

In addition, in the nine months ended January 31, 2021, the Company derecognized sales compensation expense of $1.0 million in connection with stock warrants previously offered under the 2019 Sales-Related Warrants program that were terminated, forfeited, otherwise no longer deemed probable of exercise. At January 31, 2021 and April 30, 2020, accrued sales compensation payable was $4,248,029 and $7,983,536, respectively, including $197,701 and $1,290,477, respectively, in estimated sales compensation contingently payable with stock warrants under the 2019 Sales-Related Warrants program.

Recently Issued Accounting Standards - Recently Adopted

In November 2019, the FASB issued ASU No. 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements – Share-based Consideration Payable to a Customer (“ASU 2019-08”). ASU 2019-08 requires that an entity apply the guidance in ASC 718 to measure and classify share-based payment awards granted to a customer. Under ASC 718, among other things, share-based awards to non-employees (including customers) must generally be measured at the grant-date fair value of the equity instrument. For entities that have adopted the provisions of ASU 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-based Payment Accounting, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. As discussed in Note 2 of the Notes to Consolidated Financial Statements for our fiscal year ended April 30, 2020, the Company has adopted the provisions of ASU 2018-07. Accordingly, the Company adopted the provisions of ASU 2019-08 effective on May 1, 2020 and such adoption did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements about fair value measurements under ASC Topic No. 820, Fair Value Measurement, as amended (“ASC 820”). For public companies, ASU 2018-13 removes the prior requirement to disclose: (a) the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy contained in ASC 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 on February 1, 2020 and such adoption did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards - Pending Adoption

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 May 1, 2024. Early adoption is permitted, subject to certain limitations. The Company is evaluating the potential impact of adoption on its consolidated financial statements.

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. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company will adopt ASU 2019-12 effective no later than on May 1, 2021 and, based on its preliminary evaluation, it does not believe adoption will have a material impact 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 and convertible notes payable. The carrying amounts of cash equivalents, if any, trade accounts 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 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, that 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:

The following potentially dilutive securities and instruments were outstanding as of January 31, 2021 but excluded from the table above because their impact would be anti-dilutive:

The preceding table does not include 14,250,000 stock warrants held by employees which are not vested and exercisable at January 31, 2021.

NOTE 5 – NOTES RECEIVABLE

In the fiscal year 2020, the Company received a promissory note for $58,047 from a prior merchant payment processor in connection with amounts owed to the Company. At January 31, 2021, the note had been paid in full. At April 30, 2020, the principal balance of $58,047 remained outstanding.

In the fiscal year 2019, the Company received a promissory note for $106,404 from a prior merchant payment processor in connection with amounts owed to the Company. In the fiscal year 2020, the Company and the issuer of the promissory notes engaged in negotiations aimed at settling this balance and the Company recognized an impairment loss of $46,404 in connection therewith. At January 31, 2021 and April 30, 2020, the principal balance of $20,000 and $60,000, respectively, net of the impairment loss, remains outstanding.

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 were $43,735 and $40,264 for the three months ended January 31, 2021 and 2020, respectively, and $128,336 and $87,506 for the nine months ended January 31, 2021 and 2020, respectively.

During the nine months ended January 31, 2021, the Company incurred $816,116 in capitalizable costs primarily in connection with ongoing upgrades to its information technology systems and the development, by its Elevacity division, of a new business brand, “The Happy Co.” These costs are carried in other assets in our Condensed Consolidated Balance Sheets until the related assets are placed in service.

NOTE 8 - NOTE PAYABLE

In May 2020, the Company was granted a loan (the “PPP Loan”) by a commercial bank in the amount of $1,040,400, pursuant to the Paycheck Protection Program features of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”). The PPP Loan is evidenced by a promissory note, matures on May 13, 2022 and bears interest at an annual rate of 1.0%. The PPP Loan may be prepaid without penalty, at the option of the Company, at any time prior to maturity. Proceeds from loans granted under the CARES Act are intended to be used for payroll, costs to continue employee group health care benefits, rent, utilities, and certain other qualified costs (“qualifying expenses”). The Company used the loan proceeds for qualifying expenses.

