UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 01-41423
CONNEXA SPORTS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
| Delaware | | 61-1789640 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2709 NORTH ROLLING ROAD, SUITE 138
WINDSOR MILL
MARYLAND 21244
(Address of principal executive offices, including Zip Code)
(443) 407-7564
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.001 par value | | YYAI | | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
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 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 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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| | Emerging growth company ☐ |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on October 31, 2023, the registrant’s most recently completed second fiscal quarter, was approximately $1,960,570.50.
The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of July 24, 2024, was 2,659,149.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.
Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:
| | ● | risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures; |
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| | ● | risk that we fail to meet the requirements of the agreements under which we acquired our business interests, including any cash payments to the business operations, which could result in the loss of our right to continue to operate or develop the specific businesses described in the agreements; |
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| | ● | risk that we will be unable to secure additional financing in the near future in order to commence and sustain our planned development and growth plans; |
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| | ● | risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations; |
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| | ● | risks and uncertainties relating to the various industries and operations we are currently engaged in; |
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| | ● | results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future growth, development or expansion will not be consistent with our expectations; |
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| | ● | risks related to the inherent uncertainty of business operations including profit, cost of goods, production costs and cost estimates and the potential for unexpected costs and expenses; |
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| | ● | risks related to commodity price fluctuations; |
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| | ● | the uncertainty of profitability based upon our history of losses; |
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| | ● | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned development projects; |
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| | ● | risks related to environmental regulation and liability; |
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| | ● | risks related to tax assessments; |
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| | ● | other risks and uncertainties related to our prospects, properties and business strategy. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
As used in this report, the “Connexa,” “Company,” “we,” “us,” or “our” refer to Connexa Sports Technologies Inc., unless otherwise indicated.
Unless otherwise indicated, all share numbers and per share totals have been adjusted to reflect the 1-40 reverse stock split that was effective on September 25, 2023 and the 1-20 reverse stock split that was effective on June 27, 2024.
CONNEXA SPORTS TECHNOLOGIES INC.
(FORMERLY KNOWN AS SLINGER BAG INC.)
CONNEXA SPORTS TECHNOLOGIES INC.
Annual Report on Form 10-K for the
Fiscal Year Ended April 30, 2024
The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained elsewhere in this Form 10-K, as well as the risk factors included in this Form 10-K.
PART I
ITEM 1. Business
History of our Company
Lazex Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger Bag Americas”), which was 100% owned by Slinger Bag Ltd. (“SBL”), an Israeli company. In connection with the Stock Purchase Agreement, Slinger Bag Americas acquired 2,500 shares of common stock of Lazex for $332,239. On September 16, 2019, SBL transferred its ownership of Slinger Bag Americas to Lazex in exchange for the 2,500 shares of Lazex acquired on August 23, 2019. As a result of these transactions, Lazex owned 100% of Slinger Bag Americas and the sole shareholder of SBL owned 2,500 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name to Slinger Bag Inc.
On October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., (“Slinger Bag Canada”) a Canadian company incorporated on November 3, 2017. There were no assets, liabilities or historical operational activity of Slinger Bag Canada.
On February 10, 2020, Slinger Bag Americas became the 100% owner of SBL, along with SBL’s wholly owned subsidiary Slinger Bag International (UK) Limited (“Slinger Bag UK”), which was formed on April 3, 2019. On February 10, 2021, Zehava Tepler, the owner of SBL, contributed Slinger Bag UK to Slinger Bag Americas for no consideration.
Effective February 25, 2020, the Company increased the number of authorized shares of common stock from 75,000,000 to 300,000,000 via a four-to-one forward split of its outstanding shares of common. All share and per share information contained in this report have been retroactively adjusted to reflect the impact of the stock split. Effective June 27, 2024, the Company increased the number of authorized shares of common stock from 300,000,000 to 1,000,000,000.
On June 21, 2021, Slinger Bag Americas entered into a membership interest purchase agreement with Charles Ruddy to acquire a 100% ownership stake in Foundation Sports Systems, LLC (“Foundation Sports”).
On February 2, 2022, the Company entered into a share purchase agreement with Flixsense Pty, Ltd. (“Gameface”). As a result of the share purchase agreement, Gameface became a wholly owned subsidiary of the Company.
On February 22, 2022, the Company entered into a merger agreement with PlaySight Interactive Ltd. (“PlaySight”) and Rohit Krishnan (the “Shareholders’ Representative”). As a result of the merger agreement, PlaySight would become a wholly owned subsidiary of the Company.
During April 2022, the Company determined that the technology utilized in the Foundation Sports acquired entity would take substantially more financial resources and more time to bring to market and achieve profitability than originally anticipated. As a result, the goodwill and intangible assets related to Foundation Sports were fully impaired as of April 30, 2022, resulting in an impairment loss of $3,486,599. In addition, during April 2022 the Company decided to sell a portion of Foundation Sports. The Company continued to classify Foundation Sports in continuing operations, until December 5, 2022 when it sold 75% of Foundation Sports back to the original owners at which time it deconsolidated this subsidiary and recorded a loss on the sale. The Company also determined to dispose of the PlaySight entity during the year ended April 30, 2023. The Company completed the sale in November 2022 and recorded a loss on the sale at that time.
In April 2022, the Company changed its domicile from Nevada to Delaware. On April 7, 2022, the Company effected a name change to Connexa Sports Technologies Inc. We also changed our ticker symbol, “CNXA”. Connexa is now the holding company under which Slinger Bag and Gameface reside.
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred to as the “Company.”
On June 14, 2022, the Company effected a 1-for-10 reverse stock split, where the Company’s common stock began to trade on a reverse split adjusted basis. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted to reflect this reverse split. The Company also consummated a public offering of shares of its common stock and the listing of its common stock on the Nasdaq Capital Market.
On November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the board of directors of the Company. Gabriel and Rohit were members of the audit and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee. Neither Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies or practices.
On November 27, 2022, the Company entered into a share purchase agreement (the “Agreement”) with PlaySight, Chen Shachar and Evgeni Khazanov (together, the “Buyer”) pursuant to which the Buyer purchased 100% of the issued and outstanding shares of PlaySight from the Company in exchange for (1) releasing the Company from all of PlaySight’s obligations towards its vendors, employees, tax authorities and any other (past, current and future) creditors of PlaySight; (2) waiver by the Buyer of 100% of the personal consideration owed to them under their employment agreements in the total amount of U.S. $600,000 (which would have been increased in December 2022 to U.S. $800,000); and (3) cash consideration of U.S. $2 million to be paid to the Company as follows:
| | (i) | a promissory note in the amount of U.S. $2 million issued and delivered to the Company (the “Promissory Note”). |
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| | (ii) | The maturity due date of the Promissory Note is December 31, 2023 subject to a one year extension in the discretion of the Buyer until December 31, 2024. The Buyer timely elected to extend the maturity date of the Promissory Note to December 31, 2024. |
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| | (iii) | The Promissory Note can be partially paid over the time, but in the event it is not paid in full by December 31, 2024, then the remaining amount due (i.e. U.S. $2 million less any amount paid), will be converted into ordinary shares of PlaySight (the “Deposited Shares”), which will be deposited with the escrow company of Altshuler Shaham Trust Ltd. (the “Escrow Agent”) for the benefit of the Company or, at the election of the Company, issued in the form of a stock certificate or recorded in some other market-standard format to be held by the Escrow Agent. |
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| | (iv) | The number of the Deposited Shares shall be determined according to the post-money valuation of the last investment round of the Company, and in the absence of such investment round, the total number of the Deposited Shares shall be $2 million divided by the Company’s valuation to be determined at that time by a third-party appraiser, to be nominated by both the Company and the Buyer (the “Appraiser”). The Company and the Buyer have agreed that the identity of the Appraiser shall be Murray Devine Valuation Advisers, to the extent their cost of the appraisal shall not be higher than the cost of other appraisers from the big 4 accounting firms (i.e. E&Y, KPMG, PWC and Deloitte). The Company and the Buyer have agreed to split the cost of the Appraiser. |
The Company has also released PlaySight from all of its obligations (except for those created by the Agreement) in respect of the Company, including any inter-company debts on the books, and the Buyer has released the Company from all of its obligations (except for those created by the Agreement) in respect of PlaySight and the Buyer.
The reason for the entry into the Agreement and the transactions contemplated thereby was to eliminate the need for the Company to provide further financing for PlaySight’s operations.
On December 5, 2022, the Company assigned 75% of its membership interest in Foundation Sports to Charles Ruddy, its founder and granted him the right for a period of three years to purchase the remaining 25% of its Foundation Sports membership interests for $500,000 in cash. As of December 5, 2022, the results of Foundation Sports will no longer be consolidated in the Company’s financial statements, and the investment was accounted for as an equity method investment. On December 5, 2022, the Company analyzed this investment and established a reserve for the investment at the full amount of $500,000. The Company entered into a database access and marketing agreement with Foundation Sports pursuant to which Foundation Sports will (i) provide the Company with sporting or racquet facility information and contact data of its customers (subject to applicable law) and (ii) publish any promotional content, call to action, survey or similar promotional communications provided by the Company to Foundation Sport’s customers for its Customers to promote said material to their extended network of consumers in exchange for 7% of any gross revenue to be generated from such activities.
On March 7, 2023, Slinger Bag entered into an exclusive distribution agreement for Padel Tennis with a company located in Valencia, Spain called with Desarrollo y Promocion de Padel S.L. This agreement is contracted to deliver approximately $15 million in revenue by the end of 2028.
On November 16, 2023, the Company entered into an agreement with Agile Capital Funding (the “ACF Agreement”) pursuant to which the Company sold $693,500 in future receivables to ACF (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The Company agreed to pay ACF $28,895.83 each week until the ACF Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and member of the Company’s board of directors. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owes Mr. Kalfa $1,137,000 in salary (the “Salary Compensation”) through January 31, 2024 to Mr. Kalfa.
The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, on January 20, 2024 the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024.
Due to administrative delays, the Company did not issue the shares in January. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024).
No shareholder approval was required for the issuance of the 220,265 shares because it was less than 20% of the number of the Company’s outstanding shares of Common Stock as of March 14, 2024 and was issued at a price per share ($4.54) above the Minimum Price as defined under Nasdaq Listing Rule 5635(d).
The Company sought and obtained shareholder approval, pursuant to Nasdaq Listing Rule 5635(c), to issue the balance of 47,115 shares (267,380 minus 220,265) to Mr. Kalfa.
The Shares were issued on May 24, 2024 without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.
On January 20, 2024, the Company agreed to issue to Mike Ballardie, the Company’s chairman of the board and chief executive officer, warrants to purchase 317,514 shares of common stock (the “MB Warrants”) at an exercise price of $0.02 per share and with a term of 10-years as compensation for his extraordinary contribution to the company, in exchange for Mr. Ballardie’s waiver of his right to receive any outstanding bonus payments as described in clause 2.2 of his service agreement with Slinger Bag International (UK) Limited dated 1 November 2020 (the “Service Agreement”) to which he would otherwise be entitled to receive through January 31, 2024.
Acquisition and Recent Transactions
On March 18, 2024, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) and a share exchange agreement (the “Share Exchange Agreement,” and together with the Share Purchase Agreement, the “Agreements”) to acquire a total of 70% of the issued and outstanding ordinary shares of Yuanyu Enterprise Management Co., Limited (“YYEM”), a Hong Kong company, from the sole shareholder of YYEM, Mr. Hongyu Zhou (the “Seller”), for a combined $56 million. The consummation of the transactions contemplated in the Agreements will result in a change in control of the Company as the shareholders of YYEM will become the owners 82.4% of the issued and outstanding shares of common stock of the Company (the “Common Stock”). As part of this transaction, as further described below under the heading of “The Separation Agreement”, the Company has agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity to be owned by Yonah Kalfa and Mike Ballardie.
The Acquisition Structure
Pursuant to the Share Purchase Agreement, the Company agreed to purchase, and the Seller agreed to sell, 2,000 ordinary shares of YYEM, representing 20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”), payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024.
Pursuant to the Share Exchange Agreement, the Company has agreed to purchase, and the Seller has agreed to sell, 5,000 ordinary shares of YYEM, representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the Seller (the “Share Exchange Transaction,” and together with the Share Purchase Transaction, the “Transactions”). The shares are expected to represent 82.4% of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction (the “Share Exchange Consideration”).
The Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless they have been held for at least six months and subject to other conditions.
Separation Agreement
In connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business, assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy Business”) to a newly established entity (“NewCo”), and that after the Closing Date, NewCo will have the sole right to and obligations of the Legacy Business and will be liable to the Company for any losses arising from third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo will be majority owned by Yonah Kalfa and Mike Ballardie.
On a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.1 million (which represents the assets of the Company as of January 31, 2024, minus, on a pro forma basis, the $16.5 million used for the purchase of 20% ownership of YYEM in April 2024), and the liabilities of the Legacy Business were $12.0 million (which represents the liabilities of the Company as of April 30, 2024).
Financial Accommodations
As an inducement to the Company to complete the Transactions, the Agreements provide that aggregate payments of (a) $4,500,000 shall be made to the Company in cash by YYEM and (b) $500,000 shall be made to NewCo (as defined under the header “The Separation Agreement”) in cash by YYEM, as follows: (i) $800,000 payable within two (2) business days of the date of the Agreements; (ii) $1,200,000 payable within three (3) business days of the Company changing its ticker symbol from “CNXA” to “YYAI,” or such other symbol as the parties may agree; (iii) $2,000,000 payable at the Closing and (iv) $500,000 to be paid within 30 days from the Closing Date and paid to NewCo. Out of the $4,500,000, the Company paid $2,142,857 to certain companies for arranging the Transactions.
Management following the Acquisition
At or after the Closing, the board of directors of Connexa (the “Board”) shall comprise those individuals designated by YYEM Seller, and all current members of the Board shall resign with such resignation being effective on the later of the Closing or the appointment or election of the new directors.
Closing Conditions
The Share Exchange, as amended, provides that:
| | ● | on or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
| | ● | on or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio to be determined by the parties. |
| | ● | as a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common Stock will be delisted from Nasdaq; and |
| | ● | the Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was obtained on May 15, 2024, and a new listing application was submitted to Nasdaq in May 2024, which is currently under review by Nasdaq and the 1:20 reverse split took place on 27 June 2024. |
We cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing Deliverables
At the Closing, the Company shall deliver to YYEM Seller the following:
| | ● | copies of all resolutions of the Board authorizing the execution, delivery, and performance of the Exchange Agreement and the other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
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| | ● | a duly executed bought and sold note, as applicable; and |
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| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior to the Closing pursuant to the Exchange Agreement. |
At the Closing, YYEM Seller shall deliver to the Company the following:
| | ● | payment of the Closing Cash Payment (as defined in the Exchange Agreement); |
| | ● | a good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
| | ● | if the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
| | ● | a counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
| | ● | a duly executed bought and sold note as may be required under the law of Hong Kong; and |
| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Reverse Stock Split
The Company’s Board and stockholders have approved the Proposed Reverse Stock Split of its Common Stock within a range of 1-for-10 to 1-for-100, with the Board having set the specific ratio at 1-20 and determined the date for the Proposed Reverse Stock Split to be effective to be June 27, 2024.
Meged Agreements
On June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables Purchased Amount is paid in full.
On September 19, 2023, the Company entered into an agreement with Meged (the “Second Meged Agreement”) pursuant to which the Company sold $423,000 in future receivables to Meged (the “Meged Second Receivable Amount”) in exchange for paying the then outstanding balance of $70,153 of the Meged Receivables Purchased Amount in full with the balance being retained by the Company in cash for general purposes. The Company agreed to pay Meged $15,107 each week until the Meged Second Receivable Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to Meged under the Second Meged Agreement, the Company granted to Meged a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
UFS Agreement
On August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement”) pursuant to which the Company sold $797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000 in cash less fees of $50,000. The Company agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Special Meeting of Stockholders
On September 13, 2023 the Company held a special meeting of stockholders in which the following items were approved: (i) the issuance of (i) 1,274 shares of the our common stock, par value $0.001 per share, that were issued on October 3, 2023, and, (ii) 14,753 shares of our common stock issuable upon exercise of Pre-Funded Warrants at an exercise price of $0.0002 per share, (iii) 16,026 shares of common stock issuable upon the exercise of 5-Year Warrants at an exercise price of $312 per share, (iv) 32,052 shares of common stock issuable upon the exercise of 7.5 Year Warrants at an exercise price of $344 per share and (v) 22,625 shares of our common stock issuable upon the exercise of 5.5 Year Warrants at an at an exercise price per share equal to $1,768 per share to Armistice Capital Master Fund Ltd and (ii) a reverse stock split of our common stock within a range of one (1)-for-ten (10) to one (1)-for-forty (40) (“Reverse Stock Split”), with the Board of Directors of the Company to set the specific ratio and determine the date for the reverse split to be effective and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time within 12 months of the special meeting date.
On September 25, 2023, as a result of the shareholder approval obtained at the special meeting of stockholders on September 13, 2023 and the Reverse Stock Split, the aggregate number of Pre-Funded Warrants, 5-Year Warrants, 5.5-Year Warrants and 7-Year Warrants increased from 85,455 to 471,348 due to certain adjustments that were required to be made by the terms of the relevant warrants in the event of receipt of shareholder approval and the occurrence of the Reverse Stock Split.
Armistice Transactions from September 2023 to April 2024
From September 18, 2023 through April 30, 2024, the Company issued Armistice 473,935 shares of Common Stock related to the exercise of the pre-funded warrants.
On October 11, 2023, the Company, the Lenders and the Agent (as defined in the LSA) entered into a loan and security modification agreement to allow for an additional loan of $1,000,000 pursuant to the loan and security modification agreement. In addition, on October 11, 2023, the Company agreed to issue warrants to purchase up to 8,460 shares of Common Stock at an exercise price of $138 per share (the “October Warrants”).
On December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice with regard to certain of the Company’s existing warrants to purchase up to a total of 248,611 shares of Common Stock, consisting of: (i) 70,508 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $35.46 per share with a term of five year (the “September 2022 Five Year Warrants”); (ii) 155,479 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $70.92 per share with a term of seven and one half years (the “September 2022 Seven and a Half Year Warrants”); and (iii) 22,625 shares of Common Stock issuable upon the exercise of warrants issued on January 6, 2023 (the “January 2023 Warrants” and, together with the September 2022 Five Year Warrants and the September 2022 Seven and a Half Year Warrants, the “2022 and 2023 Warrants”).
Pursuant to the Inducement Letter, Armistice agreed to exercise for cash the 2022 and 2023 Warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $5.88 per share in consideration of the Company’s agreement to issue common stock purchase warrants to purchase up to an aggregate of 497,221 shares of Common Stock (the “December Warrants”). The Company received aggregate gross proceeds of $1,461,827.68 from the exercise of the 2022 and 2023 Warrants by the Holder, before deducting offering expenses payable by it. The transaction closed on December 7, 2023.
The resale of the shares of the Common Stock underlying the 2022 and 2023 Warrants and 224,472 shares of Common Stock owned by Sapir LLC, a consultant engaged by the Company were registered pursuant to an existing registration statement on Form S-1 (File No. 333-275407), declared effective by the Securities and Exchange Commission (the “SEC”) on December 4, 2023.
As of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds of $3 million from the Lenders.
