10-Q: Sharing Services Global Corporation Reports Improved Q3 Results Despite Revenue Dip

Sharing Services Global Corporation reports a decrease in net sales but an improvement in gross profit and reduced operating expenses for the quarter ended December 31, 2023.

Summary

• Sharing Services Global Corporation's Q3 2024 net sales decreased by 11.1% to $2.9 million compared to $3.2 million in Q3 2023.
• The company's gross profit increased by 36.3% to $2.2 million, with a gross margin of 75.7% compared to 49.4% in the same period last year.
• Operating expenses decreased by 47.9% to $2.9 million.
• The operating loss was $0.7 million, a significant improvement from the $4.0 million loss in the prior year's quarter.
• Net loss for the quarter was approximately $0.9 million, compared to $11.0 million in the same quarter of the previous year.
• Basic and diluted loss per share improved to $0.002 from $0.04 year-over-year.
• For the nine months ended December 31, 2023, net sales decreased by 35.8% to $8.2 million compared to $12.7 million in the same period last year.
• Gross profit for the nine months decreased by 22.4% to $6.0 million.
• Net loss for the nine months was $4.8 million, compared to $30.8 million for the same period of the prior year.
• Diluted loss per share for the nine months was $0.01 compared to $0.12 last year.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue decreased, the company showed significant improvements in profitability and expense management. The qualification for the ERTC is also a positive sign. However, the working capital deficiency and continued reliance on external financing remain concerns.

Positives

• Gross profit increased by approximately $0.6 million for the three months ended December 31, 2023.
• Gross margin improved to 75.7% from 49.4% due to reduced cost of goods sold and shipping expenses.
• Operating expenses decreased by approximately $2.7 million for the three months ended December 31, 2023.
• Operating loss decreased from $4.0 million to $0.7 million for the three months ended December 31, 2023.
• The company qualified for a U.S. government Employee Retention Tax Credit (ERTC) for $1.8 million.
• General and administrative expenses decreased by approximately $7.4 million for the nine months ended December 31, 2023.

Negatives

• Net sales decreased by $0.4 million, or 11.1%, for the three months ended December 31, 2023.
• Net sales decreased by approximately $4.6 million, or 35.8%, for the nine months ended December 31, 2023.
• Gross profit decreased by approximately $1.7 million, or 22.4%, for the nine months ended December 31, 2023.
• The company had a deficiency in working capital of approximately $2.7 million as of December 31, 2023.

Risks

• The decrease in net sales is attributed to a decline in orders from independent distributors and customers.
• The decline in the number of independent distributors is due, in part, to recent product reformulations and increased competition.
• Consumer buying trends are adversely impacted by the recent increase in consumer good prices and energy costs in the U.S.
• The company had a working capital deficiency of $2.7 million as of December 31, 2023, raising concerns about short-term liquidity.

Future Outlook

The Company intends to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.

Industry Context

The report indicates challenges in the direct selling industry, with increased competition for independent distributors and adverse impacts on consumer buying trends due to rising prices and energy costs. The company is focusing on expanding its product offerings and geographic footprint to address these challenges.

Comparison to Industry Standards

• It is difficult to compare Sharing Services Global Corporation's results directly to industry standards without specific competitor data.
• However, the direct selling industry, which includes companies like Herbalife, Nu Skin, and Amway, often sees fluctuations in sales and distributor numbers.
• The company's focus on health and wellness products aligns with a growing consumer interest in these areas, but it also faces competition from established players and emerging brands.
• The reported gross margin of 75.7% is relatively high compared to traditional retail businesses but may be typical for direct selling companies with premium pricing strategies.
• The company's efforts to reduce operating expenses are crucial for improving profitability and maintaining a competitive edge.

Legal Proceedings

• The Company from time to time is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course.
• We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
• Case No. 4:20-cv-00946; Dennis Burback, Ken Eddy and Mark Andersen v. Robert Oblon, Jordan Brock, Jeff Bollinger, Four Oceans Global, LLC, Four Oceans Holdings, Inc., Alchemist Holdings, LLC, Elepreneurs U.S., LLC, Elevacity U.S., LLC, Sharing Services Global Corporation, Custom Travel Holdings, Inc., and Does 1-5, pending in the United States District Court for the Eastern District of Texas. The appeal is still pending as of December 31, 2023.