The Company’s borrowings under the PPP Loan are eligible for loan forgiveness if used for qualifying expenses incurred during the “covered period,” as defined in the CARES Act, except that the amount of loan forgiveness is limited to the qualifying expenses incurred during the 24-week period commencing on the loan effective date. In addition, the amount of any loan forgiveness may be reduced if there is a decrease in the average number of full-time equivalent employees of the Company during the covered period when compared to the comparable period in the prior calendar year. The Company anticipates that some or all of its obligation under the PPP Loan will qualify for loan forgiveness a provided for in the CARES Act. The Company’s indebtedness, after any such loan forgiveness, is payable in equal monthly installments over approximately 16 months, with all amounts due and payable by the maturity date.

At January 31, 2021, loan principal in the amount of $1,040,400, excluding accrued but unpaid interest of $7,297, is outstanding.

NOTE 9 - ACCRUED AND OTHER CURRENT LIABILITIES

In the nine months ended January 31, 2021, the Company recognized $1.1 million in severance expense in connection with certain employee separations, including a contingent amount related to an employee termination currently being contested in court. As of January 31, 2021, the Company has a remaining liability of $855,000 in connection therewith.

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

NOTE 10 - 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 at the conversion prices shown above. Borrowings on the Company’s October 2017 convertible note bears interest at the annual rate of 12%. The April 2018 convertible note is non-interest bearing.

In October 2017, the Company issued a convertible note in the principal amount of $50,000 to HWH International, Inc (“HWH”). HWH is affiliated with Chan Heng Fai Ambrose, who in April 2020 became a Director of the Company. The Company is currently reviewing the conversion terms of the October 2017 note. Accordingly, the conversion price shown on the table above is subject to change as a result of such review.

In December 2019, the Company and the holder of the Company’s 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.

During the three months ended January 31, 2021 and 2020, interest expense in connection with the Company’s convertible notes was $1,512 and $1,500, respectively, excluding amortization of debt discount of $5,121 and $4,103, respectively. During the nine months ended January 31, 2021 and 2020, interest expense in connection with the Company’s convertible notes was $4,537 and $45,211, respectively, excluding amortization of debt discount of $15,363 and $9,141, respectively. These amounts are included in interest expense in our consolidated statements of operations.

NOTE 11 – LEASES

The Company leases space for its corporate headquarters, and additional office and warehouse space, under lease agreements classified as “operating leases’” as defined in ASC Topic 842. The Company’s real estate lease agreements have remaining terms varying from one to two years, offer the Company customary renewal options, and contain provisions for customary common area maintenance (CAM) assessments by the lessor.

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

The following information pertains to the Company’s leases for the periods indicated:

The Company’s lease liability is payable as follows:

NOTE 12 – 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, 2020, the Company’s consolidated operating earnings were $9.7 million and, during its fiscal year ended April 30, 2019, the Company had a consolidated operating loss of $1.0 million.

During the fiscal year ended April 30, 2020, the Company recognized a current provision for income taxes of $2.1 million and deferred income tax benefits of $1.6 million.

For the nine months ended January 31, 2021, our income tax rate reconciliation is as follows:

Our consolidated provision for (benefit from) income taxes is as follows:

As of January 31, 2021, our deferred tax asset (liability) is as follows:

NOTE 13 - RELATED PARTY TRANSACTIONS

Alchemist Holdings, LLC

As more fully described in Note 15 of the Notes to Consolidated Financial Statements for our fiscal year ended April 30, 2020, in February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), a major stockholder of the Company, and a former officer of the Company entered into a series of agreements pursuant to which the Company acquired control of (a) 22,683,864 shares of its Common Stock then held by Alchemist as part of the settlement of certain obligations owed to the Company and (b) 15,625,000 shares of its Common Stock then held by Alchemist to offset certain legal and other expenses incurred by the Company in connection with certain related-party legal claims. Pursuant to the underlying agreements, all such shares of stock were to be transferred to the Company at a time in the future that the Company would decide. Accordingly, in December 2020, the Company and Alchemist caused the transfer to the Company of, in the aggregate, 38,308,864 shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares. In connection with the transfer of control over the shares of stock in February 2020, the Company had recognized the acquisition of treasury stock in the amount of $1,532,355, the fair value of the underlying shares of stock at the time control was transferred.

Decentralized Sharing Systems, Inc.