On February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant Amendment and Second Loan and Security Modification Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to waive certain events of default with regard to certain covenants and obligations the Company had pursuant to (a) that certain registration rights agreement between the Company and the Lenders and the Agent entered into in September 2022, (b) the LSA (as modified), and (c) the Inducement Letter.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed to modify the Loan and Security Agreement such that the Note is now convertible into up to 499,584 shares of Common Stock based on the agreed to conversion price of $6.40. The Company believed that the $6.40 conversion price meets the definition of “Minimum Price” in Nasdaq Listing Rule 5635(d).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to use their reasonable best efforts to voluntarily convert all amounts owed under the Note on or prior to the last trading day before the trading day on which the next meeting of the Company’s shareholders would take place.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that following shareholder approval, which the Company obtained on May 15, 2024, the October Warrants and December Warrants have been amended to lower the exercise price of such warrants to $3.20 per share.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed that Slinger Bag Americas Inc., a Delaware subsidiary of the Company (“Slinger”) would, within ten (10) business days of the six month anniversary of the effectiveness of the registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note (the “Effectiveness Date”), pay in cash to the Lenders and the Agent the difference, if any, between (i) $6 million (the “Guaranteed Amount”) and (ii) the combined gross proceeds realized by the Lenders and the Agent from its sale of the shares of Common Stock issued pursuant to (a) conversions of the Note and (b) exercises of the October Warrants and December Warrants(the “Realized Amount”). Slinger is obligated to fund an escrow account with $2 million within ten (10) weeks of February 21, 2024. The Company and the Lenders and the Agent also agreed that if, due to a Force Majeure Event, the Lenders and the Agent had not fully converted the Note prior to the six-month anniversary of the Effectiveness Date, the Company would repurchase the Note and the October Warrants and December Warrants by paying in cash to the Lenders and the Agent the difference, if any, between the Guaranteed Amount and the Realized Amount.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that once the Note was fully repaid (either via a combination of cash payments and conversions into shares of Common Stock or just via conversions into shares of Common Stock) all liens and security interests of the Lenders and the Agent in any and all of the property of the Company and the Guarantors (as defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed to prepare and file a registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note with the SEC within five (5) business days of February 21, 2024 and use commercially reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as practical thereafter and, in any event, within thirty (30) calendar days of February 21, 2024. A registration statement was filed and became effective on March 1, 2024 in compliance with this obligation.
On April 15, 2024, the Company acknowledged and agreed to the entrance into a warrant purchase agreement (the “Morgan WPA”) by Armistice and Morgan Capital LLC (“Morgan”) pursuant to which Armistice sold the October and December 2023 Warrants to Morgan for $2,500,000 in cash. Pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to, within 10 Business Days of the six month anniversary of the Waiver, Amendment, and Modification Agreement, pay in cash to Armistice the difference, if any, between (i) $6 million and (ii) the combined gross proceeds to be realized by the Holder from its sale of the Company’s common stock issued pursuant to (a) conversions of the note (which as of the date hereof has been fully converted into shares of the Company’s common stock) and (b) exercises of the Warrants would be terminated and of no further effect and force. In addition, pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to maintain an escrow account with its counsel in the amount of no less than $2,000,000 would be terminated and of no further effect and force. Armistice further agreed that any and all liens and security interests of Armistice in any and all of the property of the Company and the Guarantors (as such terms are defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Amendment to Bylaws
On October 12, 2023, the Board of Directors of the Company approved an amendment to the Bylaws of the Company to reduce the percentage of shares of stock, issued and outstanding and entitled to vote, to be present in person or represented by proxy in order to constitute a quorum for the transaction of any business from a majority to thirty-three and one third percent (33 1/3%).
Share Issuance to Sapir
On November 14, 2023, the Company issued 11,224 shares of Common Stock to Sapir LLC. Sapir LLC is controlled by Aitan Zacharin, an investor relations and financial structuring consultant to the Company who is a party to an amended and restated consulting agreement with the Company dated April 30, 2020 (the “AZ Consulting Agreement”). Pursuant to the AZ Consulting Agreement, the Company owed Mr. Zacharin $127,500 as consulting fee compensation through November 30, 2023 (the “Consulting Fee Compensation”). In addition, the Company granted Mr. Zacharin $127,500 as discretionary compensation (“Discretionary Compensation”) pursuant to Section 2.1(d) of the AZ Consulting Agreement. In consideration of the Consulting Fee Compensation and the Discretionary Compensation, the issuance of shares of Common Stock consisted of (i) 8,017 shares of Common Stock as payment of the Consulting Fee Compensation, and (ii) 3,207 shares of Common Stock as payment of the Discretionary Compensation.
Nasdaq Compliance
On January 30, 2024, the Company received a letter from the staff of the Nasdaq Stock Market confirming that following the receipt of a an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing Panel’s (“Panel”) decision dated April 12, 2023, as amended, and (ii) in application of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year monitoring period, the Nasdaq Listing Qualifications staff (the “Staff”) finds that the Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to such deficiency and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
It is further reported that, in application of Listing Rule 5815(d)(4)(B), the Company is also subject to a mandatory panel monitor in respect of its periodic filing requirements in Listing Rule 5250(c)(1) (the “Periodic Filing Rule”) for a period of one year from October 11, 2023. If, within that one-year monitoring period, the Staff finds the Company again out of compliance with the Periodic Filing Rule, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to that deficiency and Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
On December 12, 2023, the Company received a letter (the “Notice”) from the Staff informing the Company that because the closing bid price for the Common Stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given a period of 180 calendar days from December 12, 2023, or until June 10, 2024, to regain compliance with the Minimum Bid Price Requirement.
On June 11, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that (i) the Company did not regained compliance with the Rule within the prescribed time period and is not eligible for a second 180-day remediation period. Specifically, the Company did not comply with the $5,000,000 minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market under the Equity Standard and (ii) unless the Company requests an appeal by June 18, 2024, of this determination, Nasdaq has determined that the Company’s securities will be scheduled for delisting from Nasdaq and will be suspended at the opening of business on June 21, 2024, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market (the “Delisting Determination”).
The Company appealed of the Delisting Determination on June 18, 2024 by requesting a hearing before the Panel to stay the suspension of the Company’s securities. The hearing panel date was set for July 25, 2024. Through the subsequent filing of the Form 25-NSE with the SEC. On June 27, 2024, the Company effected a 1-20 reverse stock split, which brought its share price to $8.31, which, in turn, caused the Company to regain compliance with the Minimum Bid Price Requirement and on July 11, 2024, the company’s closing bid price was in excess of $1 for a continuous 10-day trading period. On July 18, 2024, the Company received Nasdaq confirmation that the hearing has been cancelled and the Delisting Determination has been withdrawn.
There can be no assurance that the Company will be able to satisfy Nasdaq’s continued listing requirements.
The January 2024 Offering
On January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $0.40 per share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
From April 2024 through May 2024, the Company acknowledged and agreed to the entrance into certain warrant purchase agreements (the “WPAs”) by the January 2024 Investors and 10 purchasers (the “Pre-Funded Warrants Purchasers”) pursuant to which the January 2024 Investors sold all of the 3,775,470 Pre-Funded Warrants to Pre-Funded Warrants Purchasers for an aggregate amount of $18,877,350 in cash.
Share Issuance to Smartsports
On January 23, 2024, the Company issued 10,000 shares of Common Stock to Smartsports LLC. Smartsports LLC is an investor relations consultant to the Company who is a party to a consulting agreement with the Company dated January 23, 2024 (the “Smartsports Consulting Agreement”). Pursuant to the Smartsports Consulting Agreement, the Company agreed to issue and deliver to Smartsports LLC 10,000 shares of Common Stock as a consulting fee for the provision of investor relations services (the “Consulting Fee Compensation”) and use its commercially reasonable efforts to prepare and file with the Securities Exchange Commission a registration statement covering the resale of all of the shares on Form S-1 as soon as is reasonably practicable.
Agile Capital LLC Agreement
On January 10, 2024, the Company entered into an agreement with Agile Capital Funding, LLC (the “Agile Jan Agreement”) pursuant to which the Company sold $1,460,000 in future receivables to Agile Capital Funding, LLC (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to Agile a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as defined below).
Cedar Advance Agreement No.1
On January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000 in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Unique Funding Solutions Agreement
On March 6, 2024, the Company entered into an agreement (the “UFS Agreement”) with Unique Funding Solutions (“UFS”) pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 2
On April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 3
On April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Operations
The Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Launcher, which is comprised of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing AI technology and performance analytics.
From inception to date, we have been focused on the ball sport market globally. Our first product, the Slinger Bag Launcher, is a patented, highly portable, versatile and affordable ball launcher built into an easy to transport wheeled trolley bag.
Tennis ball machines have been around since the 1950’s when they were introduced by Rene Lacoste. Improvements to performance were made in the 1970’s when Prince started its tennis business on the back of its first product – Little Prince – which was a vacuum operated ball machine. In the 1990’s the first battery operated machines came to the market and since that time very little, if anything, has changed in the structure of ball machines products outside of added computerization. Typically, the machines being marketed by traditional ball machine brands are large, cumbersome and awkward to operate. They are also generally expensive – often well above U.S. $1,000 compared to the entry price of $600 for a Slinger Bag Launcher. We believe that up until the introduction of the Slinger Bag Launcher, the majority of traditional tennis ball machines were sold to tennis facilities, institutions and tennis teachers, with only a few being sold directly to tennis playing consumers.
Recent Events
On May 15, 2024, the Company held its 2024 annual general meeting of stockholders at which the following items were approved:
| | 1. | The nominations of Mike Ballardie, Yonah Kalfa, Kirk Taylor, Stephen Crummey, and Rodney Rapson for election as directors at the Annual Meeting until the 2025 annual meeting of stockholders and until their respective successors are duly elected and qualified. |
| | 2. | The appointment of Olayinka Oyebola & Co. to continue as our independent registered public accounting firm for the fiscal year ended April 30, 2024. |
| | 3. | The approval of the issuance of shares of our common stock pursuant to that certain Share Exchange Agreement dated March 18, 2024 (the “Exchange Agreement”) among the Company, Mr. Hongyu Zhou (the “YYEM Seller”), and Yuanyu Enterprise Management Co., Limited (“YYEM”), in exchange for 50% of the issued and outstanding ordinary shares of YYEM. The Exchange Agreement is a part of a transaction between the Company, YYEM Seller, and YYEM, whereby the Company agreed to purchase a total of 70% of the issued and outstanding ordinary shares of YYEM by entering into a share purchase agreement (the “Purchase Agreement”) and the Exchange Agreement as described in the Company’s Schedule 14A filed on May 2, 2024. Upon the closing of the Acquisition, YYEM Seller will be issued the number of Exchange Shares equal to 82.4% of the Company’s issued and outstanding shares of common stock immediately following the closing of the Acquisition, and Connexa stockholders as of immediately prior to the closing of the Acquisition will retain the balance of approximately 17.6% of such outstanding shares. |
| | 4. | The amendment to the Company’s certificate of incorporation to increase the authorized shares of its common stock from 300,000,000 shares to 1,000,000,000 shares. |
| | 5. | The approval of an amendment to the Company’s certificate of incorporation to authorize a reverse stock split of its common stock within a range of 1-for-10 to 1-for-100, with the Board of Directors of the Company to set the specific ratio and determine the date for the Reverse Stock Split to be effective. |
| | 6. | The approval of the separation of the Company’s “Slinger Bag” business and products and the transactions contemplated by the separation agreement related to the transaction contemplated by the Exchange Agreement (the “Share Exchange Transaction”) Once the Share Exchange Transaction is closed, the current board of directors of the Company will resign and will appoint YYEM’s slate of directors to the board, which will effect of a change of control of the Company, and the current business of the Company, including its liabilities, will be spun off and sold to a company to be owned and controlled by Yonah Kalfa, the founder of the Slinger Bag business and an officer and director of the company, and Mike Ballardie, the Company’s current chief executive officer and director. The Company’s current shareholders will not have a participation in the Slinger Bag business from the date of the closing of the Share Exchange Transaction and onward. |
| | 7. | The approval of the amendment to the exercise price of the Warrants held by Morgan Capital LLC to $3.20 per share. |
| | 8. | The approval of the issuance of shares of Common Stock to certain investors party to the Company’s securities purchase agreements entered into in January 2024 when the Company received an investment of $16,500,000 in cash in exchange for the issuance and sale to each Investor of (i) 116,510 shares of the Company’s common stock (the “Common Stock Shares”) and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 1,258,490 shares of the Company’s common stock (the “Pre-Funded Warrant Shares”) at a combined purchase price of $4 per share of our common stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and became exercisable on May 15, 2024 allowing exercisability of the Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Common Stock Shares issued was 349,530 and the aggregate number of Pre-Funded Warrant Shares to be issued is 3,775,470. |
| | 9. | The approval of the issuance of 47,116 shares of Common Stock to Yonah Kalfa. As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and a member of the Company’s Board. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owed Mr. Kalfa $1,137,000 in salary (the “Salary Compensation”) through January 31, 2024. The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.78), and the amount due to Mr. Kalfa through January 31, 2024. Due to administrative delays, the Company did not issue the shares in January 2024. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024). |
| | 10. | The approval of the issuance of 50,000 shares of Common Stock to each of Yonah Kalfa, Mike Ballardie and Kirk Taylor and 25,000 shares of common stock to each of Rodney Rapson and Steven Crummey, our directors, for their services and extraordinary contribution to the Company. |
| | 11. | The approval of the issuance of 16,750 shares of Common Stock to each of Juda Honickman, the Company’s chief marketing officer, and Mark Radom, the Company’s general counsel, for their services and extraordinary contribution to the Company. |
| | 12. | The approval of the amendment of the 2020 Slinger Bag Inc. Global Share Incentive Plan to make an additional 1,500,000 shares of the Common Stock available for the issuance of awards under the plan. |
On June 27, 2024, the Company effected a 1-20 reverse stock split. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted to reflect this reverse split.
Industry Overview
Over the next five years, we believe that there will be a significant increase in demand from sports consumers for AI (artificial intelligence) technology that will play an integral role in supporting their enjoyment of their chosen sport through personalized insights and analytics and associated self-coaching tools.
Over the course of the next twelve months, we will be focused on reaching the global tennis, padel tennis and pickleball communities as our primary target markets. The ITF cites the global tennis market as having 80 million active participants, with many million other consumers being acknowledged as avid fans of the sport. Pickleball is now widely recognized as the fastest growing sport in the United States with over 5 million regular players and Padel Tennis is also seeing significant participant growth throughout Europe and South America primarily. Currently it is estimated that there are up to as many as 10 million Padel players globally. In addition, we will also be looking to introduce to the Tennis market an upgraded Tennis Launcher and towards the latter end of the year we aim to be in a final test phase of our Baseball / Softball Launcher consumer testing, as we see this market as a significant future growth opportunity.
Manufacturing and Distribution
Production of the Slinger Bag Launcher is based in southern China. We are engaged with 10 individual part suppliers, and all of these parts come together at our contracted assembly facility in Xiamen, China, where the Launchers are assembled and quality control checked before being processed for global distribution.
Our manufacturing capacity is estimated at approximately 5,000 units monthly. This capacity will be shared across our three Slinger Bag Launcher products– tennis, pickleball, and padel. The pickleball product was introduced to the market in March 2023 and has been well received in the Pickleball community and is currently selling at a rate of around 300 units per month. In June 2023, the company introduced its Padel Tennis Launcher under a global distribution agreement with Desarrollo y Promocion de Padel S.L. In January 2024, reworking and production modifications to the Padel Launcher were required following the discovery of issues relating to the plastic padel court fibres, typically found inside the Padel Court environment, that were becoming ‘melted’ to the firing wheels of the launcher causing intermittent ball launching issues. The company worked together with our vendors and the team at Desarrollo y Promocion de Padel S.L to retro fit both a fix and developed a long-term launcher enhancement that eliminates the potential for this issue to re-occur. Unfortunately, this issue resulted in a short-term consumer confidence issue that impacted the delivery of the 2024 minimum volumes.
In developing our Slinger Bag tennis, pickleball and padel launchers, we have designed the three products that share many common parts. We expect this to aid efficiency of the production process.
We have engaged an independent and experienced vendor management company to manage all of our production activities, our quality control process and quality assurance activities, both across our individual vendor partners and at the assembly facility. These processes have been developed together with the Company with a goal of producing consistently high-quality and high performing products.
We have created a global distribution network, and all shipments of our products made to distributor markets outside of the United States and Canada are shipped free-on-board (“FOB”) from Xiamen, China, at which point they enter into the ownership of the distributors and become their responsibility. South American distributors are sometimes serviced from our US warehouse locations and European distributors continue to be able to place replacement orders through a small third-party distribution facility located in Rotterdam, Netherlands.
Additionally, we ship our Slinger-Dunlop co-branded tennis balls produced by Dunlop (the largest global supplier of tennis balls) to the United States to be sold via our e-commerce platform or directly from source to our distributor network for further distribution around the world.
Gameface is a software-as-a-service company and, as such, has no direct procurement or supply chain requirements.
Strategy
Slinger Bag Launchers for tennis, pickleball and padel
In introducing the Slinger Bag Launcher, we saw an opportunity to disrupt the traditional tennis market. Through until March 2023 Slinger Bag has been a single product company marketing its Tennis Launcher for tennis players of all ages and abilities. Currently, approximately 70% of Slinger Bag Tennis Launcher revenues are generated through our direct-to-consumer strategy in North America. We operate a third-party distributor structure in all markets outside of North America. Distributor partners have exclusive territories and / or product categories. We endeavor to partner with distributors who have a recognized background within the tennis, pickleball or padel industries for their respective market, along with them having the requisite financial capacity and service infrastructure to grow the Slinger Bag brand through a similar go-to-market strategy as is operated directly by the Slinger Bag business in North America. All distributors purchase Slinger Bag Launchers at a discounted distributor pricing structure, which is considerably lower than the US consumer price, and are responsible for placing their product orders up to 3 months in advance of their delivery requirement. As part of this distributor program, in April 2023 we appointed a global distribution partner for Padel Tennis - Desarrollo y Promocion de Padel S.L., a division of Manza Sport based in Valencia, Spain – a company that has over 20 years of experience in the global Padel market as a leading supplier of Padel courts.
The United States market will remain predominantly a direct-to-consumer market for Slinger Bag for all sport verticals.
As the largest tennis and pickleball market in the world with 17.4 million tennis players and over 5 million pickleball players, the United States is a key market both to establish the Slinger brand and to drive demonstrable growth. Direct-to-consumer e-commerce sales are further supplemented by one or more third-party internet sites focused on either the tennis or the pickleball market. The Unites States market is served by third-party logistics facilities in West Columbia, South Carolina and Reno, Nevada, which are operated by two of our logistics partners. All end consumer service support is currently managed by a small service team based in Canada. All distributor partners are managed and supported by our distributor manager located in the United States of America.
Gameface
Gameface will provide the consumer with access to analytics data through a sport specific automated AI platform that analyzes and extracts data from uploaded consumer or team videos. Gameface has successfully launched this technology previously in Cricket in Australia and in April 2024 introduced the Slinger App for tennis – currently available via the Apple App or Google Pay stores. The Slinger App for tennis is both freemium and subscription based. Users can access basic functions free of charge and then have subscription options based on either monthly or annual rates.
The Slinger App for tennis will form the foundation for further adaptation of this technology for other racquetsports, baseball, cricket and other sports verticals – all under the Slinger brand name. Gameface’s core capabilities are delivered through a compatible single camera or smart phone, which allows us to build scalable solutions for the sports market without relying on specific hardware or camera types.