Related Party Transactions

• In April 2021, the Company and DSSI entered into a Securities Purchase Agreement, pursuant to which DSSI granted a $30.0 million loan to the Company.
• On September 15, 2022, the Company and DSSI entered into a Securities Purchase Agreement (the SPA), pursuant to which the Company issued: (a) a Convertible Promissory Note in the principal amount of $27.0 million (the 2022 Note) in favor of DSSI and (b) a detachable Warrant to purchase up to 818,181,819 shares of the Company's Class A Common Stock (the Warrant), at $0.033 per share, in exchange for the $27.0 million.
• On February 3, 2023, the Company mutually agreed with DSS to enter into a Letter Agreement (the DSS Letter Agreement), pursuant to which the Company and DSS have agreed to terminate and release all obligations of the Consulting Agreement effective as of December 31, 2022.
• On February 28, 2023, the Company and DSSI mutually agreed in a Letter Agreement (the First DSSI Letter Agreement) to a mutual settlement of the interest accrued on the 2022 Note issued by the Company to DSSI.
• On March 24, 2023, the Company, DSS and DSSI, entered into a Securities Exchange and Amendment Agreement (the Agreement).
• On April 17, 2023, the Company and DSSI mutually agreed in a subsequent Letter Agreement (the Second DSSI Letter Agreement) to a mutual settlement of the interest accrued on the 2022 Note between January 1, 2023, through and including March 31, 2023.
• Effective June 30, 2023, subject to the terms of a certain Loan Purchase Contract, Assignment of Note and Liens and Other Loan Documents, and Note Allonge document, DSSI purchased from SHRG a Stemtech promissory note in the amount of $1.4 million.
• On July 1, 2023, the Company and DSSI, entered into a Securities Purchase Agreement, pursuant to which the Company purchased 1,000 shares of common stock of HWH World, Inc.
• Effective July 1, 2023, the Company and DSSI cancelled the previously executed Securities Purchase Agreement related to HWHW and replaced it with an Asset Purchase Agreement whereby the Company agreed to purchase the inventory of HWHW as of June 30, 2023 and assumed certain account payable of HWHW as of June 30, 2023.
• On July 1, 2023, the Company and DSSI, entered into a Securities Purchase Agreement (HWHH SPA), pursuant to which the Company purchased 1,000 shares of common stock of HWH Holdings, Inc.
• On August 31, 2023, the Company and DSSI executed a debt exchange agreement whereby DSSI cancelled the $27 million loan and accepted 26,000 shares of the Company's Series D Preferred Stock.
• In November 2021, Sharing Services and Hapi Caf, Inc., a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement.
• On September 15, 2022, Sharing Services, through one of its subsidiaries, entered into a secured real estate promissory note with American Pacific Bancorp, Inc. (APB), and the Company entered into a Loan Agreement pursuant to which APB loaned the Company approximately $5.7 million.
• A subsidiary of the Company operating in the Republic of Korea subleases office space, on a month-to-month basis, from HWH World, Inc. (HWH World), until September 30, 2023, a subsidiary of DSS and a company affiliated with Heng Fai Ambrose Chan, a Director of the Company.

Stakeholder Impact

• Shareholders: The improved profitability metrics are positive, but the revenue decline and working capital deficiency may raise concerns.
• Employees: The headcount reduction mentioned in the report may have impacted employees.
• Customers: The product reformulations may affect customer satisfaction and loyalty.
• Distributors: The increased competition for independent distributors may impact their earnings potential.
• Creditors: The company's ability to meet its obligations is dependent on its ability to generate sufficient cash flow or secure additional financing.

Next Steps

• The Company intends on effecting the Reverse Split for the purpose of enabling a future uplisting of the Company's Common Stock to a national securities exchange.
• The Company plans to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.

Key Dates

Keywords

net sales, gross profit, operating expenses, operating loss, net loss, financial results, Sharing Services Global Corporation, ERTC, direct selling, health and wellness