In July 2020, the Company and Chan Heng Fai Ambrose, a Director of the Company, entered into a Stock Purchase and Share Subscription Agreement (the “SPA Agreement”) pursuant to which Mr. Chan agreed to invest $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 Document Security Systems, 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.

As of January 31, 2021, DSS and its affiliates owned 64.2 million shares of the Company’s Class A Common Stock, excluding 10.0 million shares issuable upon the exercise of warrants held by DSS. Mr. Chan, a Director of the Company, also serves on the Board of Directors of DSSI and its parent, Document Security Systems, Inc. In addition, John (“JT”) Thatch, the President, CEO and Interim Chairman of the Board of Directors of the Company, also serves on the Board of Directors of Document Security Systems, Inc. Further, Frank D. Heuszel, a Director of the Company, also serves on the Board of Directors of DSSI and its parent, Document Security Systems, Inc.

In October 2017, the Company issued a convertible note in the principal amount of $50,000 to HWH International, Inc (“HWH”). HWH is affiliated with Chan Heng Fai Ambrose, who in April 2020 became a Director of the Company. The note matures in October 2022. Please see Note 10 above for more details.

Bear Bull Market Dividends, Inc.

In July 2020, the Company, Bear Bull Market Dividends, Inc. (“BBMD”), a purported shareholder of the Company, Kenyatto Montez Jones (“Jones”), and MLM Mafia, Inc. (“MLM”) entered into a Settlement Accommodation Agreement [Including Stock Disposition And Release Provisions] (the “SAA”) pursuant to which the relevant parties agreed to settle all prior disputes between the Company, on the one part, and BBMD and Jones, on the other, concerning the status of BBMD as a valid shareholder of the Company, and the ownership, operation, management and control of the Company, all of which has been the subject of various pending lawsuits. In addition, the parties agreed to dismiss such pending lawsuits and exchanged customary mutual releases.

In August 2020, as provided under the SAA, the Disputed Stock, as defined in the SAA, was converted into 25.0 million shares of the Company’s Class A Common Stock (the “Converted Stock”). In addition, under the terms of the SAA and the related Securities Escrow And Disposition Agreement, in August 2020, MLM purchased from BBMD 20.0 million shares of the Converted Stock at the purchase price of $0.0525 per share (or $1,050,000). Further, as provided under the SAA and the related Securities Escrow And Disposition Agreement, the Company repurchased from MLM 17.5 million shares of the Converted Stock at the repurchase price of $0.0514 per share (or $899,500) in cash, and the Company retired the shares repurchased. After these transactions, BBMD remained the holder of 5.0 million shares of the Company’s Class A Common Stock and MLM remained the holder of 2.5 million shares of the Company’s Class A Common Stock.

NOTE 14 - STOCKHOLDERS’ EQUITY

Preferred Stock

Series A Convertible Preferred Stock – As more fully discussed in Note 13 above, in August, BBMD, then the purported holder of 20,000,000 shares of the Company’s Series A preferred stock, converted such holdings into 20,000,000 shares of the Company’s Class A Common Stock. In addition, during the nine months ended January 31, 2021, holders of 1,750,000 shares of the Company’s Series A preferred stock converted such holdings into 1,750,000 shares of the Company’s Class A Common Stock.

As discussed in Note 17 - COMMITMENTS AND CONTINGENCIES 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, 2020, in September 2019, the Company and 212 Technologies, LLC entered into a Release and Settlement Agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, among other things, 212 Technologies returned 5,628,750 shares of the Company’s Series A Preferred Stock. In Jul 2020, the Company retired these shares. As of January 31, 2021, 5,100,000 shares of the Company’s Series A preferred stock remain outstanding.

Series B Convertible Preferred Stock – In August 2020, as more fully discussed in Note 13 above, BBMD, then the purported holder of 2,500,000 shares of the Company’s Series B preferred stock, converted such holdings into 2,500,000 shares of the Company’s Class A Common Stock. In addition, in September 2020, the Company and Alchemist Holding, LLC (“Alchemist”), a major shareholder of the Company, agreed to convert 7,500,000 shares of the Company’s Series B preferred stock then held by Alchemist into 7,500,000 shares of the Company’s Class A Common Stock. As of January 31, 2021, no shares of the Company’s Series B preferred stock remain outstanding.