We envision Gameface as a product and technology that will be at the heart of ‘powering’ the Slinger portfolio of brands. We also see Gameface technology as a driver of real-time data and analytics for Slinger’s core sport focus – across all racquetsports, baseball and cricket – coupled with partnerships with external brands and other strategic partners for its applications for all other sports, outside of these core categories.
Gameface initially focused its technology on the cricket and soccer markets, where it has built an automated platform to extract various data points from live and archived match footage. The Gameface team has been dedicated over the last 18 months to building its technology to deliver performance insights in tennis. Following the successful launch of the Slinger App for Tennis, Gameface plans to revisit the cricket vertical and enhance its technology offering based on the advances made in its tennis AI, which will broaden and deepen its reach across the cricket world. In late 2024 and going forward, Gameface expects to dedicate resources to baseball analytics and identifying strategic partners for other high-profile team sports such as basketball and soccer. We also intend to license technology to validated global partners in sports verticals that remain non-core to Slinger with the aim to become the recognized leader in sports AI globally.
Connexa Brand Marketing
Slinger’s focus remains on delivering its core vision to become a SaaS (Service-as-a-Sport) provider to its core sports verticals of racquet sports, baseball and Cricket. This vision is delivered through its Watch, Play, Learn strategy, built around the Slinger Bag Launcher and the Slinger App for each sport vertical.
With the go-to-market strategy for Slinger Bag focused on its core North American market as a direct-to-consumer business e-commerce brand, all in-house marketing activity and advertising media is centered around a consumer push to the Slinger Bag e-commerce platform at https://www.slingerbag.com/ and then working to convert brand or product interest to purchases. Based on our target demographic, our marketing focus centers around three core marketing pillars: digital advertising; influencers and brand ambassadors. Our marketing efforts also engage our core consumers through targeted social media platforms such as Facebook, Google, Instagram and You Tube.
Currently considering our demographic data for tennis, pickleball and padel our digital advertising spend is focused mainly toward Facebook and Google platforms.
In addition to our paid marketing activities, Slinger Bag relies on the expertise of our small internal team to build out a network of ‘followers’ across various social media platforms – mainly Instagram, Facebook, You Tube and LinkedIn. Slinger Bag has significant numbers of its consumers who are avid fans of our brand and who are fully engaged in generating Slinger Bag related social media content through their own means.
Since inception, Slinger Bag has built up a base of approximately 100,000 users of Slinger Bag. Through our acquisition and retained interest in Foundation Sports we have access to Foundation’s database of over 500,000 avid tennis players. We use email marketing to engage with this group several times per annum in order to generate additional sales interest. This core group is also now very important as a core target consumer market for our recent introduction of our Slinger Tennis App.
The Slinger Bag brand ambassador team has, historically, been integral to the overall brand marketing strategy through their support of our product and by creating and sharing their user content, representing themselves as affiliated with the brand and through their personal appearances at events, tournaments, etc. All ambassador arrangements have now terminated prior to the date hereof, which means that we are now only engaged with tennis ambassadors on an ad-hoc use basis.
Prominent ambassadors are now also being identified for both Pickleball - across the United States of America, and by our exclusive Padel distributor for the global Padel market and are expected to be in place and active over the coming months.
Outside of our core marketing strategy, Slinger Bag has taken advantage of numerous opportunities to partner with key brands in the tennis, pickleball and padel spaces and/or to advertise at key tennis, pickleball and padel related events.
Additionally, through our management team’s close association to the general racquetsports industry, we have been able to provide many professional players with a Slinger Bag Launcher for their personal use across all sports. These arrangements were non-contractual product seeding opportunities. Players have occasionally posted on social media about their use of the Slinger Bag Launcher, which, based on their significant social media followings, have supported the growth of the Slinger Bag brand awareness.
To support the Slinger Bag marketing program, we have engaged the following agencies:
| | ● | Ad Venture Media Group, a New York based PPC (pay-per-click) agency whose work is grounded in scientific analysis of consumer data and consumer trends. Ad Venture Media leads all of our paid digital and social media advertising activities for Slinger Bag on a performance-based fee structure. We are experiencing consistent ROAS (Return On Ad Spend) of 10X+ |
| | | |
| | ● | We have partnered with various organizations to manage an affiliate marketing program geared towards US-based teaching professionals, players, juniors and events, in the United States tennis and pickleball markets. This target market is provided with unique affiliate marketing links and encouraged to create content and to share it on their social media accounts and in other such communities that they are connected to, in order to receive an affiliate marketing fee based on revenues generated by consumers purchasing Slinger Bag products attributable to them, via their direct link. |
Each local country distributor, as well as our global padel distribution partner are also conducting their own Slinger brand marketing program. All efforts in this regard are aimed at reaching the avid tennis, pickleball and padel players directly and are focused on ensuring that the Slinger Bag brand message is consistent around the globe. Slinger Bag supports all of its brand distributors with full access to all of the company’s marketing partners, brand assets, as well as with direct contact to our internal marketing team.
Our marketing budget is primarily funded by, or determined in accordance with, the distributor partner and is linked to the distributors annual purchase objectives. Each distributor executes local grassroots programs, including demonstration days, local teaching pro partnerships, specialist tennis network communications, providing Slinger Bag product locally as necessary to the local market key influencers across tennis, pickleball and padel to further increase the intensity of the influencer effort and broaden consumer awareness. Typically, we support these activities with either discounted products or certain quantities of free products. Distributor marketing budgets are allocated to Google, Facebook, Instagram, YouTube and other relevant websites or platforms in their region, and several are supported, approved and /or overseen by AdVenture Media Group where applicable.
Strategic Brand Partnerships
Slinger Bag believes that building strong strategic partnerships across all of our sports underpins the credibility and awareness of the Slinger Bag brand. As such, we currently have several strategic partnerships that emphasize this. We believe these partnerships provide us significant levels of brand exposure and credibility driving mutually beneficial marketing campaigns aimed at reaching avid tennis players globally.
Details of such partners announced and active include:
| | ● | Dunlop: We have entered a strategic partnership with one of the most iconic tennis brands in the world, Dunlop, for the supply of co-branded Slinger-Dunlop tennis balls across the globe. |
| | ● | Peter Burwash International: An organization providing coaching and tennis services to high-level, high-quality hotels, resorts and tennis facilities across the globe. |
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| | ● | Tennis Europe: In partnership with our European distributor, Dunlop, Slinger Bag is the official tennis ball launcher of the Tennis Europe organization. Tennis Europe provides a platform for 60,000 aspiring junior tennis players to compete in age-group categorized events. |
In a similar vein, we are looking to deliver partnerships for the co-branded supply of Pickle Balls and Padel Tennis Balls.
Competition
Slinger Bag Launcher
There are currently no direct competitors with products that are similar to the Slinger Bag Launcher, based on its affordability and tennis bag functionality. There are, however, other companies that market traditional tennis ball machines, including the following brands:
| | ● ● | Nisplay Titan Ball Machines |
| | ● | Spinshot |
| | ● | Lobster Sports – Tennis, Pickleball and Padel |
| | ● | Spinfire |
| | ● | MatchMate |
| | ● | Sports Tutor - Tennis, Pickleball and Padel |
| | ● | Silent Partner |
| | ● | Hydrogen Proton |
| | ● | Playmate |
| | ● | Erne Pickleball |
| | ● | Simon X Pickleball |
Gameface
There are currently no competitors for our cricket and tennis AI analytics product that are similar to the cricket technique analysis app or the Slinger app (currently in beta testing), based on functionality and affordability.
There are, however, other companies that offer analytics using AI across different sports and at different levels, including Track160 (football), Second Spectrum (basketball), Hawk Eye (tennis/football/cricket), Swing Vision (tennis), Home Court (basketball), and Golf Boost Ai (golf).
Intellectual Property
We have applied for international design and utility patent protection for our main three products: Slinger Launcher, Slinger Oscillator and Slinger Telescopic Ball Tube. Our utility patents have been applied for in all key markets including the US, China, Israel, Canada, Japan, Hong Kong, Australia, and EU, and granted in US and China. Our design patents have been applied for and granted in US, China, EU, United Kingdom, Canada, Israel, and Japan. Trademark protection has been applied for and/or received in the following countries:
| | ● | US |
| | ● | Chile |
| | ● | Mexico |
| | ● | EU |
| | ● | Russia |
| | ● | Poland |
| | ● | Czech Republic |
| | ● | Australia |
| | ● | New Zealand |
| | ● | China |
| | ● | South Korea |
| | ● | Vietnam |
| | ● | Singapore |
| | ● | Canada |
| | ● | United Arab Emirates* |
| | ● | South Africa* |
| | ● | Columbia* |
| | ● | Israel* |
| | ● | Japan* |
| | ● | Switzerland* |
| | ● | Indonesia* |
| | ● | Malaysia* |
| | ● | Thailand* |
| | ● | Turkey* |
| | ● | Argentina |
| | ● | Brazil |
*Trademark protection is pending.
In addition we are currently in the application process for up to 12 novel innovations that are patentable as part of our planned marketing introduction of a Slinger Baseball Launcher in 2025.
We are engaged in ongoing efforts to register more trademarks across an expanding list of products, services and applications, which are in various stages of the registration process.
We own the rights to its www.connexasports.com/ www.slingerbag.com and https://gameface.ai domains and other associated and derivative domains.
Gameface
Gameface is currently working to prepare AI-related patent applications, which are expected to include the United States, EU, China, Japan, India and Australia.
Seasonal Business
We expect to experience minor fluctuations in aggregate sales volume during the year. We expect revenues in the first and fourth fiscal quarters to typically exceed those in the second and third fiscal quarters. However, the mix of product sales across our group may vary considerably from time to time as a result of changes in seasonal and geographic demand for tennis and other sports equipment and in connection with the timing of significant sporting events, such as any Grand Slam tennis tournament and, over time, other sports competitions and in relation to new product market launches.
Costs and Effects of Complying with Environmental Regulations
Set forth below is a detailed chart of all our Product Certifications for key global markets covering battery, remote control (radio wave), and power charger. In addition, within the United States, we comply with the required California 65 regulations in respect to the materials used in the construction of its trolley bag.
Government Regulation
Both the Slinger Bag Launcher and the Slinger Oscillator meet all the United States government requirements for electrical, radio wave and battery standards, as well as having all necessary and required certifications to facilitate global marketing and sales of these products.
Research and Development
Slinger Bag
Slinger Bag is working with our vendor management partner, Stride Innovation, and our China based vendors to produce ball launchers for new market segments, such as Pickleball, Padel and Baseball/Softball. These efforts are collaborative and based on a detailed product brief and in-depth market and consumer research for each product category. The development timetable of the Slinger Bag Launcher for the new market segments from concept to market launch is approximately 18 months and includes at least 2 rounds or in-market field testing.
We are currently field testing our new our Baseball / Softball launchers, which are expected to be introduced to the market in 2025. We plan to introduce similar transportable, versatile and affordable ball launchers for cricket and other ball sports over the course of the next three years.
In regard to development of our pending performance and analytics app, the development team of Gameface has completed the initial work on the Slinger App for Tennis and the Slinger App is now available to consumers via the Apple App or Google Play Stores. The Gameface team will continue to enhance the app functionality based on a structured roll-out of new features and we aim to have the Slinger App for Tennis with all planned features fully operational by end of 2024.
The Gameface team will be enhanced with new team members over the balance of 2024 and will be provided with the resources necessary to develop similar apps for Pickleball, Padel, Baseball and Cricket.
Quality Control
Quality control is a critical function within our company.
As a relatively new brand in the market, our business enterprise success will in part dependent on the quality and consistency of our products. Slinger Bag has engaged Stride-Innovation, a company with in-depth experience working with ball sport companies such as ours, has the knowledge, resources and 20 years of experience in working with Chinese vendors of sports equipment.
In partnership, together, we have created and documented quality guidelines, testing procedures and warranty processes. We have implemented an agreed quality audit process for all product parts being received and used by our product assembly vendor. All products go through a rigorous, statistically validated quality control testing approval process before being confirmed as available to be released for shipment to one of our distribution centers or to any of our distribution partners.
We offer a limited warranty with all purchases in accordance with local market statutory regulations.
Vendors
Slinger Bag works only with and through third-party suppliers. Slinger Bag has a formal supply of service agreement in place with our vendor management partner, Stride-Innovation, for a wide range of support and services. We have a written agreement in place with our main assembly vendor partner, Xiamen Ruicheng Industrial Design Co., Ltd.
Stride-Innovation quality control teams regularly visit each of our vendor facilities and monitor production, employee conditions and welfare, and undertake quality control testing. We do not utilize or condone the use of child labor of any kind in the production of our products.
Employees
As at the date of this report, we have 8 full-time employees spread across Israel, USA, Australia and the UK. Management believes its relations with employees is good. We also hire part-time employees, engage consultants and outsource services e.g. logistics, service, QA & QC to professional partner organizations in order to support our operations as needed.
Facilities
Our principal office is located at 2709 N. Rolling Road, Suite 138, Windsor Mill, Maryland 21244. We entered into a lease for use of office space at this location effective September 1, 2019. This location is owned by Zeek Logistics, which is a company owned by Yonah Kalfa, who is a director, Chief Innovation Officer, and our largest shareholder. We do not pay any rent or fee to use this location.
Ukraine War
The impact of the Ukraine war has been limited on the Company with the direct impact being seen through those distributors bordering the war zone who have seen a significant decline in demand.
Gameface – no direct impact seen on this business to-date.
Israel – Hamas War
The impact of the Israel-Hamas war has been limited on the Company with the direct impact being seen through less sales in Israel.
Gameface – no direct impact seen on this business to-date.
Going Concern
Our financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge its liabilities in the normal course of business for the foreseeable future. We have an accumulated deficit and more losses are anticipated in the ongoing development of the business. Accordingly, there is substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
The ability to continue as a going concern is dependent upon us generating profitable operations in the future and/or being able to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from related parties, and/or private placement of debt and/or common stock.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force us to curtail substantially or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on our existing stockholders.
In the Company’s fiscal quarter ended January 31, 2023, the Company divested PlaySight and 75% of its interest in Foundation Sports as the required monthly cash burn became increasingly difficult to manage as inflation rose and the cost of manufacturing the Company’s non-technological products grew. As a result, the Company sold PlaySight back to its original owners of in November 2022, and the Company sold most (75%) of Foundation Tennis back to their original owners, with an option to purchase any remaining interests. The Company believes these divestitures will bring about greater cash flow and result in a reduction in net loss from operations.
We intend to overcome the circumstances that impact its ability to remain a going concern through a combination of the commencement of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. We anticipate raising additional funds through public or private financing, strategic relationships or other arrangements in the near future to support its business operations; however, we may not have commitments from third parties for a sufficient amount of additional capital. We cannot be certain that any such financing will be available on acceptable terms, or at all, and its failure to raise capital when needed could limit its ability to continue its operations. Our ability to obtain additional funding will determine its ability to continue as a going concern. Failure to secure additional financing in a timely manner and on favorable terms would have a material adverse effect on our financial performance, results of operations and stock price and require it to curtail or cease operations, sell off its assets, seek protection from its creditors through bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of shares of our common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, if necessary, to raise additional funds, and may require that we relinquish valuable rights.
ITEM 1A. Risk Factors
You should carefully consider the risks described below and other information in this Annual Report on Form 10-K, including the financial statements and related notes that appear at the end of this report, before deciding to invest in our securities. These risks should be considered in conjunction with any other information included herein, including in conjunction with forward-looking statements made herein. If any of the following risks actually occur, they could materially adversely affect our business, financial condition and operating results. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial condition and operating results. The following discussion of risks is not all-inclusive but is designed to highlight what we believe are the material factors to consider when evaluating our business and expectations. These factors could cause our future results to differ materially from our historical results and from expectations reflected in forward-looking statements.
Risks Related to Our Business, Operations, and Industry
We depend on the strength of our brands.
We expect to derive substantially all of our net sales from sales of branded products and services we own, including Slinger and Gameface (under the Slinger App brand). The reputation and integrity of our brands are essential to the success of our business. We believe that our consumers value the status and reputation of brands we promote, and the superior quality, performance, functionality and durability that our brands represent. Building, maintaining and enhancing the status and reputation of our brands’ image is important to expanding our consumer base. Our continued success and growth depend on our ability to protect and promote our brands, which, in turn, depends on factors such as the quality, performance, functionality and durability of our products and services, our communication activities, including advertising and public relations, and our management of the consumer experience, including direct interfaces through customer service and warranty repairs. We may decide to make substantial investments in these areas in order to maintain and enhance our brand, and such investments may not be successful.
Additionally, in order to expand our reach, we engage with third-party distributors. To the extent those third-party distributors fail to comply with our operating guidelines, we may not be successful in protecting our brand image. Product defects, product recalls, counterfeit products and ineffective marketing are among the potential threats to the strength of our brands and to protect our brands’ status we may need to make substantial expenditures to mitigate the impact of such threats.
Moreover, if we fail to continue to innovate to ensure that our products are deemed to achieve superior levels of function, quality and design, or to otherwise be sufficiently distinguishable from our competitors’ products, or if we fail to manage the growth of our on-line sales in a way that protects the high-end nature of our brands, the value of our brands may be diluted, and we may not be able to maintain our premium position and pricing or sales volumes, which could adversely affect our financial performance and business. We believe that maintaining and enhancing our brands image in new markets where we have limited brand recognition is important to expanding our consumer base. If we are unable to maintain or enhance our brands in new markets, then our growth strategy could be adversely affected.
The cost of raw materials, labor or freight could lead to an increase in our cost of sales and cause our results of operations to suffer.
Increasing costs for raw materials, labor or freight could make our sourcing processes more costly and negatively affect our gross margin and profitability. Labor costs at our independent manufacturers’ sites have been increasing and it is unlikely that these increases will abate. Wage and price inflation in our source countries could cause unanticipated price increases, which may be significant. Such price increases by our independent manufacturers could be rapid in the absence of manufacturing contracts. Energy costs have fluctuated dramatically in the past and may fluctuate in the future. Rising energy costs may increase our costs of transporting our products for distribution and the costs of products that we source from independent suppliers. Further, many of our products are made of materials, such as high impact plastics, plastic-injected molded parts, and lightweight high tensile strength metals, that are either petroleum-based or require energy to construct and transport. Costs for transportation of such materials have been increasing as the price of petroleum increases. Our independent suppliers and manufacturers may attempt to pass these cost increases on to us, and our relationships with them may be harmed or lost if we refuse to pay such increases, which could lead to product shortages. If we pay such increases, we may not be able to offset them through increases in our pricing and other means, which could adversely affect our ability to maintain our targeted gross margins. If we attempt to pass the increases on to consumers, our sales may be adversely affected.
Our international operations involve inherent risks which could result in harm to our business.
All of our equipment is manufactured outside of the U.S. with a large volume of our products being also sold outside of the U.S. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which our products are manufactured or where we sell products. This includes, for example, the uncertainty surrounding the effect of Brexit, including changes to the legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union, as well as new and proposed changes affecting tax laws and trade policy in the U.S. and elsewhere as further described in other risks in this section. The U.S. presidential administration has indicated a focus on policy reforms that discourage U.S. corporations from outsourcing manufacturing and production activities to foreign jurisdictions, including through tariffs or penalties on goods manufactured outside the U.S., which may require us to change the way we conduct business and adversely affect our results of operations.
We develop products in Israel and our chief marketing officer is located in Israel and, therefore, our business, financial condition and results of operation may be adversely affected by political, economic and military instability in Israel.
A portion of our operations, including product development, is based in Israel. Our research and development is conducted through our Israeli subsidiary and our chief marketing officer and chief innovation officer are both located in Israel. Accordingly, political, economic and military conditions in Israel directly affect our business.
Political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas and Hezbollah extremist groups. In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities involving Israel, terrorist activities, political instability or violence in the region or the interruption or curtailment of trade or transport between Israel and its trading partners could adversely affect our operations and results of operations and adversely affect the market price of our shares.
Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there can be no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.
Further, our operations could be disrupted by the obligations of our employees to perform military service. Our chief marketing officer is subject to the obligation to perform reserve military duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of these employees due to military service. Such disruption could harm our business and operating results.
Popular uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries. Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and companies with an Israeli presence, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those countries.
Our manufacturing takes place in China and is susceptible to shutdowns and delays caused by the Coronavirus and other diseases and epidemics. Additionally, we rely on independent manufacturers and suppliers.
As at the date hereof, one of our manufacturing facilities is located in southern China. Following the outbreak of the Coronavirus our manufacturing facility was shut down for three months, which caused some unforeseen delays in manufacturing and delivery of our products. However, there may be further outbreaks of the Coronavirus and other diseases and epidemics, which may cause further delays and shutdowns. This, in turn, will negatively affect our revenue and increase our expenses and costs.
We do not control our independent manufacturers and suppliers or their labor and other business practices. Violations of labor, environmental or other laws by an independent manufacturer or supplier, or divergence of an independent manufacturer’s or supplier’s labor or other practices from those generally accepted as ethical or appropriate in the U.S., could disrupt the shipments of our products or draw negative publicity for us, thereby diminishing the value of our brand, reducing demand for our products and adversely affecting our net income. Additionally, since we do not manufacture our products, we are subject to risks associated with inventory and product quality-control.
Further, we have not historically entered into manufacturing contracts with our manufacturers; instead, we have hired them on an ad hoc basis. Identifying a suitable manufacturer is an involved process that requires us to become satisfied with the prospective manufacturer’s quality control, responsiveness and service capabilities, financial stability and labor practices. While we have business continuity and contingency plans for alternative sourcing, we may be unable, in the event of a significant disruption in our sourcing, to locate alternative manufacturers or suppliers of comparable quality at an acceptable price, or at all, which could result in product shortages or decreases in product quality, and adversely affect our net sales, gross margin, net income, customer relationships and our reputation.
We rely heavily on supply chain reliability and predictability and continued disruption in our supply chain could have a material adverse impact on operations.
We rely heavily on supply chain reliability and predictability in producing, transporting and delivering our products. The COVID-19 pandemic, Ukraine war, the Israel-Hamas war, inflationary trends, shifts in consumer purchasing patterns, availability of transport, labor shortages in the shipping, trucking, and warehousing industries, port strikes, infrastructure congestion, equipment shortages and other factors have all contributed to delivery delays, greater costs and uncertainty in arranging and scheduling transport of our products. If we are unable to reliably and consistently arrange shipment and storage of our products, we may be unable to ship, deliver and store our products in which case, we will have to reverse sales and issue refunds to purchasers of our products. Changes in U.S. and international trade policies, including to import tariffs and trade policies and agreements, to address supply chain issues or otherwise could also have a significant impact on our activities both in the United States and internationally. Supply chain disruptions, both domestic and international, have adversely impacted our operations. Continued disruptions in our supply chain and adverse consequences from aggressive trade policies could have a material adverse impact on our profitability and financial performance.
We face risks associated with operating in international markets.
We operate in a global marketplace and international sales growth is a key element of our growth strategy. We are subject to risks associated with our international operations, including, but not limited to:
| | ● | Foreign currency exchange rates; |
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| | ● | Economic or governmental instability in foreign markets in which we operate or in those countries from which we source our merchandise; |
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| | ● | Unexpected changes in laws, regulatory requirements, taxes or trade laws; |
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| | ● | Increases in the cost of transporting goods globally; |
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| | ● | Acts of war, terrorist attacks, outbreaks of contagious disease and other events over which we have no control; and |
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| | ● | Changes in foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous trade restrictions, tariffs, duties, taxes, embargoes, exchange or other government controls. |
Any of these risks could have an adverse impact on our results of operations, financial position or growth strategy. Furthermore, some of our international operations are conducted in parts of the world that experience corruption to some degree. Our employees and wholesalers could take actions that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have an adverse impact on our reputation, our results of operations or our financial position.
Foreign exchange movements may also negatively affect the relative purchasing power of consumers and their willingness to purchase discretionary premium goods, such as our products, which would adversely affect our net sales. We do not currently use the derivative markets to hedge foreign currency fluctuations.
The growth of our business depends on the successful execution of our growth strategy, and our efforts to expand internationally by growing our e-commerce business.
We are focused on developing an integrated Watch, Play and Learn platform under our Connexa brand. The Platform will bring together our owned offerings of Gameface and Slinger Bag under the umbrella of the Connexa brand. We believe our success will in large part depend on our ability to develop a cohesive platform that integrates elements of performance analysis from each. We may face difficulties integrating the technology and offerings from each brand in order create a cohesive business. For example, users of the Slinger Bag may view us a sporting goods company and choose not to engage with our technology offerings from the Gameface brand, and users of our Gameface AI app services may not purchase our ball launchers.
Our current growth strategy depends on our ability to continue to expand our reach geographically in a number of international regions in Asia, Europe, North America, Africa and Australia. This growth strategy is contingent upon our ability to introduce our products to new markets. The implementation of higher tariffs, quotas or other restrictive trade policies in any international regions in which we seek to operate could adversely affect our ability to commence new international operations, which could have an adverse impact on our growth strategy. Further, consumer demand behavior, as well as tastes and purchasing trends, may differ in various countries and, as a result, sales of our products may not be, or may take time to become, successful, and gross margins on those net sales may not be in line with what we currently experience. Our ability to execute our international growth strategy, especially where we are not yet established, depends on our ability to understand regional market demographics, and we may not be able to do so.
If we are unable to develop the integrated Watch, Watch, Play and Learn platform and expand our business internationally, our growth strategy and our financial results could be materially adversely affected.
If we are unable to respond effectively to changes in market trends and consumer preferences, our market share, net sales and profitability could be adversely affected.
The success of our business depends on our ability to identify the key product and market trends and bring products to market in a timely manner that satisfy the current preferences of a broad range of consumers (either by enhancing existing products or by developing new product offerings). Consumer preferences differ across and within different parts of the world, and shift over time in response to changing aesthetics and economic circumstances. We believe that our success in developing products that are innovative and that meet our consumers’ functional needs is an important factor in our image as a premium brand, and in our ability to charge premium prices. We may not be able to anticipate or respond to changes in consumer preferences, and, even if we do anticipate and respond to such changes, we may not be able to bring to market in a timely manner enhanced or new products that meet these changing preferences. If we fail to anticipate or respond to changes in consumer preferences or fail to bring products to market in a timely manner that satisfy new preferences, our market share and our net sales and profitability could be adversely affected.
We may be unable to appeal to new consumers while maintaining the loyalty of our core consumers.
Part of our growth strategy is to introduce new consumers, including young consumers, to our brands. If we are unable to attract new consumers, including young consumers, our business and results of operations may be adversely affected as our core consumers’ age increases and purchasing frequency decrease. Initiatives and strategies intended to position our brand to appeal to new and young consumers may not appeal to our core consumers and may diminish the appeal of our brand to our core consumers, resulting in reduced core consumer loyalty. If we are unable to successfully appeal to new and young consumers while maintaining our brand’s image with our core consumers, then our net sales and our brand image may be adversely affected.
Our business could suffer if we are unable to maintain our website or manage our inventory effectively.
We employ a distribution strategy that is heavily dependent upon our website and third-party distributors’ e-commerce websites. The effectiveness of our e-commerce strategy depends on our ability to manage our inventory and our distribution processes effectively so as to ensure that our products are available in sufficient quantities and thereby prevent lost sales. If we are not able to maintain our e-commerce channels, or if we are not able to effectively manage our inventory, we could experience a decline in net sales, as well as excess inventories for some products and missed opportunities for other products. In addition, the failure to deliver our products to customers in accordance with our delivery schedules could damage our relationship with these customers and lead to negative feedback being posted on e-commerce sites. Consequently, our net sales, profitability and the implementation of our growth strategy could be adversely affected.
We plan to use cash provided by operating activities to fund our expanding business and execute our growth strategy and may require additional capital, which may not be available to us.
We expect our business to rely on net cash provided by our future operating activities as our primary source of liquidity. To support our business and execute our growth strategy as planned, we will need to generate significant amounts of cash from operations in order to purchase inventory, pay personnel, invest in research and development, and pay for the increased costs associated with operating as a public company. Operating cash flows have previously been weak and in the year ended April 30, 2023, we had to significantly curtail operations and dispose of our PlaySight and Foundation Sports operations. If our business does not generate cash flow from operating activities sufficient to fund planned activities, and if sufficient funds are not otherwise available to us, we will need to seek additional capital, through debt or equity financings, to fund our growth. Conditions in the credit markets (such as availability of finance and fluctuations in interest rates) may make it difficult for us to obtain such financing on attractive terms or even at all. Additional debt financing that we may undertake, may be expensive and might impose on us covenants that restrict our operations and strategic initiatives, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our capital stock, make investments and engage in merger, consolidation and asset sale transactions. Equity financings may be on terms that are dilutive or potentially dilutive to our shareholders, and the prices at which new investors would be willing to purchase our equity securities may be lower than the price per share of our common stock. The holders of new securities may also have rights, preferences or privileges that are senior to those of existing holders of common stock. If new sources of financing are required, but are unattractive, insufficient or unavailable, then we will be required to modify our growth and operating plans based on available funding, if any, which would inhibit our growth and could harm our business.
Our extended supply chain requires long lead times and relies heavily on manufacturers in Asia.
We rely heavily on manufacturers in Asia, which requires long lead times to get goods to markets. The long lead times will require us to carry extra inventory to avoid out-of-stock scenarios. In the event of a decline in demand for our products, due to general economic conditions or other factors, we may be forced to liquidate this extra inventory at lower margins or at a loss. In addition, consumers’ tastes can change between the time a product is designed and the time it takes to get to market. If the designs are not popular with consumers, it could also result in the need to liquidate the inventories at lower margins or at a loss, which would adversely affect our results of operations.
We depend on existing members of management and key employees to implement key elements in our strategy for growth, and the failure to retain them or to attract appropriately qualified new personnel could affect our ability to implement our growth strategy successfully.
The successful implementation of our growth strategy depends in part on our ability to retain our experienced management team and key employees and on our ability to attract appropriately qualified new personnel. For instance, our chief executive officer has extensive experience running branded sporting goods. The loss of any key member of our management team or other key employees could hinder or delay our ability to implement our growth strategy effectively. Further, if we are unable to attract appropriately qualified new personnel, including a chief financial officer, we may not be successful in implementing our growth strategy. In either instance, our profitability and financial performance could be adversely affected.
We do not employ traditional advertising channels, and if we fail to adequately market our brand through product introductions and other means of promotion, our business could be adversely affected.
Our marketing strategy depends on our ability to promote our brand’s message by using online advertising and social media, and possibly the use of newspapers and magazines to promote new product introductions in a cost-effective manner. We do not employ traditional advertising channels such as billboards, television and radio. If our marketing efforts are not successful at attracting new consumers and increasing purchasing frequency by our existing consumers, there may be no cost-effective marketing channels available to us for the promotion of our brand. If we increase our spending on advertising, or initiate spending on traditional advertising, our expenses will rise, and our advertising efforts may not be successful. In addition, if we are unable to successfully and cost-effectively employ advertising channels to promote our brand to new consumers and new markets, our growth strategy may be adversely affected.
We rely significantly on information technology to operate our business. Any significant security breach of our confidential information of our customers, applications, technology, networks, or other systems critical to our operations, or failure to comply with privacy and security laws and regulations could damage our reputation, brands and business.
We are heavily dependent on information technology systems and networks, including the Internet and third-party services (“Information Technology Systems”), across our supply chain, including product design, production, forecasting, ordering, manufacturing, transportation, sales and distribution, as well as for processing financial information for external and internal reporting purposes, operations and other business activities. Information Technology Systems are critical to many of our operating activities and our business processes and they may be negatively impacted by any service interruption or shutdown. For example, our ability to effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the reliability of these Information Technology Systems. We rely on a third party systems provider to manage all our company data and transactions, record our financial transactions and manage our operations. The failure of these systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes, or failure to properly maintain, protect, repair or upgrade systems, or problems with transitioning to upgraded or replacement systems could cause delays in product fulfillment and reduced efficiency of our operations, could require additional capital to remediate the problem which may not be sufficient to cover all eventualities, and may have an adverse effect on our reputation, results of operations and financial condition.
We also use Information Technology Systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. If Information Technology Systems suffer severe damage, disruption or shutdown and our business continuity plans, or those of our vendors, do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, which could result in lost revenues and profits, as well as reputational damage. Furthermore, we depend on Information Technology Systems and personal data collection for digital marketing, digital commerce, consumer engagement and the marketing and use of our digital products and services. We also rely on our ability to engage in electronic communications throughout the world between and among our employees as well as with other third parties, including customers, suppliers, vendors and consumers. Any interruption in Information Technology Systems may impede our ability to engage in the digital space and result in lost revenues, damage to our reputation, and loss of users.
In connection with various facets of our business, we collect and use a variety of personal data related to our customers. Our failure to prevent security breaches could damage our reputation and brands and substantially harm our business and results of operations. On our website, a majority of the sales are billed to our consumers’ credit card accounts directly, orders are shipped to a consumer’s address, and consumers log on using their email address. In such transactions, maintaining complete security for the transmission of confidential information on our website, such as consumers’ credit card numbers and expiration dates, personal information and billing addresses is essential to maintaining consumer confidence. In addition, we hold certain private information about our consumers, such as their names, addresses, phone numbers and browsing and purchasing records. We rely on encryption and authentication technology licensed from third parties to effect the secure transmission of confidential information, including credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect consumer transaction data. In addition, any party who is able to illicitly obtain a user’s password could potentially access the user’s transaction data or personal information. We may not be able to prevent third parties, such as hackers or criminal organizations, from stealing information provided by our consumers to us through our website. In addition, our third-party merchants and delivery service providers may violate their confidentiality obligations and disclose information about our consumers. Any compromise of our security or material violation of a non-disclosure obligation could damage our reputation and brand and expose us to a risk of loss or litigation and possible liability, which could substantially harm our business and results of operations. In addition, anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations.
Moreover, the platform and applications that we use to operate our business are highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our code may only be discovered after the code has been deployed. Any errors, bugs or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time or difficultly maintaining and improving the performance of our platform, particularly during peak usage times, could result in damage to our reputation or brand, loss of revenues, or liability for damages, any of which could adversely affect our business and financial results. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.
Global economic, political and industry conditions constantly change and unfavorable conditions may have a material adverse effect on our business and results of operations.
We are a global company with worldwide operations. Volatile economic, political and market conditions, such as political or economic instability, civil unrest, trade sanctions, acts of terrorism in the regions or hostilities, including the recent conflict between Russia and Ukraine, in which we operate may have a negative impact on our operating results and our ability to achieve our business objectives. We may not have insight into economic and political trends that could emerge and negatively affect our business. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon our liquidity, revenues, costs and operating results.
Additionally, natural disasters and public health emergencies, such as extreme weather events and the COVID-19 pandemic, the Ukraine War and the Israel-Hamas war, could have a significant adverse effect on our business, including interruption of our business operations, supply chain disruption, endangerment of our personnel, and other delays or losses of materials and results.
The Russian-Ukrainian Conflict may adversely affect our business, financial condition and results.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. The specific impact on our financial condition, results of operations and cash flows is not determinable as of the date hereof. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could have an impact on the broader macroeconomic impact and therefore, could have a material adverse effect on our financial condition, results of operations, and cash flows. If the Russia-Ukraine conflict continues, the U.S., the European Union, the United Kingdom, and other jurisdictions could impose wider economic and trade sanctions as well as export restrictions, which could impact our business opportunities. In addition, our contractors may take actions in violation of such policies and applicable law, and we could be held ultimately responsible. If we are held responsible for a violation of U.S. or other countries’ sanctions laws, we may be subject to various penalties, any of which could have a material adverse effect on our business, financial condition or results of operations.
Our products face intense competition.
We are a sports equipment and technology company delivering products and technologies and the relative popularity of tennis, pickleball, padel tennis, baseball and cricket and other various sports activities and changing design trends affect the demand for our products. The sports equipment industry and sports-related technology industry are both are highly competitive both in the U.S. and worldwide. We compete internationally with a significant number of athletic and sports equipment companies and sports-related technology companies, including sports-related technology companies, including large companies having diversified lines of athletic and sports equipment and sports technology products. We also compete with other companies for the production capacity of independent manufacturers that produce our products. Our online digital e-commerce operations compete with brand wholesalers or specialist retailers.
Product offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, customer service, digital commerce platforms and social media presence are areas of intense competition. This, in addition to rapid changes in technology and consumer preferences in the markets for athletic and sports equipment, constitute significant risk factors in our operations. In addition, the competitive nature of retail including shifts in the ways in which consumers are shopping, and the rising trend of digital commerce, constitutes a risk factor implicating our online and wholesale operations. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may decline significantly.
The AI-based technology market is new and unproven, and it may decline or experience limited growth, which would adversely affect our ability to fully realize the potential of our platforms.
The AI-based technology market is relatively new and evaluating the size and scope of the market is subject to a number of risks and uncertainties. We believe that our future success will depend in large part on the continued growth of this market. The utilization of our app platform by users is untested, and users may not recognize the need for, or benefits of, this app platform, which may prompt them to cease use of our platform or decide to adopt alternative products and services to satisfy their cognitive computing search and analytics requirements. In order to expand our business and extend our market position, we intend to focus our marketing and sales efforts on educating users about the benefits and technological capabilities of our platforms and the applications of our platform to the specific needs of customers in different market verticals. Our ability to access and expand the market that our platform is designed to address depends upon a number of factors, including the cost, performance and perceived value of our platforms. Market opportunity estimates are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis and industry experience. The market for our platform may fail to grow significantly or be unable to meet the level of growth we expect. As a result, we may experience lower-than-expected demand for our products and services due to lack of customer acceptance, technological challenges, competing products and services, decreases in spending by current and prospective customers, weakening economic conditions and other causes. If our market does not experience significant growth, or if demand for our products does not increase in line with our projections, then our business, results of operations and financial condition will be adversely affected.
We rely on technical innovation and high-quality products to compete in the market for our products.
Research and development plays a key role in technical innovation. We rely upon specialists in the fields of electrical and mechanical engineering, industrial design, sustainability and related fields, as well as other experts to develop and test cutting-edge performance products. While we strive to produce products that help to enhance player performance, if we fail to introduce technical innovation in our products, consumer demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the problems.
Through our Gameface company, we are slowly transforming from a sports equipment-only company to offering an additional sports technology platform focused on the Watch, Play & Learn Platform. If we are unable to successfully integrate this new technology with our existing products, we may not realize the benefits of the Gameface brand acquisition, and our business may be materially adversely affected.
Prior to our acquisition of Gameface, we focused on the production and sale of the Slinger Bag. Now our focused has shifted to the Watch, Watch, Play and Learn integrated platform which includes the analysis and AI offered by Gameface under the Slinger App brand. The Watch, Watch, Play and Learn Platform requires integration of the capabilities of our existing business with those of Gameface AI platform. Failure to deliver this integration would mean that we may not be able to realize the benefits of the Gameface acquisition and our business may be materially adversely affected.