Series C Convertible Preferred Stock – During the nine months ended January 31, 2021, holders of 240,000 shares of the Company’s Series C preferred stock converted such holdings into 240,000 shares of the Company’s Class A Common Stock. As of January 31, 2021, 3,250,000 shares of the Company’s Series C preferred stock remain outstanding.

Common Stock

During the nine months ended January 31, 2021, the Company issued 30,000,000 shares of its 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 the exercise price of $0.20 per share, to DSS in exchange for $3.0 million in cash (please see Note 13 above). In addition, the Company issued 10,000,000 shares of its Class A Common Stock to Robert Oblon, a co-founder of the Company, pursuant to the Multi-Party Settlement Agreement discussed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020. Further, during the nine months ended January 31, 2021, the Company issued 5,488,247 shares of its Class A Common Stock in connection with the exercise of warrants by Company employees and 2,061,000 shares of its Class A Common Stock in connection with the exercise of warrants by Company distributors.

During the nine months ended January 31, 2021, the holders of 10,000,000 shares of the Company’s Series B preferred stock and 10,000,000 shares of the Company’s Class B Common Stock converted their holdings into an aggregate of 20,000,000 shares of the Company’s Class A Common Stock. In addition, during the nine months ended January 31, 2021, as discussed above, BBMD, then the purported holder of 20,000,000 shares of the Company’s Series A preferred stock, converted such holdings into 20,000,000 shares of the Company’s Class A Common Stock, holders of 1,750,000 shares of the Company’s Series A preferred stock converted such holdings into 1,750,000 shares of the Company’s Class A Common Stock, and holders of 240,000 shares of the Company’s Series C preferred stock converted such holdings into 240,000 shares of the Company’s Class A Common Stock.

As discussed in Note 13 above, during the nine months ended January 31, 2021, the Company repurchased 17,500,000 shares of the Converted Stock for cash and retired such repurchased shares, and the Company and Alchemist caused the transfer to the Company of, in the aggregate, 38,308,864 shares of the Company’s Common Stock, and the Company retired such redeemed shares.

As of January 31, 2021, 159,802,769 shares of our Class A Common Stock remained issued and outstanding.

In August 2020, as more fully discussed in Note 13 above, BBMD, then the purported holder of 2,500,000 shares of the Company’s Class B Common Stock, converted such holdings into 2,500,000 shares of the Company’s Class A Common Stock. In addition, in September 2020, Alchemist converted 7,500,000 shares of the Company’s Class B Common Stock then held by Alchemist into 7,500,000 shares of the Company’s Class A Common Stock. As of January 31, 2021, no shares of the Company’s Class B Common Stock remain outstanding.

Stock Warrants

The Company implemented a review of its Stock Warrants disclosure in light of the error found during a review of its employment agreements that included compensatory stock warrants (see Note 2, Correction of Errors for impact of error on the previous interim financial statements).

During fiscal year 2020; a subsidiary of the Company entered multi-year employment agreements with its key employees. In general, each employment contract contained an initial grant of warrants that vested immediately at a fixed exercise price and provided for subsequent grants that provided a discounted exercise 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.

The Company believes that more information should be disclosed concerning the subsequent warrants that are anticipated to be vesting during the period of the employment contract. Based on that belief, the Company is changing its presentation of warrants outstanding at the end of any period to include those subsequent warrants to be vesting during the term of the employment agreement.

As state above, some stock warrant grants associated with the multi-year employment have a defined exercise price equal to a discounted ten-day average of the stock price prior to the exercise 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 nature of the determination of 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.

Of the 46,700,000 stock warrants held by employees on April 30, 2020, warrants to purchase 24,700,000 shares of the Company’s common stock are exercisable at a price tied to the daily stock price for the Company’s stock. Of the 27,950,000 stock warrants held by employees on January 31, 2020, warrants to purchase 23,450,000 shares of the Company’s common stock are exercisable at a price tied to the daily stock price for the Company’s stock.