Failure to continue to obtain or maintain high-quality endorsers of our products could harm our business.
We establish relationships with professional athletes, as well as other public figures such as teaching pros and influencers, to develop, evaluate and promote our products, as well as establish product authenticity with consumers. However, as competition in our industry has increased, the costs associated with establishing and retaining such sponsorships and other relationships have increased. If we are unable to maintain our current associations with professional athletes, or other public figures, or to do so at a reasonable cost, we could lose the high visibility or on-field authenticity associated with our products, and we may be required to modify and substantially increase our marketing investments. Any substantial deterioration in these relationships, or substantial deterioration of our relationship with their talent managers or other key personnel, could adversely affect our business. As a result, our brands, net revenues, expenses and profitability could be harmed. If certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected.
Actions taken by athletes or other endorsers, associated with our products that harm the reputations of those athletes or endorsers, could also seriously harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition.
Actions taken by athletes or other endorsers, associated with our products that harm the reputations of those athletes or endorsers, could also seriously harm our brand image with consumers and, as a result, could have an adverse effect on our sales and financial condition. Poor performance by our endorsers, a failure to continue to correctly identify future athletes, public figures or sports organizations, to use and endorse our products or a failure to enter into cost-effective endorsement arrangements with prominent athletes, public figures, and sports organizations could adversely affect our brand, sales and profitability. We are also subject to laws, regulations and industry standards relating to endorsements and influencer marketing. Many of these laws, regulations and industry standards are changing and may be subject to differing interpretations, are costly to comply with or inconsistent among jurisdictions.
Our business may be affected by seasonality, which could result in fluctuations in our operating results.
We expect to experience moderate fluctuations in aggregate sales volume during the year. We expect revenues in the first and fourth fiscal quarters to exceed those in the second and third fiscal quarters. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal and geographic demand for tennis and other sports equipment and in connection with the timing of significant sporting events, such as any Grand Slam tennis tournament and, over time, other sports competitions. In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix and geographic sales trends, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period.
We may be adversely affected by the financial health of our third-party internet partners, wholesale purchasers, retailers, and distributors.
We extend credit to our distributors and to a select number of third party internet partners based on an assessment of a customer’s financial condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of our products, we offer our distributor partners the opportunity to place orders three months ahead of delivery under our direct ship ordering program. These advance orders may be canceled under certain conditions, and the risk of cancellation may increase when dealing with financially unstable distribution partners struggling with economic uncertainty. In the past, some sports customers have experienced financial difficulties up to and including bankruptcies. Such future events would have an adverse effect on our sales, our ability to collect on receivables and our financial condition. When the retail economy weakens or as consumer behavior shifts, distributors may be more cautious with orders. A slowing or changing economy in our key markets could adversely affect the financial health of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition, product sales are dependent in part on high quality digital advertising and merchandising to attract consumers, which requires continuing investments by the company, our distributors and our third party internet partners. Distributors or partners that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products.
Failure to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.
There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products, we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer, distributor and consumer relationships and diminish brand loyalty. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.
Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk and impair our ability to sell products.
The sports equipment retail markets in some countries are dominated by a few large athletic equipment retailers with many stores. These retailers have in the past increased their market share by expanding through acquisitions and construction of additional stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers were to experience a shortage of liquidity or consumer behavior shifts away from traditional retail, it would increase the risk that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues.
If the technology-based systems that give our consumers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our digital commerce business globally, could be materially adversely affected.
Many of our consumers shop with us through our digital platforms. Increasingly, consumers are using mobile-based devices and applications to shop online with us and with our competitors and to do comparison shopping. We are increasingly using social media and proprietary mobile applications to interact with our consumers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly digital commerce platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of digital commerce and other sales, harm our reputation with consumers, have a material adverse impact on the growth of our digital commerce business globally and could have a material adverse impact on our business and results of operations. Risks specific to our digital commerce business also include liability for online content. Our failure to successfully respond to these risks might adversely affect sales in our digital commerce business, as well as damage our reputation and brands. Many factors unique to e-commerce operations, some of which are beyond our control, pose risks and uncertainties. Risks include, but are not limited to, credit card fraud or data mismanagement.
Our products are subject to risks associated with overseas sourcing, manufacturing and financing.
The principal materials used in our products (e.g., injection molded plastics, polyester, electrical motors, remote controls, trolley bags) are available in countries where our manufacturing takes place. Our products are dependent upon the ability of our unaffiliated contract manufacturers to locate, train, employ and retain adequate personnel. Our contractors and suppliers buy raw materials and are subject to wage rates that are oftentimes regulated by the governments of the countries in which our products are manufactured.
There could be a significant disruption in the supply of raw materials from current sources or, in the event of a disruption, our contract manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at all. Further, our unaffiliated contract manufacturers have experienced and may continue to experience in the future, unexpected increases in work wages, whether government mandated or otherwise and increases in compliance costs due to governmental regulation concerning certain metals used in the manufacturing of our products. In addition, we cannot be certain that our unaffiliated manufacturers will be able to fill our orders in a timely manner. If we experience significant increases in demand, or reductions in the availability of materials, or need to replace an existing manufacturer, there can be no assurance additional supplies of raw materials or additional manufacturing capacity will be available when required on terms acceptable to us, or at all, or that any supplier or manufacturer would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety standards. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short- and long-term.
Because independent manufacturers make all of our products outside of our principal sales markets, our products must be transported by third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion or other factors, and costs and delays associated with consolidating or transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so increases in the price of petroleum products can adversely affect our profit margins. Changes in U.S. trade policies, including new and potential changes to import tariffs and existing trade policies and agreements, could also have a significant impact on our activities in foreign jurisdictions, and could adversely affect our results of operations.
Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce expected returns.
From time to time, we may invest in technology, business infrastructure, new businesses, product offering and manufacturing innovation and expansion of existing businesses, such as our digital commerce operations, which require substantial cash investments and management attention. We believe cost-effective investments are essential to business growth and profitability; however, significant investments are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of any significant investment to provide expected returns or profitability could have a material adverse effect on our financial results and divert management attention from more profitable business operations.
Our business is sensitive to consumer spending and general economic conditions.
Our business may be adversely affected by the COVID-19 pandemic, the Ukraine war and the Israel-Hamas war, as well as macro-economic conditions such as inflation, employment levels, wage and salary levels, trends in consumer confidence and spending, reductions in consumer net worth, interest rates, inflation, the availability of consumer credit and taxation policies influence on public spending confidence. Recent dramatic downturns in the strength of global stock markets, currencies and key economies have highlighted many if not all, of these risks.
Consumer purchases in general may decline during recessions, periods of prolonged declines in the equity markets or housing markets and periods when disposable income and perceptions of consumer wealth are lower, and these risks may be exacerbated for us due to our focus on discretionary premium sporting good items. A downturn in the global economy, or in a regional economy in which we have significant sales, could have a material, adverse effect on consumer purchases of our products, our results of operations and our financial position, and a downturn adversely affecting our consumer base or travelers could have a disproportionate impact on our business.
There continues to be a significant and growing volatility and uncertainty in the global economy due to the Coronavirus pandemic affecting all business sectors and industries. In addition, the on-going uncertainty in Europe and any resulting disruption could adversely impact our net sales in Europe and globally unless and until economic conditions in that region improve and the prospects of national debt defaults in Europe decline. Further or future downturns may adversely affect traffic at our on-line sales portals (which currently includes our own website https://www.connexasports.com/ and could materially and adversely affect our results of operations, financial position and growth strategy.
Likewise, the current impasse in U.S.-China trade relations has resulted in import duties for all Slinger products into the U.S. being increased from the previous standard of 5% to 30%. Our management has taken the view that at this time, gaining distribution and share outweighs the immediate margin consideration and has decided to take the added increase in import tariffs as a margin loss.
There is substantial doubt regarding our ability to continue as a going concern absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
The Company’s management has determined that there is substantial doubt about the Company’s ability to continue as a going concern and the report of our independent registered public accounting firm on our consolidated financial statements for the years ended April 30, 2024 and 2023 included an explanatory paragraph with respect to the foregoing. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and implement our business plan. This determination was based on the following factors: (i) the Company has a working capital deficit as of April 30, 2024, used cash in operations for the fiscal year ended April 30, 2024 of $3,001,433 and the Company’s available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations for the next 12 months; (ii) the Company will require additional financing for the fiscal year ending April 30, 2024 to continue at its expected level of operations; and (iii) if the Company fails to obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern as of the date of the end of the period covered by this report and for one year from the issuance of the consolidated financial statements.
We have limited financial resources. Our independent registered auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.
As a result of our deficiency in working capital on April 30, 2024 and other factors, our auditors have included a paragraph in their audit report regarding substantial doubt about our ability to continue as a going concern. Our plans in this regard are to increase product sales, increase production, obtain inventory financing, seek strategic alternatives and to seek additional capital through future equity private placements or debt facilities.
We have recorded net losses since inception and have significant accumulated deficits. We have relied upon loans and equity financings for operating capital. Total revenues will be insufficient to pay off existing debt and fund operations. We may be required to rely on further debt financing, further loans from related parties, and private placements of our common stock for our additional cash needs. Such funding sources may not be available, or the terms of such funding sources may not be acceptable to the Company.
We will need additional capital in the future to finance our planned growth, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.
We have and expect to continue to have substantial working capital needs. Our cash on hand, together with cash generated from product sales, services, cash equivalents and short-term investments will not meet our working capital and capital expenditure requirements for the next twelve months. In fact, we will be required to raise additional funds throughout 2023 or we will need to limit operations until such time as we can raise substantial funds to meet our working capital needs. In addition, we will need to raise additional funds to fund our operations and implement our growth strategy, or to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, marketing and development activities.
If we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenues or cash flows from operations, if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, marketing and growth programs. We require additional financing, in addition to anticipated cash generated from our operations, to fund our working capital requirements. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable basis.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors of the Company (the “Board of Directors”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| | ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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| | ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and |
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| | ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Our internal controls may be inadequate or ineffective, which could cause financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.
However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer a “smaller reporting company”.
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of maintaining public company reporting requirements could be significant and may preclude us from seeking financing or equity investment on terms acceptable to us and our shareholders. We estimate these costs to be in excess of $500,000 per year and may be higher if our business volume or business activity increases significantly. Our current estimate of costs does not include the necessary expenses associated with compliance, documentation and specific reporting requirements of Section 404 as we will not be subject to the full reporting requirements of Section 404 until we no longer qualify as a “smaller reporting company”.
If our revenues are insufficient or non-existent, and/or we cannot satisfy many of these costs through the issuance of shares or debt, we may be unable to satisfy these costs in the normal course of business. This would certainly result in our being unable to continue as a going concern.
If we fail to maintain effective internal controls over financial reporting, then the price of our common stock may be adversely affected.
Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
Any acquisitions we make could disrupt our business and seriously harm our financial condition.
We have in the past made (and may, from time to time, consider) acquisitions of complementary companies, products or technologies. A primary component of our growth strategy has been to acquire complementary businesses to grow our Company. For example, we acquired the business of Foundation Sports Systems, LLC, in our fiscal year ended April 30, 2021, and the acquisitions of PlaySight and Gameface closed in the fiscal year ended April 30, 2022. In the Company’s fiscal quarter ended January 31, 2023, the Company divested PlaySight and 75% of its interest in Foundation Sports as the required monthly cash burn became increasingly difficult to manage as inflation rose and the cost of manufacturing the Company’s non-technological products grew. As a result, the Company sold PlaySight back to its original owners of in November 2022, and the Company sold most (75%) of Foundation Tennis back to their original owners, with an option to purchase any remaining interests. We intend to continue to pursue acquisitions of complementary technologies, products and businesses as a primary component of our growth strategy to enhance the features and functionality of our applications, expand our customer base and provide access to new markets and increase benefits of scale. Acquisitions involve numerous risks, including difficulties in the assimilation of the acquired businesses, the diversion of our management’s attention from other business concerns and potential adverse effects on existing business relationships could cause our actual growth or operating results to differ from our expectations. In addition, any acquisitions could involve the incurrence of substantial additional indebtedness. We cannot assure you that we will be able to successfully integrate any acquisitions that we pursue or that such acquisitions will perform as planned or prove to be beneficial to our operations and cash flow. Any such failure could seriously harm our business, financial condition and results of operations. In addition, there might be potential inability or failure to achieve additional sales and enhance our customer base through cross-marketing of the products to new and existing customers.
Some aspects of our business processes include open-source software, which poses risks that could have a material and adverse effect on our business, financial condition and results of operations. In addition, any failure to comply with the terms of one or more of these open-source licenses could negatively affect our business.
We incorporate open-source software into processes supporting our business and anticipate using open- source software in the future. Such open-source software may include software covered by licenses like the GNU General Public License and the Apache License. The terms of various open-source licenses to which we are subject have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our systems, limits our use of the software, inhibits certain aspects of our systems and negatively affects our business operations.
Some open-source licenses contain requirements that we make source code modifications or derivative works we create publicly available or make such modifications or derivative works available on unfavorable terms or at no cost, depending on the type of open-source software used.
While we monitor our use of open-source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open-source license, such use could inadvertently occur, or could be claimed to have occurred, in part because open-source license terms are often ambiguous. We may face claims from third parties claiming ownership of, or demanding the release or license of, modifications or derivative works that we have developed using such open-source software (which could include our proprietary source code or artificial intelligence (“AI”) models), or otherwise seeking to enforce the terms of the applicable open-source license. These claims could result in litigation and if portions of our proprietary AI models or software are determined to be subject to an open-source license, or if the license terms for the open-source software that we incorporate change, we could be required to publicly release all or affected portions of our source code, purchase a costly license, cease offering the implicated products or services unless and until we can re-engineer such source code in a manner that avoids infringement, discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or change our business activities, any of which could negatively affect our business operations and potentially our intellectual property rights. In addition, the re-engineering process could require us to expend significant additional research and development resources, and we may not be able to complete the re-engineering process successfully. If we were required to publicly disclose any portion of our proprietary models, it is possible we could lose the benefit of trade secret protection for our models.
In addition to risks related to license requirements, the use of certain open-source software can lead to greater risks than the use of third-party commercial software, as open-source licensors generally do not provide support, warranties, indemnification, controls or other contractual protections regarding infringement claims or the quality of the origin of the software. There is little legal precedent in this area, and any actual or claimed requirement to disclose our proprietary source code or pay damages for breach of contract could harm our business and could help third parties, including our competitors, develop products and services that are similar to or better than ours. Use of open-source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open-source software. Any of these risks associated with the use of open-source software could be difficult to eliminate or manage, and if not addressed, could materially and adversely affect our business, financial condition and results of operations.
Systems defects, failures or disruptions, including events beyond our control, and resulting interruptions in the availability of our websites, applications, products, or services could harm our business, harm our reputation, result in significant costs to us, decrease our potential profitability and expose us to substantial liability.
We use vendors, such as our cloud computing web services provider and third-party software providers, in the operation of our platform. The satisfactory performance, reliability and availability of our technology and our underlying network and infrastructure are critical to our operations and reputation and the ability of our platform to attract new and retain existing customers. We rely on these vendors to protect their systems and facilities against damage or service interruptions from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm these systems, criminal acts, unauthorized access, sabotage, acts of vandalism, military actions, negligence, human errors, fraud, spikes in platform use and denial of service issues, hardware failures, improper operation, cyberattacks, data loss, wars and similar events. If our arrangement with a vendor is terminated or if there is a lapse of service or damage to its systems or facilities, we could experience interruptions in our ability to operate our platform. We also may experience increased costs and difficulties in replacing that vendor and replacement services may not be available on commercially reasonable terms, on a timely basis, or at all.
In addition, our platform may be accessed by many users at the same time. As we continue to expand the number of our users, and products and services available through our platform, we may not be able to scale our technology to accommodate the increased capacity requirements. The failure of data centers, internet service providers or other third- party service providers to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to grow our business and scale our operations. Any interruptions or delays in our platform availability, whether as a result of a failure to perform on the part of a vendor, any damage to one of our vendor’s systems or facilities, the termination of any of our third-party vendor agreements, software failures, our or our vendor’s error, natural disasters, terrorism, other man-made problems, security breaches, whether accidental or willful, or other factors, could harm our relationships with our customers, prevent our customers from accessing their accounts, damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, cause the loss of critical data, prevent us from supporting our platform, products or services or cause us to incur additional expense in arranging for new facilities and support or otherwise harm our business and also harm our reputation.
In addition, we source certain information from third parties. In the event that any third party from which we source information experiences a service disruption, whether as a result of maintenance, natural disasters, terrorism, or security breaches, whether accidental or willful, or other factors, the ability to access our platform may be adversely impacted. Additionally, there may be errors contained in the information provided by third parties. This may result in the inability to approve otherwise qualified applicants through our platform, which may adversely impact our business by negatively impacting our reputation and reducing our transaction volume.
To the extent we use or are dependent on any particular third-party data, technology, or software, we may also be harmed if such data, technology, or software becomes non-compliant with existing regulations or industry standards, becomes subject to third-party claims of intellectual property infringement, misappropriation, or other violation, or malfunctions or functions in a way we did not anticipate. Any loss of the right to use any of this data, technology, or software could result in delays in the provisioning of our products and services until equivalent or replacement data, technology, or software is either developed by us, or, if available, is identified, obtained, and integrated, and there is no guarantee that we would be successful in developing, identifying, obtaining, or integrating equivalent or similar data, technology, or software, which could result in the loss or limiting of our products, services, or features available in our products or services.
Our ability to sell our products and services will be dependent on the quality of our technical support and our failure to deliver high-quality technical support services could have a material adverse effect on our sales and results of operations.
If we do not effectively assist our users in deploying our products and services, succeed in helping our users quickly resolve post-deployment issues and provide effective ongoing support, or if potential customers perceive that we may not be able to achieve the foregoing, our ability to sell our products and services would be adversely affected, and our reputation with potential users could be harmed. In addition, if we expand our operations internationally, our technical support team will face additional challenges, including those associated with delivering support, training and documentation in languages other than the English language. As a result, our failure to deliver and maintain high-quality technical support services to our users could result in customers choosing to use our competitors’ products or services in the future.
Our Gameface products and services may fail to keep pace with rapidly changing technology and evolving industry standards.
The market in which our Gameface technology operates is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements and changes in user requirements. In addition, both traditional and new competitors are investing heavily in our market areas and competing for users. As next-generation video analytics technology continues to evolve, we must keep pace in order to maintain or expand our market position. If we are not able to successfully add staff resources with sufficient technical skills to develop and bring new products to market in a timely manner, achieve market acceptance of our products and services or identify new market opportunities for our products and services, our business and results of operations may be materially and adversely affected.
The business-to-business e-commerce industry is highly competitive, and we may not be able to compete effectively.
The market for business-to-business (“B2B”) e-commerce solutions is rapidly changing and intensely competitive. We expect competition to intensify as the number of entrants and new technologies increases. We may not be able to compete successfully against current or future competitors. The competitive pressures facing us may harm our business, operating results and financial condition.
If we are not able to enhance or introduce new products that achieve market acceptance and keep pace with technological developments, our business, results of operations and financial condition could be harmed.