The additional compensatory expense/(benefit) recognized during year-to-date 2021 from the variable nature of the exercise price after service is completed is ($672,230). For the three months ending January 31, 2021; the additional compensatory expense/(benefit) is $234,145. The additional compensatory expense/(benefit) for 1Q 2021 and 2Q 2021 was $1,123,500 and ($2,029,875) respectively. The additional compensatory expense/(benefit) for the period from employee agreement inception thru April 30, 2020 was $0 (i.e., no variable priced warrants vested prior to May 1, 2020).

The following table summarizes the activity relating to the Company’s warrants during the nine months ended January 31, 2021:

* Warrants outstanding as of April 30, 2020, as reported on our Form 10-K.

** Represent Subsequent Warrants pursuant to employment contracts entered by the Company during fiscal year 2020.

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

During the nine months ended January 31, 2021, as more fully discussed in Note 13 above, the Company issued 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 to DSS. In addition, during the nine months ended January 31, 2021, the Company issued 5,488,247 shares of its Class A Common Stock in connection with warrants to purchase 9,000,000 shares exercised by Company employees and 2,061,000 shares of its Class A Common Stock in connection with the exercise of warrants by Company distributors. The 5,488,247 shares issued to employees are net of shares retained to satisfy the related exercise price and employee payroll tax obligations.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

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.

Legal Proceedings – Related-Party Matters and Settlement Liability

As more fully discussed on Note 17 - COMMITMENTS AND CONTINGENCIES 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, 2020, in the fiscal year 2020, the Company and certain relevant subsidiaries, Company co-founder and former consultant Robert Oblon, and certain other parties entered into a Settlement Agreement pursuant to which the relevant parties agreed to settle all prior disputes among them. In addition, as more fully discussed on said Note 17, in the fiscal year 2020, the Company, Alchemist and Jordan Brock, a co-founder of the Company (“Brock”), entered into a Settlement Accommodation Agreement and an amendment to a previous founder’s agreement and the Company recognized a settlement liability in connection therewith. As of January 31, 2021, and April 30, 2020, settlement liability associated with these matters was $1.3 million and $2.6 million, respectively.

Legal Proceedings – Other Matters

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.

NOTE 16 - SUBSEQUENT EVENTS

On February 1, 2021, the Company issued a warrant to purchase up to 3,000,000 shares of its Class A Common Stock to Mr. S. Mark Nicholls in connection with Mr. Nicholls’ appointment to serve as the Company’s Chief Financial Officers effective February 1, 2021. A warrant to purchase up to 1,000,000 shares vests in full 90 days after the issuance date and is exercisable at a price per share equal to the average daily stock price of the underlying security for the 10 trading days following the issuance date, while a warrant to purchase up to 1,000,000 shares vests at each of the first two anniversary dates following the issuance date and are exercisable at a price per share equal to the average daily stock price of the underlying security for the 10 trading days ending on each such anniversary date.

On February 10, 2021, the Company issued 260,600 shares of its Class A Common Stock in connection with the exercise of warrants by Company distributors under the2020 Sales-Related Warrants program. In connection with these transactions, no underwriters were involved and proceeds from the exercises ($2,606) are intended for general corporate purposes.

On March 1, 2021, the Company and DSS executed a Binding Letter of Intent pursuant to which DSS agreed to loan the Company $30.0 million, subject to the parties entering into a definitive loan agreement (“Note”), in the form of a three-year, unsecured convertible promissory note in favor of DSS who, together with DSSI, is currently a major shareholder of the Company. All or part of the Note, including principal, other fees and interest can be converted into Company Common A shares. The note would be convertible at the rate of $0.20 and bear interest at the annual rate of 8%. As part of the consideration, DSS will be granted 150,000,000 detachable warrants for Common A shares that have a 5-year term and an exercise price of $0.22 per share. Additionally, DSS will be issued 27,000,000 Common A shares in payment of a 10% origination fee and in prepayment of one year of interest. Future interest payments are to be prepaid annually each year and may be paid in cash or Common A shares at the Company’s election. The Company anticipates Company shareholder approval will be required to increase the authorized shares of Common A to convert the Note and/or issue the detachable warrants. Borrowings under the note may be prepaid, at the option of the Company, without penalty after the first anniversary of the loan effective date. Proceeds from the loan are intended for general corporate purposes, including to fund the Company’s domestic and international growth initiatives.

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, 2020, 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.