Our ability to attract new users and increase revenue from existing customers depends in part on our ability to enhance and improve our platforms, increase adoption and usage of our products and introduce new products and features. The success of any enhancements or new products depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance and demand. Enhancements and new products that we develop may not be introduced in a timely or cost-effective manner, may contain defects, may have interoperability difficulties with our platform, or may not achieve the market acceptance necessary to generate significant revenue. If we are unable to successfully enhance our existing platform and capabilities to meet evolving customer requirements, increase adoption and usage of our platform, develop new products, or if our efforts to increase the usage of our products are more expensive than we expect, then our business, results of operations and financial condition could be harmed.
Customers may experience difficulty in integrating Gameface with third-party applications, which would inhibit sales.
Gameface may serve a customer base with a wide variety of constantly changing hardware, operating system software, packaged software applications and networking platforms. If Gameface fails to gain broad market acceptance due to its inability to support a variety of these platforms, our operating results may suffer. Our business depends, in part, on the following factors:
| | ● | Our ability to integrate Gameface with multiple platforms and existing systems and to modify our product as new versions of packaged applications are introduced; |
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| | ● | Access to application program interfaces for the third-party software products that are integrated with our products; and |
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| | ● | Our ability to anticipate and support new standards. |
Lack of cooperation from Vendors of the software we use in Gameface and other products may interfere with the use of Gameface apps and inhibit our business
Application program interfaces provide the instructions that are required to transfer information into and out of an application and trigger the specific characteristics of that application. These instructions are needed to create adapters between Gameface and third-party software products, but access to application program interfaces is controlled by the vendors of these applications. If the application vendor denies or delays our access to application program interfaces, our business may be harmed. Some application vendors may become competitors or establish alliances with our competitors, increasing the likelihood that we would not be granted access to their application program interfaces. Furthermore, we may need to modify Gameface or develop new adapters in the future as new applications or newer versions of existing applications are introduced. If we fail to continue to develop adapters or respond to new applications or newer versions of existing applications in a timely manner, our business could suffer.
Risks Related to the Company’s Legal and Regulatory Requirements
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure our brand and negatively affect our sales.
Our trademarks, copyrights, patents, designs and other intellectual property rights are important to our success and our competitive position. We devote significant resources to the registration and protection of our trademarks and patents. In spite of our efforts, counterfeiting and design copies may still occur. If we are unsuccessful in challenging the usurpation of these rights by third parties, this could adversely affect our future sales, financial condition and results of operations. Our efforts to enforce our intellectual property rights can potentially be met with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. Unplanned increases in legal fees and other costs associated with protecting our intellectual property rights could result in higher operating expenses. Additionally, legal regimes outside the U.S., particularly those in Asia, including China, may not always protect intellectual property rights to the same degree as U.S. laws, or the time required to enforce our intellectual property rights under these legal regimes may be lengthy and delay our recovery.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been developed by our employees, or outside consultants in the course of their employment or retention with us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the scope of his or her employment with a company are regarded as “service inventions.” The Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, has previously held, in certain cases, that employees may be entitled to remuneration for service inventions that they develop during their service for a company despite their explicit waiver of such right. Therefore, we may face claims by employees demanding remuneration beyond their regular salary and benefits.
We may be subject to product liability lawsuits or claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
We may be subject to product liability lawsuits and claims that, individually or in the aggregate, could harm our business, prospects, results of operations and financial condition. We may face lawsuits or claims if our products do not perform as expected, malfunction or are used without complying with their specifications. Moreover, a product liability lawsuit or claim, regardless of merit, could generate negative publicity about our products, which could have a material adverse effect on our brand, business, prospects, results of operations and financial condition. Any lawsuit or claim seeking monetary damages significantly exceeding our coverage or outside of our coverage may have a material adverse effect on our business and financial condition.
If we provide products and services related to sports betting, our business may become subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business. Any adverse change in regulations or their interpretation, or the regulatory climate applicable to these contemplated products and services, or changes in tax rules and regulations or interpretation thereof related to these contemplated products and services, could adversely impact our ability to operate our business as we seek to operate in the future, which could have a material adverse effect on our financial condition and results of operations.
Our business could potentially expand into sports betting, in which case our business partners are generally subject to laws and regulations in the jurisdictions in which we will conduct our business or in some circumstances, of those jurisdictions in which we offer our services or those are available, as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information, tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative and regulatory action, court decisions or other governmental action, which may be affected by, among other things, political pressures, attitudes and climates, as well as personal biases, may at such time have a material impact on our operations and financial results, or may prevent our business partners from expanding into such businesses entirely and thus, may have impact on our business. In addition, some jurisdictions in which we may operate could presently be unregulated or partially regulated and therefore more susceptible to the enactment or change of laws and regulations.
As a result of the foregoing, future legislative and regulatory action, and court decisions or other governmental action, may have a material impact on our business partners’ business and operations, and that may also have an impact on our operations and financial results. Governmental authorities could view us as having violated local laws, despite efforts to obtain all applicable licenses or approvals. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent monopoly providers, or private individuals, could be initiated against our business partners, us, and others involved in the sports betting industry. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us or our business partners. Such proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as impact our reputation.
Furthermore, there can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our business to prohibit, legislate or regulate various aspects of the sports betting industry (or that existing laws in those jurisdictions will not be interpreted negatively). Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations, either as a result of our determination not to offer products or services in a jurisdiction or to cease doing so, or because a local license or approval may be costly for us or our business partners to obtain and/or such licenses or approvals may contain other commercially undesirable conditions.
Fluctuations in our tax obligations and effective tax rate may have a negative effect on our operating results.
We may be subject to income taxes in multiple jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax provisions in multiple tax jurisdictions. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Further, our effective tax rate in a given financial period may be materially impacted by changes in mix and level of earnings or by changes to existing accounting rules or regulations. In addition, tax legislation enacted in the future could negatively impact our current or future tax structure and effective tax rates.
We do not have covenants not to compete in place with our key employees.
We generally do not enter into non-competition agreements as part of our employment agreements with our employees and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us.
We could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities or increased volatility in our effective tax rate.
We are subject to the tax laws in the U.S. and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which includes a number of significant changes to previous U.S. tax laws that impact us, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, and a reduction in the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, among other changes. The Tax Act also transitions U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation.
We earn a substantial portion of our income in foreign countries and are subject to the tax laws of those jurisdictions. There have been proposals to reform foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows.
Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings. We also utilize tax rulings and other agreements to obtain certainty in treatment of certain tax matters. These holidays and rulings expire in whole or in part from time to time and may be extended when certain conditions are met or terminated if certain conditions are not met. The impact of any changes in conditions would be the loss of certainty in treatment thus potentially impacting our effective income tax rate.
We may also be subject to the examination of our tax returns by the U.S. Internal Revenue Service (“IRS”) and other tax authorities. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made. For example, we and our subsidiaries are also engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place, tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings in countries with differing statutory tax rates.
To the extent we may rely on endorsements or testimonials, we will review any relevant relationships for compliance with the Endorsement Guides and we will otherwise endeavor to follow the FTC Act and other legal standards applicable to our advertising.
The FTC regulates the use of endorsements and testimonials in advertising as well as relationships between advertisers and social media influencers pursuant to principles described in the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, or the Endorsement Guides. The Endorsement Guides provide that an endorsement must reflect the honest opinion of the endorser and cannot be used to make a claim about a product that the product’s marketer couldn’t itself legally make. They also say that if there is a connection between an endorser and the marketer that consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed. Another principle in the Endorsement Guides applies to ads that feature endorsements from people who achieved exceptional, or even above average, results from using a product. If the advertiser doesn’t have proof that the endorser’s experience represents what people will generally achieve using the product as described in the ad, then an ad featuring that endorser must make clear to the audience what results they can generally expect to achieve and the advertiser must have a reasonable basis for its representations regarding those generally expected results. Although the Endorsement Guides are advisory in nature and do not operate directly with the force of law, they provide guidance about what the FTC staff generally believes the Federal Trade Commission Act, or FTC Act, requires in the context using of endorsements and testimonials in advertising and any practices inconsistent with the Endorsement Guides can result in violations of the FTC Act’s proscription against unfair and deceptive practices.
To the extent we may rely on endorsements or testimonials, we will review any relevant relationships for compliance with the Endorsement Guides and we will otherwise endeavor to follow the FTC Act and other legal standards applicable to our advertising. However, if our advertising claims or claims made by our social media influencers or by other endorsers with whom we have a material connection do not comply with the Endorsement Guides or any requirement of the FTC Act or similar state requirements, the FTC and state consumer protection authorities could subject us to investigations and enforcement actions, impose penalties, require us to pay monetary consumer redress, require us to revise our marketing materials and require us to accept burdensome injunctions, all of which could harm our business, reputation, financial condition and results of operations.
Failure of our contractors or our licensees’ contractors to comply with local laws and other standards could harm our business.
We work with contractors outside of the U.S. to manufacture our products. We require the contractors that directly manufacture our products and our licensees that make products using our intellectual property (including, indirectly, their contract manufacturers) to comply with environmental, health and safety standards for the benefit of workers. We also require these contractors to comply with applicable standards for product safety. Notwithstanding their contractual obligations, from time-to-time contractors may not comply with such standards or applicable local law or our licensees may fail to enforce such standards or applicable local law on their contractors. Significant or continuing noncompliance with such standards and laws by one or more contractors could harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition. Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers, manufacturers or licensees could adversely affect our brand image and sales and force us to locate alternative suppliers, manufacturers or licenses.
We could be subject to a change in tax laws, which may impact tax rates or otherwise adversely impact our tax position and may be subject to a tax audit.
We are subject to the tax laws in the U.S. and numerous foreign jurisdictions. Such laws may change as a result of economic and political conditions, or there may be changes to such laws interpretation and application.
We earn a substantial portion of our income in foreign countries and are subject to the tax laws of those jurisdictions. There have been proposals to reform foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows.
We are subject to a complex array of laws and regulations, which could have an adverse effect on our business, financial condition and results of operations.
As a global business, we are subject to and must comply with extensive laws and regulations in the U.S. and other jurisdictions in which we have operations and distribution channels. If we or our employees, agents, suppliers, and other partners fail to comply with any of these laws or regulations, such failure could subject us to fines, sanctions or other penalties that could negatively affect our reputation, business, financial condition and results of operations. We may be involved in various types of claims, lawsuits, regulatory proceedings and government investigations relating to our business, our products and the actions of our employees and representatives, including contractual and employment relationships, product liability, antitrust, trademark rights and a variety of other matters. It is not possible to predict with certainty the outcome of any such legal or regulatory proceedings or investigations, and we could in the future incur judgments, fines or penalties, or enter into settlements of lawsuits and claims that could have a material adverse effect on our business, financial condition and results of operations and negatively impact our reputation. The global nature of our business means legal and compliance risks, such as anti-bribery, anti-corruption, fraud, trade, environmental, competition, privacy and other regulatory matters, will continue to exist and additional legal proceedings and other contingencies will arise from time to time, which could adversely affect us. In addition, the adoption of new laws or regulations, or changes in the interpretation of existing laws or regulations, may result in significant unanticipated legal and reputational risks. Any current or future legal or regulatory proceedings could divert management’s attention from our operations and result in substantial legal fees.
For as long as we are a “smaller reporting company,” we will not be required to comply with certain reporting requirements that apply to other publicly reporting companies. We cannot predict whether the reduced disclosure requirements applicable to smaller reporting companies will make our common shares less attractive to investors.
We are currently a “smaller reporting company”. For as long as we continue to be a smaller reporting company, we may choose to take advantage of certain exemptions from reporting requirements applicable to other publicly reporting companies that are not smaller reporting companies. These include not being required to comply with the auditor attestation requirements for the assessment of our internal controls over financial reporting provided by Section 404 of the Sarbanes- Oxley Act of 2002, or the Sarbanes-Oxley Act, and not being required to provide certain disclosure regarding executive compensation required of larger publicly reporting companies. We cannot predict if investors will find our common shares less attractive if we choose to rely on these exemptions. If some investors find our common shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our shares and our share price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited than that of other publicly reporting companies and you may not have the same protections afforded to shareholders of such companies.
We are subject to the periodic reporting requirements of the Exchange Act that require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will affect the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit.
However, for as long as we remain a “smaller reporting company,” as defined in in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We may take advantage of these reporting exemptions until we are no longer an emerging growth company.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Risks Related to Ownership of Our Shares
There is currently limited liquidity of shares of our common stock.
We can give no assurance that an active trading market for shares of our common stock will develop on the Nasdaq or if its develops, will be sustained, or that the shares of common stock will trade at or above the public offering price. Failure to develop or maintain a trading market could negatively affect its value and make it difficult or impossible for you to sell your shares. Even if a market for common stock does develop, the market price of common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock. The liquidity of the shares of our common stock may also be affected adversely by a forward stock split given the reduced number of shares that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase as a result of the forward stock split.
Our stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment as a result.
You should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common shares could be subject to significant fluctuations in response to the factors described in this section and other factors, many of which are beyond our control. Among the factors that could affect our stock price are:
| | ● | Actual or anticipated variations in our quarterly and annual operating results or those of companies perceived to be similar to us; |
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| | ● | Weather conditions, particularly during holiday shopping periods; |
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| | ● | Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors, or differences between our actual results and those expected by investors and securities analysts; |
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| | ● | Fluctuations in the market valuations of companies perceived by investors to be comparable to us; |
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| | ● | The public’s response to our or our competitors’ filings with the SEC or announcements regarding new products or services, enhancements, significant contracts, acquisitions, strategic investments, litigation, restructurings or other significant matters; |
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| | ● | Speculation about our business in the press or the investment community; |
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| | ● | Future sales of our shares; |
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| | ● | Actions by our competitors; |
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| | ● | Additions or departures of members of our senior management or other key personnel; and |
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| | ● | The passage of legislation or other regulatory developments affecting us or our industry. |
In addition, the securities markets have experienced significant price and volume fluctuations that have affected and continue to affect market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect the market price of our shares.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend and a distraction to management.
The trading market for our common shares will be influenced by the research and reports that equity research analysts publish about us and our business. The price of our common shares could decline if one or more securities analysts downgrade our common shares or if those analysts issue a sell recommendation or other unfavorable commentary or cease publishing reports about us or our business. If one or more of the analysts who elect to cover us downgrade our common shares, our share price could decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our common share price and trading volume to decline.
We do not intend to pay dividends on our shares of common stock and under the terms of certain outstanding loans, we are not permitted to pay any dividends.
We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business and do not anticipate paying cash dividends. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with applicable law and any contractual provisions, and will depend on, among other factors, our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant. In addition, under the terms of certain loan agreements between the Company and its lenders, the Company, we may not make any distributions until these loan agreements are repaid in full. At this time, such loans have not been repaid in full. As a result, you should expect to receive a return on your investment in our common shares only if the market price of our common stock increases, which may never occur.
Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
As of April 30, 2024, we had 1,828,541 outstanding common shares. Of these shares, 1,230,099 shares were in the public float. The remaining 598,442 shares common stock outstanding were “restricted securities” within the meaning of Rule 144. On January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three investors (the “Investors”) for the issuance and sale to each investor of (i) 116,510 shares of common stock (the “Shares”) and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 1,258,490 shares of its common stock at a combined purchase price of 4.00 per share of the common stock for an aggregate amount of approximately $16.5 million (the “Offering”). The Pre-Funded Warrants have an exercise price of $0.0002 per share of common stock and are exercisable beginning on the date stockholder approval is received and effective allowing exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Shares to be issued is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470. Additional sales of our common shares in the public market after the date hereof, or the perception that these sales could occur, could reduce the market price of our common stock.
We will be required to file an additional registration statement once we regain compliance with the Nasdaq listing requirements.
On September 8, 2021, we filed a registration statement with the SEC to register 182,000 shares of common stock for resale by certain selling stockholders, which was declared effective on January 27, 2022. Following our public offering resulting in our common stock being listed on Nasdaq, additional conversion shares need to be registered. We also have agreed to register additional shares in connection with our recent financing. See “Item 1. Business—Recent Developments” for more information.
Certain of the Company’s large shareholders may be able to exert significant influence on the Company and their interests may conflict with the interests of its other shareholders.
Certain of the Company’s large shareholders, including our officers and directors, represented approximately 21.6% of the Company’s voting rights as of April 30, 2024. Therefore, these shareholders would be able to exert significant influence over certain matters, including matters that must be resolved by the general meeting of shareholders, such as the election of members to the board of directors or the declaration of dividends or other distributions. To the extent that the interests of these shareholders may differ from the interests of the Company’s other shareholders, the Company’s other shareholders may be disadvantaged by any actions that these shareholders may seek to pursue.
Our stockholders may not be able to enforce judgments entered by United States courts against certain of our officers and directors.
We are incorporated in the State of Delaware. However, some of our directors and executive officers may reside outside of the U.S. As a result, our stockholders may not be able to effect service of process upon those persons within the U.S. or enforce against those persons judgments obtained in U.S. courts.
The sale of a large number of shares of common stock by our principal shareholder could depress the market price of our common stock.
As of April 30, 2024, Yonah Kalfa beneficially owned approximately 12.2% of our common stock outstanding. The shares may become available for resale, subject to the requirements of the U.S. securities laws. The sale or prospect of a sale of a substantial number of these shares could have an adverse effect on the market price of our common stock.
Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well.
The market price of our common stock could drop due to sales of a large number of shares of our common stock in the market or the perception that such sales could occur. This could make it more difficult to raise funds through future offerings of common stock.
If we fall out of compliance with the Bid-Price Rule and implement a reverse stock split to regain compliance with such rule, it may not result in a proportional increase in the per share price of our common stock.
Since June 2022, we have had to effect three reverse splits in order to become compliant or regain compliance with the Bid Price Rule. If we again fall out of compliance with the Bid Price Rule, we may have no choice but to effect a fourth reverse split. The effect of a future reverse stock split, if any, on the market price for our common stock cannot be accurately predicted. In particular, we cannot assure you that the prices for shares of the common stock after a future reverse stock split will increase proportionately to prices for shares of our common stock immediately before a reverse stock split. The market price of our common stock may also be affected by other factors which may be unrelated to a future reverse stock split or the number of shares outstanding.
Furthermore, even if the market price of our common stock does rise following a reverse stock split, we cannot assure you that the market price of our common stock immediately after a reverse stock split will be maintained for any period of time. Moreover, because some investors may view a reverse stock split negatively, we cannot assure you that a reverse stock split will not adversely impact the market price of our common stock. Accordingly, our total market capitalization after a reverse stock split may be lower than the market capitalization before a reverse stock split.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares.
Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized 1,000,000,000 shares that are not issued or reserved for issuance under convertible or exchangeable instruments. In addition, we may attempt to raise additional capital by selling shares, possibly at a deep discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute common stock book value, and that dilution may be material.
A reverse stock split may not help generate additional investor interest.
There can be no assurance that a reverse stock split will result in a per share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.
There can be no assurances that our common stock will not be subject to potential delisting if we do not regain compliance with the listing requirements of the Nasdaq.
We have listed the shares of our common stock on the Nasdaq, under the symbol “YYAI.” As such we are subject to, among other things, our fulfilling all of the listing requirements of the Nasdaq. In addition, Nasdaq has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. As described above under “Item 1. Business—Recent Developments,” Nasdaq informed us that we are deficient with respect to several continued listing criteria. Failure to maintain our listing (i.e., being de-listed from the Nasdaq), would make it more difficult for shareholders to sell our common stock and more difficult to obtain accurate price quotations on our common stock. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our common stock is not traded on a national securities exchange.
We have received notices of delinquency from the Nasdaq for violations of listing rules and there is no assurance that we will regain compliance and maintain our listing on the Nasdaq.
On July 26, 2023, the Company received a letter from the Listing Qualifications Department of Nasdaq indicating that the Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2023 did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity be at least $2.5 million (the “Minimum Stockholders’ Equity Requirement”). In addition, the Company did not meet the alternatives of listed securities or net income from continuing operations as of the date of the letter. The Company timely submitted a compliance plan to the Panel and on August 23, 2023 received notice from Nasdaq that it has until January 22, 2024 to demonstrate compliance with the Minimum Stockholders’ Equity Requirement. On January 22, 2024, the Company consummated and received a cash investment of $16,500,000 (as described in more detail below), which increased the Company’s stockholder equity to $4,045,326, which has brought the Company back into compliance with the Minimum Stockholders’ Equity Requirement. On January 30, 2024, the Company received a letter from Nasdaq confirming that following the receipt of a an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing Panel’s decision dated April 12, 2023, and (ii) in application of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year monitoring period, the Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Nasdaq with a plan of compliance with respect to such deficiency and Nasdaq will not be permitted to grant additional time for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Ruel 5810(c)(3). Instead, Nasdaq will issue a delist determination letter and the Company will have the opportunity to request a new hearing. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
On December 12, 2023, the Company received a letter (the “Notice”) from the Staff informing the Company that because the closing bid price for the Common Stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given a period of 180 calendar days from December 12, 2023, or until June 10, 2024, to regain compliance with the Minimum Bid Price Requirement.
On June 11, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that (i) the Company did not regained compliance with the Rule within the prescribed time period and is not eligible for a second 180-day remediation period. Specifically, the Company did not comply with the $5,000,000 minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market under the Equity Standard and (ii) unless the Company requests an appeal by June 18, 2024, of this determination, Nasdaq has determined that the Company’s securities will be scheduled for delisting from Nasdaq and will be suspended at the opening of business on June 21, 2024, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market (the “Delisting Determination”).
The Company appealed of the Delisting Determination on June 18, 2024 by requesting a hearing before the Panel to stay the suspension of the Company’s securities and the filing of the Form 25-NSE with the SEC. On June 27, 2024, the Company effected a 1-20 reverse stock split, which brought its share price to $8.52, which, in turn, caused the Company to regain compliance with the Minimum Bid Price Requirement and on July 18, 2024, the Company received notice from the Nasdaq that the Delisting Determination had been withdrawn.
There can be no assurance that the Company will be able to satisfy the Nasdaq’s continued listing requirements. If the Company’s common stock ceases to be listed for trading on the Nasdaq Capital Market, the Company would expect that its common stock would be traded on one of the three tiered marketplaces of the OTC Markets Group.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock may be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on the Nasdaq and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
A significant portion of our total outstanding shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. Upon the expiration or early release of any or all of the lock-up agreements entered into between the Representatives and each of our directors, executive officers and holders of more than 5% of our outstanding common stock, a significant amount of shares of our common stock may be sold, or there may be a perception that they will be sold, in the public market.
Additionally, upon the (i) expiration of, (ii) early release of, and (iii) terms permitting sales of shares of the Company’s common stock at certain times, a significant amount of shares of our common stock may be sold, or there may be a perception that they will be sold, in the public market.
Upon the sale, or the perception that a sale will occur, as described above, our stock price may decline significantly, even if our business is doing well.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to smaller reporting companies.
ITEM 1C. CYBERSECURITY
Cybersecurity risk
Cybersecurity risk is the risk of harm or loss resulting from misuse or abuse of technology or the unauthorized disclosure of data.
Overview
Although Cybersecurity risk is an important and evolving focus for the Company, due to its small size and limited resources, the Company is unable to devote any internal resources to cybersecurity and relies entirely on its vendors, for email, e-commerce, order management, purchasing/direct shipping, financials, inventory, warranty and returns and remote access, for assessing, identifying and managing material risks from cybersecurity threats whose collective security efforts are designed to protect against, among other things, cybersecurity attacks that can result in unauthorized access to confidential information, the destruction of data, disruptions to or degradations of service, the sabotaging of systems or other damage.
The Company’s vendors have implemented measures and controls reasonably designed to address cyber attacks, including enhanced threat monitoring.
Our ERP software is made accessible, controlled and monitored through an extensive list of policies and procedures. These include protocols dictating acceptable use, management of confidential data, application monitoring, secure access policies and application access strategies. Operating System updates and security patches as well as application software updates released by the vendors are reviewed, tested and implemented on a regular basis. Data backup is achieved through hourly incremental backups with replications to off-site locations. User-level access is secured through industry standard encryption and supports accessibility rules including two factor authentication and VPNs.
The data center where our ERP software is hosted achieves some of the highest compliance certifications including:
| | ● | ISO/IEC 27001: Certification for information security management systems. |
| | ● | SOC 2: Compliance with the AICPA’s Trust Service Criteria, demonstrating security, availability, processing integrity, confidentiality, and privacy controls. |
| | ● | HIPAA: Compliance with the Health Insurance Portability and Accountability Act for handling protected health information (PHI). |
| | ● | GDPR: Compliance with the General Data Protection Regulation for protecting the privacy and rights of EU citizens’ data. |
| | ● | PCI DSS: Compliance with the Payment Card Industry Data Security Standard for secure handling of payment card data. |
In addition, the data center where our ERP software is hosted achieves cybersecurity compliance through a multifaceted approach that encompasses various security measures and controls including:
| | ● | Physical Security. The data centers are highly secure facilities with strict access controls, surveillance systems, and perimeter fencing. Access to data centers is limited to authorized personnel only. |
| | ● | Network Security. Advanced network security measures are implemented to protect against unauthorized access and malicious activities. This includes firewalls, DDoS (Distributed Denial of Service) protection, and encryption for data in transit. |
| | ● | Data Encryption. Data is encrypted both at rest and in transit using industry-standard encryption algorithms. This ensures that data remains secure even if it’s intercepted or compromised. |
| | ● | Access Control. Identity and Access Management (IAM) allows us to manage access to our resources securely. IAM enables granular control over permissions, roles, and access policies, reducing the risk of unauthorized access. |
| | ● | Security Monitoring and Logging. The data centers support robust monitoring and logging capabilities, allowing us to track and analyze security-related events in real-time. This includes audit logging, activity tracking, and integration with security information and event management (SIEM) systems. |
| | ● | Incident Response. The data centers have established incident response procedures to detect, investigate, and mitigate security incidents promptly. This includes a dedicated security incident response team (SIRT) that coordinates response efforts and communicates with us. |
| | ● | Third-Party Audits and Reviews. The data centers undergo regular third-party audits and reviews to validate its security controls and compliance with industry standards and regulations. These audits provide independent verification of the security posture and help build trust with customers. |
Third parties with which the Company does business, that facilitate the Company’s business activities (e.g., vendors, supply chain, exchanges, distributors and service providers) or that the Company has acquired are also sources of cybersecurity risk to the Company. Third party incidents such as system breakdowns or failures, misconduct by the employees of such parties, or cyber-attacks, including ransomware and supply-chain compromises, could have a material adverse effect on the Company, including in circumstances in which an affected third party is unable to deliver a product or service to the Company or where the incident delivers compromised software to the Company or results in lost or compromised information of the Company or its clients or customers. The Company does not have processes in place to oversee and identify risks from cybersecurity threats associated with its use of third-party service providers and vendors.
Customers are also sources of cybersecurity risk to the Company and its information assets, particularly when their activities and systems are beyond the Company’s own security and control systems.
Risks from cybersecurity threats, including any previous cybersecurity events, to-date have not materially affected and are not likely to materially affect the Company or its business strategy, results of operations or financial condition. Notwithstanding the approach that the Company takes to address cybersecurity risk via its vendors, the Company may not be successful in preventing or mitigating a future cybersecurity incident that could have a material adverse effect on the Company or its business strategy, results of operations or financial condition.
The Company has not and, for the foreseeable future, does not intend to engage third-party assessors or auditing firms with industry-recognized expertise on cybersecurity matters to review specific aspects of the Company’s or its vendors’ cybersecurity risk management framework, processes and controls.
Governance and oversight
The Company’s board of directors has not to-date exercised any oversight of risks from cybersecurity threats and none of its committees is tasked with or responsible for oversight of risks from cybersecurity threats. The Company’s board of directors will review its cybersecurity oversight going forward on a periodic basis and, if the Company makes adequate resources available, effect changes therein.
ITEM 2. PROPERTIES
As of the date of this report, we do not own any properties. Our principal office is located at 2709 N. Rolling Road, Suite 138, Windsor Mill, Maryland 21244. We entered into a lease for use of office space at this location effective September 1, 2019. This location is owned by Zeek Logistics. We do not pay any rent or fee to use this location.
ITEM 3. LEGAL PROCEEDINGS
On February 8, 2023, Oasis Capital, LLC (“Oasis”) filed a complaint against the Company in the United States District Court for the Southern District of New York seeking damages (i) in the amount of $764,647.53 in for an alleged breach of the terms of the 8% senior convertible note and the securities purchase agreement entered into between Oasis and the Company in connection with the Note (as defined below), which in December 2021 was increased to $600,000 in principal amount (the “Note”) and (ii) an unspecified amount of damage for an alleged breach of the exclusivity provisions of a term sheet that the Company and Oasis entered into on July 7, 2022 plus an actual damages in an amount to be proven at trial, interest and costs, reasonable attorney’s fees and such other legal and equitable relief as the court deems just and proper. On June 30, 2023, the United States District Court for the Southern District of New York granted the Company’s motion to dismiss this complaint but with leave to amended complaint. On July 31, Oasis filed an amended complaint against the Company and its Chief Executive Officer, Mike Ballardie, seeking damages in an amount to be proven at trial, interest and costs for breach of fiduciary duty and violations of Section 10(b) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. On February 28, 2024, the Company and Oasis settled this matter by entering into a settlement agreement pursuant to which the Company paid Oasis $225,000 in cash in exchange for a dismissal of the action by Oasis and a full release.
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us or has a material interest adverse to us.
None of our executive officers or directors have (i) been involved in any bankruptcy proceedings within the last five years, (ii) been convicted in or has pending any criminal proceedings (other than traffic violations and other minor offenses), (iii) been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or (iv) been found to have violated any Federal, state or provincial securities or commodities law and such finding has not been reversed, suspended or vacated.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
As of April 30, 2024, our shares of common stock were quoted on the OTCQB by the OTC Markets Group Inc. of the Financial Industry Regulatory Authority, Inc. (“FINRA”) under the symbol “YYAI” (since April 15, 2024). On April 7, 2022, the Company effected a name change to Connexa Sports Technologies Inc. and a ticker symbol change from “SLBG” to “CNXA”. On June 15, 2022, the Company uplisted its shares of common stock to the Nasdaq Capital Market where its shares of common stock now trade. On April 15, 2024, the Company effected a symbol change from “CNXA” to “YYAI”.
| Quarter Ended | | High Bid | | | Low Bid | |
| April 30, 2024 | | $ | 45.20 | | | $ | 3.80 | |
| January 31, 2024 | | $ | 18.80 | | | $ | 2.80 | |
| October 31, 2023 | | $ | 214.40 | | | $ | 16.40 | |
| July 31, 2023 | | $ | 130.40 | | | $ | 95.20 | |
| Quarter Ended | | High Bid | | | Low Bid | |
| April 30, 2023 | | $ | 320.80 | | | $ | 108.00 | |
| January 31, 2023 | | $ | 452.80 | | | | $ 128.8 0 | |
| October 31, 2022 | | $ | 1,552.00 | | | $ | 168.80 | |
| July 31, 2022 | | $ | 2,336.00 | | | $ | 616.00 | |
Holders of Record
On April 30, 2024, there were 218 holders of record of our common stock, as reported by the Company’s transfer agent. In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single shareholder.
Dividends
We have never declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors.
Equity Compensation Plans
On November 11, 2020, the Board of Directors of the Company approved the Slinger Bag Inc. Global Share Incentive Plan (2020), or the 2020 Plan, which was approved by stockholders holding in the aggregate 999,375 shares of the Company’s common stock, or approximately 75.4% of the Company’s common stock outstanding on such date. The 2020 Plan provides for the grant of awards which are incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), unrestricted stock, restricted stock, restricted stock units, performance stock and other equity-based and cash awards or any combination of the foregoing, to eligible key management employees, non-employee directors, and non-employee consultants of the Company or any of its subsidiaries (each a “participant”) (however, solely employees of the Company and its subsidiaries are eligible for incentive stock option awards).
The Company had reserved a total of 1,875 shares for issuance under awards to be made under the 2020 Plan, all of which may, but need not, be issued in connection with ISOs. On May 20, 2024, the Company issued 263 shares of common stock to Yonah Kalfa and warrants to purchase 263 shares of common stock with an exercise price of $0.02 and a term of 10 years to Mike Ballardie thereby depleting the 1,875 share reserve. On May 15, 2024, at the Company’s annual general meeting, the stockholders of the Company approved an amendment to make an additional 1,500,000 shares of the Common Stock available for the issuance of awards under the plan by a vote of 13,170,657 for, 49,045 against and 1,457 abstentions. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any shares subject to such award shall again be available for the grant of a new award. The 2020 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date one which it was adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors in its discretion may terminate the 2020 Plan at any time with respect to any shares for which awards have not theretofore been granted; provided, however, that the 2020 Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted.
Future new hires, non-employee directors and additional non-employee consultants are eligible to participate in the 2020 Plan as well. The number of awards to be granted to officers, non-employee directors, employees and non-employee consultants cannot be determined at this time as the grant of awards is dependent upon various factors such as hiring requirements and job performance.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Since May 1, 2024, the Company has issued an aggregate of 725,342 shares of its common stock consisting of:
On May 24, 2024, the Company issued 47,116 shares of common stock to Yonah Kalfa in satisfaction of deferred compensation obligations.
On May 24, 2024, the Company issued 150,000 shares of common stock to its directors as compensation for the service and for their extraordinary contributions to the Company and warrants to purchase 50,000 shares of common stock with an exercise price of $0.02 and a term of 10 years to Mike Ballardie as compensation for his service and for his extraordinary contribution to the Company.
On May 24, 2024, the Company issued 33,500 shares of common stock consisting of 16,750 shares of common stock to each of Juda Honickman and Mark Radom for their extraordinary contributions to the Company.
On June 27, 2024, the Company issued 511,214 shares of common stock upon the exercise of warrants.
On July 8, 2024, the Company issued 110,665 shares of common stock to satisfy DTC’s request for round-up shares as a result of the Company’s recent 1-20 reverse split.
On July 23, 2024, the Company issued 10 shares of common stock to a former shareholder of PlaySight in satisfaction of the Company’s obligation to issue shares of its common stock in exchange for its shares of PlaySight. This issuance was delayed until July 23, 2024 due to administrative issues.
Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Lazex Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger Bag Americas”), which was 100% owned by Slinger Bag Ltd. (“SBL”), an Israeli company. In connection with the Stock Purchase Agreement, Slinger Bag Americas acquired 2,500 shares of common stock of Lazex for $332,239. On September 16, 2019, SBL transferred its ownership of Slinger Bag Americas to Lazex in exchange for the 2,500 shares of Lazex acquired on August 23, 2019. As a result of these transactions, Lazex owned 100% of Slinger Bag Americas and the sole shareholder of SBL owned 2,500 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name to Slinger Bag Inc.
On October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., (“Slinger Bag Canada”) a Canadian company incorporated on November 3, 2017. There were no assets, liabilities or historical operational activity of Slinger Bag Canada.
On February 10, 2020, Slinger Bag Americas became the 100% owner of SBL, along with SBL’s wholly owned subsidiary Slinger Bag International (UK) Limited (“Slinger Bag UK”), which was formed on April 3, 2019. On February 10, 2021, Zehava Tepler, the owner of SBL, contributed Slinger Bag UK to Slinger Bag Americas for no consideration.
Effective February 25, 2020, the Company increased the number of authorized shares of common stock from 75,000,000 to 300,000,000 via a four-to-one forward split of its outstanding shares of common. All share and per share information contained in this report have been retroactively adjusted to reflect the impact of the stock split. Effective June 27, 2024, the Company increased the number of authorized shares of common stock from 300,000,000 to 1,000,000,000.
On June 21, 2021, Slinger Bag Americas entered into a membership interest purchase agreement with Charles Ruddy to acquire a 100% ownership stake in Foundation Sports Systems, LLC (“Foundation Sports”).
On February 2, 2022, the Company entered into a share purchase agreement with Flixsense Pty, Ltd. (“Gameface”). As a result of the share purchase agreement, Gameface became a wholly owned subsidiary of the Company.
On February 22, 2022, the Company entered into a merger agreement with PlaySight Interactive Ltd. (“PlaySight”) and Rohit Krishnan (the “Shareholders’ Representative”). As a result of the merger agreement, PlaySight would become a wholly owned subsidiary of the Company.
During April 2022, the Company determined that the technology utilized in the Foundation Sports acquired entity would take substantially more financial resources and more time to bring to market and achieve profitability than originally anticipated. As a result, the goodwill and intangible assets related to Foundation Sports were fully impaired as of April 30, 2022, resulting in an impairment loss of $3,486,599. In addition, during April 2022 the Company decided to sell a portion of Foundation Sports. The Company continued to classify Foundation Sports in continuing operations, until December 5, 2022 when it sold 75% of Foundation Sports back to the original owners at which time it deconsolidated this subsidiary and recorded a loss on the sale. The Company also determined to dispose of the PlaySight entity during the year ended April 30, 2023. The Company completed the sale in November 2022 and recorded a loss on the sale at that time.
In April 2022, the Company changed its domicile from Nevada to Delaware. On April 7, 2022, the Company effected a name change to Connexa Sports Technologies Inc. We also changed our ticker symbol, “CNXA”. Connexa is now the holding company under which Slinger Bag and Gameface reside.
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred to as the “Company.”
On June 14, 2022, the Company effected a 1-for-10 reverse stock split, where the Company’s common stock began to trade on a reverse split adjusted basis. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted to reflect this reverse split. The Company also consummated a public offering of shares of its common stock and the listing of its common stock on the Nasdaq Capital Market.
On November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the board of directors of the Company. Gabriel and Rohit were members of the audit and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee. Neither Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies or practices.
On November 27, 2022, the Company entered into a share purchase agreement (the “Agreement”) with PlaySight, Chen Shachar and Evgeni Khazanov (together, the “Buyer”) pursuant to which the Buyer purchased 100% of the issued and outstanding shares of PlaySight from the Company in exchange for (1) releasing the Company from all of PlaySight’s obligations towards its vendors, employees, tax authorities and any other (past, current and future) creditors of PlaySight; (2) waiver by the Buyer of 100% of the personal consideration owed to them under their employment agreements in the total amount of U.S. $600,000 (which would have been increased in December 2022 to U.S. $800,000); and (3) cash consideration of U.S. $2 million to be paid to the Company as follows:
| | (i) | a promissory note in the amount of U.S. $2 million issued and delivered to the Company (the “Promissory Note”). |
| | | |
| | (ii) | The maturity due date of the Promissory Note is December 31, 2023 subject to a one year extension in the discretion of the Buyer until December 31, 2024. The Buyer timely elected to extend the maturity date of the Promissory Note to December 31, 2024. |
| | | |
| | (iii) | The Promissory Note can be partially paid over the time, but in the event it is not paid in full by December 31, 2024, then the remaining amount due (i.e. U.S. $2 million less any amount paid), will be converted into ordinary shares of PlaySight (the “Deposited Shares”), which will be deposited with the escrow company of Altshuler Shaham Trust Ltd. (the “Escrow Agent”) for the benefit of the Company or, at the election of the Company, issued in the form of a stock certificate or recorded in some other market-standard format to be held by the Escrow Agent. |
| | | |
| | (iv) | The number of the Deposited Shares shall be determined according to the post-money valuation of the last investment round of the Company, and in the absence of such investment round, the total number of the Deposited Shares shall be $2 million divided by the Company’s valuation to be determined at that time by a third-party appraiser, to be nominated by both the Company and the Buyer (the “Appraiser”). The Company and the Buyer have agreed that the identity of the Appraiser shall be Murray Devine Valuation Advisers, to the extent their cost of the appraisal shall not be higher than the cost of other appraisers from the big 4 accounting firms (i.e. E&Y, KPMG, PWC and Deloitte). The Company and the Buyer have agreed to split the cost of the Appraiser. |
The Company has also released PlaySight from all of its obligations (except for those created by the Agreement) in respect of the Company, including any inter-company debts on the books, and the Buyer has released the Company from all of its obligations (except for those created by the Agreement) in respect of PlaySight and the Buyer.