Highlights for the Three months ended January 31, 2021:

Overview

Summary Description of Business

The Company, through its subsidiaries, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. The Company is an emerging growth company and was incorporated in the State of Nevada in April 2015. It markets and distributes its products and services primarily through an independent contractor sales force using a marketing strategy which is a form of direct selling. The Company does not operate retail stores. The Company markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. The Company’s fiscal year ends on April 30.

The Company had no significant sales history prior to December 2017, when the Company launched its current Elevate health and wellness product line. The launch of this product line enabled the Company to expand its consolidated sales volume and operations at a rapid pace.

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

Convertible Notes and Borrowing Under Short-term Financing Arrangements

Historically, the Company has funded a substantial portion of its liquidity and cash needs through the intermittent 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.

Industry and Business Trends

The information in “Industry and Business Trends” included in ITEM 1 — “Business” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020 is incorporated herein by reference.

Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Virus

In 2020, in response to the COVID public health emergency, regional and local governments in the U.S. and Canada mandated or recommended various containment measures, including selective business closures, social distancing, quarantine, stay-at-home or shelter-in-place directives, and limitations on, or cancellations of, larger meetings and other public events, concerts and business conferences. At the time of this Quarterly Report, many of these mandated or recommended safety measures remain in place.

In response to the public health emergency, we have instituted a number of preventive measures, including temporarily transitioning a significant number of our corporate headquarter employees to working remotely, increased cleaning and sanitizing of our business facilities, increased employee safety communication efforts, and transitioning our sales conventions to a virtual convention platform. Some of these temporary measures have increased our already significant reliance on telephone and computer systems and on the availability of continued and impeded access to the Internet to operate these systems. At the time of this Quarterly Report, we are unable to determine with certainty when these temporary measures can be eased or reversed altogether.

We believe that the public’s fear of exposure to COVID, the actual impact of the virus, and/or actions taken to mitigate the spread of the virus, have had and continue to have a material adverse impact on the economies in the geographies we serve. Consumer demand for discretionary products such as ours is sensitive to significant downturns in the economy, increases in unemployment or decreases in perceived employment security. There continues to be significant uncertainty in the U.S. and Canada about (a) the timing and availability of sufficient vaccines, (b) the timing and speed of any economic recovery, and (c) the impact in consumer demand, if any, resulting from past and future economic stimulus and relief programs. As a result of the foregoing, we cannot predict the ultimate scope, duration and ultimate impact of the COVID public health emergency, but we believe it may have a material adverse impact on our business, financial condition, cash flows, and results of operations (including revenues and profitability), and those of our key suppliers.

The COVID emergency may also have the effect of exacerbating some of the other risk factors described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2020, including the success of our growth initiatives, our ability to anticipate and effectively respond to changes in consumer preferences and buying trends in a timely manner, our dependence on one supplier for a substantial portion of the products we sell, potential fluctuations in our quarterly financial performance, our ability to generate sustained, positive cash flows from operations with which to fund our working capital needs, the potential impact on our financial performance from economic slowdowns, our ability to effectively and cost-efficiently respond to any epidemics and other health emergencies, and the potential impact on our business of any disruption in our information technology systems.

Results of Operations

The Three months ended January 31, 2021 Compared to the Three months ended January 31, 2020

Net Sales

For the three months ended January 31, 2021, our consolidated net sales decreased by $17.3 million, or 54.8%, to $14.3 million, compared to the three months ended January 31, 2020. The decrease in net sales mainly reflects (a) continuation of the decline in consumer orders that we have experienced since the fourth quarter of the fiscal year 2020, (b) a decline in independent distributor orders and in the number of new independent contractor distributors, (c) a decline in the number of continuing active distributors, resulting, in part, from recent product reformulations and increased competition for independent distributors, and (d) the generally adverse impact on consumer buying trends resulting from the COVID global health emergency and actions taken to help mitigate the spread of the virus in the U.S. and Canada. In efforts to restore strong sales growth, in the fiscal year 2021, we have developed and launched our new business brand, “The Happy Co.,” at our Elevacity division, have accelerated our previously announced initiatives to expand our operations into additional international geographies, and have further intensified our efforts to recruit, develop and reward our distributors and our efforts reach new consumers, including through the continued introduction of new products.

We believe there continues to be significant uncertainty about the potentially adverse impact of the current health crisis on the economies and employment markets of several countries, including the U.S. and Canada. Please see Overview - Significant Uncertainty Regarding the Potential Impact of Ongoing COVID Virus above.

The $17.3 million decrease in consolidated net sales reflects a decrease in number of comparable product units sold ($24.4 million) and the impact of products discontinued since January 31, 2020 ($1.4 million), partially offset by sales of products introduced since January 31, 2020 of $8.6 million.

During the three months ended January 31, 2021 and 2020, the Company derived approximately 99% and 98%, respectively, of its consolidated net sales from the sale of its Elevate health and wellness product line, launched in December 2017.

During the three months ended January 31, 2021, approximately 70% of our net sales were to customers (including approximately 44% to recurring customers, which we refer to as “SmartShip” sales, and approximately 26% to new customers) and approximately 30% of our net sales were to our independent distributors.

Gross Profit

For the three months ended January 31, 2021, our consolidated gross profit decreased by $12.6 million, or 56.8%, to $9.6 million, compared to the three months ended January 31, 2020, and our consolidated gross margins were 66.8% and 69.9%, respectively. During the three months ended January 31, 2021, our consolidated gross margin reflects the impact of a provision for excess (slow-moving) inventory of $924,973 recognized in connection with health and wellness product that is damaged, expired or otherwise in excess of forecasted outputs, based on our current and anticipated sales levels. This decrease in our consolidated gross margin was partially offset by selective price increases implemented in the latter part of the fiscal year ended April 30, 2020.

Selling and Marketing Expenses

For the three months ended January 31, 2021, our consolidated selling and marketing expenses decreased by $7.3 million, to $7.0 million, or 48.8% of consolidated net sales, compared to $14.3 million, or 45.1% of consolidated net sales, for the three months ended January 31, 2020. The decrease in consolidated selling and marketing expenses is due primarily to lower sales commissions of $7.0 million (which reflects decrease in our consolidated net sales discussed above) and lower general marketing expenses of $0.3 million.

General and Administrative Expenses

For the three months ended January 31, 2021, our consolidated general and administrative expenses (which include corporate employee compensation and benefits, stock-based compensation, professional fees, rent and other occupancy costs, certain consulting fees, telephone and information technology expenses, insurance premiums, and other administrative expenses) decreased by $1.3 million, to $3.9 million, or 27.5% of consolidated net sales compared to $5.2 million, or 16.6% of consolidated net sales, for the three months ended January 31, 2020. The $1.3 million decrease in consolidated general and administrative expenses was due primarily lower compensation and compensation-related expenses of $0.7 million, lower consulting and professional fees of $0.6 million and a net decrease in other corporate administrative expenses of $0.3 million, partially offset by higher stock-based compensation expense of $0.3 million. The increase in stock-based compensation expense reflects a correction of an error in expense associated with stock warrants awarded to our employees in connection with employment agreements reported in the first half of the current fiscal year, as more fully discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements contained elsewhere in this Quarterly Report.

Interest Expense, Net

For the three months ended January 31, 2021, our consolidated interest expense was $21,078, excluding amortization of debt discount of $5,121 and interest income of $1,231. Consolidated interest expense of $21,078 includes $19,566 associated with borrowings under short-term financing arrangements (including borrowing under the PPP Loan discussed under Short-term Borrowings and Convertible Notes below) and $1,512 associated with our convertible notes.

For the three months ended January 31, 2020, our consolidated interest expense was $12,267, excluding interest of $33,007 associated with Type B lease obligations (as defined by GAAP) and amortization of debt discount of $4,103. Consolidated interest expense of $12,267 was almost entirely associated with short-term borrowings under financing arrangements.

Interest income, related party

For the three months ended January 31, 2021 and 2020, interest income on accounts receivable, related party, was $0 and $67,520, respectively.

Litigation Settlements and Other Non-operating Expenses

For the three months ended January 31, 2021, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $20,904. For the three months ended January 31, 2020, our consolidated non-operating expenses include litigation settlements and other non-operating expenses of $41,194, partially offset by a gain on extinguishment of debt of $13,672 in connection with modification of a promissory note.

Provision for (Benefit from) Income Taxes