The reason for the entry into the Agreement and the transactions contemplated thereby was to eliminate the need for the Company to provide further financing for PlaySight’s operations.
On December 5, 2022, the Company assigned 75% of its membership interest in Foundation Sports to Charles Ruddy, its founder and granted him the right for a period of three years to purchase the remaining 25% of its Foundation Sports membership interests for $500,000 in cash. As of December 5, 2022, the results of Foundation Sports will no longer be consolidated in the Company’s financial statements, and the investment was accounted for as an equity method investment. On December 5, 2022, the Company analyzed this investment and established a reserve for the investment at the full amount of $500,000. The Company intends to enter into a database access and marketing agreement with Foundation Sports pursuant to which Foundation Sports will (i) provide the Company with sporting or racquet facility information and contact data of its customers (subject to applicable law) and (ii) publish any promotional content, call to action, survey or similar promotional communications provided by the Company to Foundation Sport’s customers for its Customers to promote said material to their extended network of consumers in exchange for 7% of any gross revenue to be generated from such activities.
On March 7, 2023, Slinger Bag entered into an exclusive distribution agreement for Padel Tennis with a company located in Valencia, Spain called with Desarrollo y Promocion de Padel S.L. This agreement is contracted to deliver approximately $15 million in revenue by the end of 2028.
On November 16, 2023, the Company entered into an agreement with Agile Capital Funding (the “ACF Agreement”) pursuant to which the Company sold $693,500 in future receivables to ACF (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The Company agreed to pay ACF $28,895.83 each week until the ACF Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and member of the Company’s board of directors. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owes Mr. Kalfa $1,137 in salary (the “Salary Compensation”) through January 31, 2024 to Mr. Kalfa.
The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, on January 20, 2024 the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024.
Due to administrative delays, the Company did not issue the shares in January. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024).
No shareholder approval was required for the issuance of the 220,265 shares because it was less than 20% of the number of the Company’s outstanding shares of Common Stock as of March 14, 2024 and was issued at a price per share ($4.54) above the Minimum Price as defined under Nasdaq Listing Rule 5635(d).
The Company sought and obtained shareholder approval, pursuant to Nasdaq Listing Rule 5635(c), to issue the balance of 47,115 shares (267,380 minus 220,265) to Mr. Kalfa.
The Shares were issued on May 24, 2024 without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.
On January 20, 2024, the Company agreed to issue to Mike Ballardie, the Company’s chairman of the board and chief executive officer, warrants to purchase 317,514 shares of common stock (the “MB Warrants”) at an exercise price of $0.02 per share and with a term of 10-years as compensation for his extraordinary contribution to the company, in exchange for Mr. Ballardie’s waiver of his right to receive any bonus payments as described in clause 2.2 of his service agreement with Slinger Bag International (UK) Limited dated 1 November 2020 (the “Service Agreement”) to which he would otherwise be entitled to receive through January 31, 2024.
Acquisition and Recent Transactions
On March 18, 2024, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) and a share exchange agreement (the “Share Exchange Agreement,” and together with the Share Purchase Agreement, the “Agreements”) to acquire a total of 70% of the issued and outstanding ordinary shares of Yuanyu Enterprise Management Co., Limited (“YYEM”), a Hong Kong company, from the sole shareholder of YYEM, Mr. Hongyu Zhou (the “Seller”), for a combined $56 million. The consummation of the transactions contemplated in the Agreements will result in a change in control of the Company as the shareholders of YYEM will become the owners 82.4% of the issued and outstanding shares of common stock of the Company (the “Common Stock”). As part of this transaction, as further described below under the heading of “The Separation Agreement”, the Company has agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity to be owned by Yonah Kalfa and Mike Ballardie.
The Acquisition Structure
Pursuant to the Share Purchase Agreement, the Company agreed to purchase, and the Seller agreed to sell, 2,000 ordinary shares of YYEM, representing 20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”), payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024.
Pursuant to the Share Exchange Agreement, the Company has agreed to purchase, and the Seller has agreed to sell, 5,000 ordinary shares of YYEM, representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the Seller (the “Share Exchange Transaction,” and together with the Share Purchase Transaction, the “Transactions”). The shares are expected to represent 82.4% of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction (the “Share Exchange Consideration”).
The Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless they have been held for at least six months and subject to other conditions.
Separation Agreement
In connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business, assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy Business”) to a newly established entity (“NewCo”), and that after the Closing Date, NewCo will have the sole right to and obligations of the Legacy Business and will be liable to the Company for any losses arising from third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo will be owned by Yonah Kalfa and Mike Ballardie.
On a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.1 million (which represents the assets of the Company as of January 31, 2024, minus, on a pro forma basis, the $16.5 million used for the purchase of 20% ownership of YYEM in April 2024), and the liabilities of the Legacy Business were $12.0 million (which represents the liabilities of the Company as of April 30, 2024).
Financial Accommodations
As an inducement to the Company to complete the Transactions, the Agreements provide that aggregate payments of (a) $4,500,000 shall be made to the Company in cash by YYEM and (b) $500,000 shall be made to NewCo (as defined under the header “The Separation Agreement”) in cash by YYEM, as follows: (i) $800,000 payable within two (2) business days of the date of the Agreements; (ii) $1,200,000 payable within three (3) business days of the Company changing its ticker symbol from “CNXA” to “YYAI,” or such other symbol as the parties may agree; (iii) $2,000,000 payable at the Closing and (iv) $500,000 to be paid within 30 days from the Closing Date and paid to NewCo. Out of the $4,500,000, the Company paid $2,142,857 to certain companies for arranging the Transactions.
Management following the Acquisition
At or after the Closing, the board of directors of Connexa (the “Board”) shall comprise those individuals designated by YYEM Seller, and all current members of the Board shall resign with such resignation being effective on the later of the Closing or the appointment or election of the new directors.
Closing Conditions
The Share Exchange, as amended, provides that:
| | ● | on or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
| | ● | on or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio to be determined by the parties; |
| | ● | as a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common Stock will be delisted from Nasdaq; and |
| | ● | the Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was obtained on May 15, 2024, and a new listing application was submitted to Nasdaq in May 2024, which is currently under review by Nasdaq. |
We cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing Deliverables
At the Closing, the Company shall deliver to YYEM Seller the following:
| | ● | copies of all resolutions of the Board authorizing the execution, delivery, and performance of the Exchange Agreement and the other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
| | ● | a duly executed bought and sold note, as applicable; and |
| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior to the Closing pursuant to the Exchange Agreement. |
At the Closing, YYEM Seller shall deliver to the Company the following:
| | ● | payment of the Closing Cash Payment (as defined in the Exchange Agreement); |
| | ● | a good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
| | ● | if the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
| | ● | a counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
| | ● | a duly executed bought and sold note as may be required under the law of Hong Kong; and |
| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Reverse Stock Split
The Company’s Board and stockholders have approved the Proposed Reverse Stock Split of its Common Stock within a range of 1-for-10 to 1-for-100, with the Board having set the specific ratio at 1-20 and determined the date for the Proposed Reverse Stock Split to be effective to be June 27, 2024.
Meged Agreements
On June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables Purchased Amount is paid in full.
On September 19, 2023, the Company entered into an agreement with Meged (the “Second Meged Agreement”) pursuant to which the Company sold $423,000 in future receivables to Meged (the “Meged Second Receivable Amount”) in exchange for paying the then outstanding balance of $70,153 of the Meged Receivables Purchased Amount in full with the balance being retained by the Company in cash for general purposes. The Company agreed to pay Meged $15,107 each week until the Meged Second Receivable Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to Meged under the Second Meged Agreement, the Company granted to Meged a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
UFS Agreement
On August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement”) pursuant to which the Company sold $797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000 in cash less fees of $50,000. The Company agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Special Meeting of Stockholders
On September 13, 2023 the Company held a special meeting of stockholders in which the following items were approved: (i) the issuance of (i) 1,274 shares of the our common stock, par value $0.001 per share, that were issued on October 3, 2023, and, (ii) 14,753 shares of our common stock issuable upon exercise of Pre-Funded Warrants at an exercise price of $0.00002 per share, (iii) 16,026 shares of common stock issuable upon the exercise of 5-Year Warrants at an exercise price of $312 per share, (iv) 32,052 shares of common stock issuable upon the exercise of 7.5 Year Warrants at an exercise price of $344 per share and (v) 22,625 shares of our common stock issuable upon the exercise of 5.5 Year Warrants at an at an exercise price per share equal to $1,768per share to Armistice Capital Master Fund Ltd and (ii) a reverse stock split of our common stock within a range of one (1)-for-ten (10) to one (1)-for-forty (40) (“Reverse Stock Split”), with the Board of Directors of the Company to set the specific ratio and determine the date for the reverse split to be effective and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time within 12 months of the special meeting date.
On September 25, 2023, as a result of the shareholder approval obtained at the special meeting of stockholders on September 13, 2023 and the Reverse Stock Split, the aggregate number of Pre-Funded Warrants, 5-Year Warrants, 5.5-Year Warrants and 7-Year Warrants increased from 85,455 to 471,348 due to certain adjustments that were required to be made by the terms of the relevant warrants in the event of receipt of shareholder approval and the occurrence of the Reverse Stock Split.
Armistice Transactions from September 2023 to April 2024
From September 18, 2023 through April 30, 2024, the Company issued Armistice 9478,709 shares of Common Stock related to the exercise of the pre-funded warrants.
On October 11, 2023, the Company, the Lenders and the Agent (as defined in the LSA) entered into a loan and security modification agreement to allow for an additional loan of $1,000,000 pursuant to the loan and security modification agreement. In addition, on October 11, 2023, the Company agreed to issue warrants to purchase up to 8,460 shares of Common Stock at an exercise price of $138 per share (the “October Warrants”).
On December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice with regard to certain of the Company’s existing warrants to purchase up to a total of 248,611 shares of Common Stock, consisting of: (i) 70,508 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $35.46 per share with a term of five year (the “September 2022 Five Year Warrants”); (ii) 155,479 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $70.92 per share with a term of seven and one half years (the “September 2022 Seven and a Half Year Warrants”); and (iii) 22,625 shares of Common Stock issuable upon the exercise of warrants issued on January 6, 2023 (the “January 2023 Warrants” and, together with the September 2022 Five Year Warrants and the September 2022 Seven and a Half Year Warrants, the “2022 and 2023 Warrants”).
Pursuant to the Inducement Letter, Armistice agreed to exercise for cash the 2022 and 2023 Warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $5.88 per share in consideration of the Company’s agreement to issue common stock purchase warrants to purchase up to an aggregate of 497,221 shares of Common Stock (the “December Warrants”). The Company received aggregate gross proceeds of $1,461,827.68 from the exercise of the 2022 and 2023 Warrants by the Holder, before deducting offering expenses payable by it. The transaction closed on December 7, 2023.
The resale of the shares of the Common Stock underlying the 2022 and 2023 Warrants and 224,472 shares of Common Stock owned by Sapir LLC, a consultant engaged by the Company were registered pursuant to an existing registration statement on Form S-1 (File No. 333-275407), declared effective by the Securities and Exchange Commission (the “SEC”) on December 4, 2023.
As of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds of $3 million from the Lenders.
On February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant Amendment and Second Loan and Security Modification Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to waive certain events of default with regard to certain covenants and obligations the Company had pursuant to (a) that certain registration rights agreement between the Company and the Lenders and the Agent entered into in September 2022, (b) the LSA (as modified), and (c) the Inducement Letter.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed to modify the Loan and Security Agreement such that the Note is now convertible into up to 499,584 shares of Common Stock based on the agreed to conversion price of $6.40. The Company believed that the $6.40 conversion price meets the definition of “Minimum Price” in Nasdaq Listing Rule 5635(d).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to use their reasonable best efforts to voluntarily convert all amounts owed under the Note on or prior to the last trading day before the trading day on which the next meeting of the Company’s shareholders would take place.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that following shareholder approval, which the Company obtained on May 15, 2024, the October Warrants and December Warrants have been amended to lower the exercise price of such warrants to $3.20 per share.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed that Slinger Bag Americas Inc., a Delaware subsidiary of the Company (“Slinger”) would, within ten (10) business days of the six month anniversary of the effectiveness of the registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note (the “Effectiveness Date”), pay in cash to the Lenders and the Agent the difference, if any, between (i) $6 million (the “Guaranteed Amount”) and (ii) the combined gross proceeds realized by the Lenders and the Agent from its sale of the shares of Common Stock issued pursuant to (a) conversions of the Note and (b) exercises of the October Warrants and December Warrants(the “Realized Amount”). Slinger is obligated to fund an escrow account with $2 million within ten (10) weeks of February 21, 2024. The Company and the Lenders and the Agent also agreed that if, due to a Force Majeure Event, the Lenders and the Agent had not fully converted the Note prior to the six-month anniversary of the Effectiveness Date, the Company would repurchase the Note and the October Warrants and December Warrants by paying in cash to the Lenders and the Agent the difference, if any, between the Guaranteed Amount and the Realized Amount.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that once the Note was fully repaid (either via a combination of cash payments and conversions into shares of Common Stock or just via conversions into shares of Common Stock) all liens and security interests of the Lenders and the Agent in any and all of the property of the Company and the Guarantors (as defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed to prepare and file a registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note with the SEC within five (5) business days of February 21, 2024 and use commercially reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as practical thereafter and, in any event, within thirty (30) calendar days of February 21, 2024. A registration statement was filed and became effective on March 1, 2024 in compliance with this obligation.
On April 15, 2024, the Company acknowledged and agreed to the entrance into a warrant purchase agreement (the “Morgan WPA”) by Armistice and Morgan Capital LLC (“Morgan”) pursuant to which Armistice sold the October and December 2023 Warrants to Morgan for $2,500,000 in cash. Pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to, within 10 Business Days of the six month anniversary of the Waiver, Amendment, and Modification Agreement, pay in cash to Armistice the difference, if any, between (i) $6 million and (ii) the combined gross proceeds to be realized by the Holder from its sale of the Company’s common stock issued pursuant to (a) conversions of the note (which as of the date hereof has been fully converted into shares of the Company’s common stock) and (b) exercises of the Warrants would be terminated and of no further effect and force. In addition, pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to maintain an escrow account with its counsel in the amount of no less than $2,000,000 would be terminated and of no further effect and force. Armistice further agreed that any and all liens and security interests of Armistice in any and all of the property of the Company and the Guarantors (as such terms are defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Amendment to Bylaws
On October 12, 2023, the Board of Directors of the Company approved an amendment to the Bylaws of the Company to reduce the percentage of shares of stock, issued and outstanding and entitled to vote, to be present in person or represented by proxy in order to constitute a quorum for the transaction of any business from a majority to thirty-three and one third percent (33 1/3%).
Share Issuance to Sapir
On November 14, 2023, the Company issued 11,224 shares of Common Stock to Sapir LLC. Sapir LLC is controlled by Aitan Zacharin, an investor relations and financial structuring consultant to the Company who is a party to an amended and restated consulting agreement with the Company dated April 30, 2020 (the “AZ Consulting Agreement”). Pursuant to the AZ Consulting Agreement, the Company owed Mr. Zacharin $127,500 as consulting fee compensation through November 30, 2023 (the “Consulting Fee Compensation”). In addition, the Company granted Mr. Zacharin $127,500 as discretionary compensation (“Discretionary Compensation”) pursuant to Section 2.1(d) of the AZ Consulting Agreement. In consideration of the Consulting Fee Compensation and the Discretionary Compensation, the issuance of shares of Common Stock consisted of (i) 8,017 shares of Common Stock as payment of the Consulting Fee Compensation, and (ii) 3,207 shares of Common Stock as payment of the Discretionary Compensation.
Nasdaq Compliance
On January 30, 2024, the Company received a letter from the staff of the Nasdaq Stock Market confirming that following the receipt of a an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing Panel’s (“Panel”) decision dated April 12, 2023, as amended, and (ii) in application of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year monitoring period, the Nasdaq Listing Qualifications staff (the “Staff”) finds that the Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to such deficiency and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
It is further reported that, in application of Listing Rule 5815(d)(4)(B), the Company is also subject to a mandatory panel monitor in respect of its periodic filing requirements in Listing Rule 5250(c)(1) (the “Periodic Filing Rule”) for a period of one year from October 11, 2023. If, within that one-year monitoring period, the Staff finds the Company again out of compliance with the Periodic Filing Rule, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to that deficiency and Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
On December 12, 2023, the Company received a letter (the “Notice”) from the Staff informing the Company that because the closing bid price for the Common Stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given a period of 180 calendar days from December 12, 2023, or until June 10, 2024, to regain compliance with the Minimum Bid Price Requirement.
On 11 June , 2024 the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that (i) the Company did not regained compliance with the Rule within the prescribed time period and is not eligible for a second 180-day remediation period. Specifically, the Company did not comply with the $5,000,000 minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market under the Equity Standard and (ii) unless the Company requests an appeal by June 18, 2024, of this determination, Nasdaq has determined that the Company’s securities will be scheduled for delisting from Nasdaq and will be suspended at the opening of business on June 21, 2024, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market (the “Delisting Determination”).
The Company appealed of the Delisting Determination on June 18, 2024 by requesting a hearing before the Panel to stay the suspension of the Company’s securities. The hearing panel date was set for July 25, 2024. Through the subsequent filing of the Form 25-NSE with the SEC. On June 27, 2024, the Company effected a 1-20 reverse stock split, which brought its share price to $8.31, which, in turn, caused the Company to regain compliance with the Minimum Bid Price Requirement and on July 11, 2024, the company’s closing bid price was in excess of $1 for a continuous 10-day trading period. On July 18, 2024, the Company received Nasdaq confirmation that the hearing has been cancelled and the Delisting Determination has been withdrawn.
There can be no assurance that the Company will be able to satisfy Nasdaq’s continued listing requirements.
On May 1, 2024, the Company received a letter from the Nasdaq indicating that, due to the Company’s failure, in violation of Listing Rules 5620(a) and 5810(c)(2)G), to hold an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year end of April 30, 2023, it no longer complies with the Nasdaq’s Listing Rules for continued listing. Under Nasdaq Rules, the Company has 45 calendar days from May 1, 2024 to submit a plan to regain compliance and if the Nasdaq accepts such plan, Nasdaq can grant an exception of up to 180 calendar days from the fiscal year end, or until October 28, 2024, to regain compliance. On May 17, 2024, Nasdaq notified the Company that based on the Company’s current report on Form 8-K filed on May 17, 2024, the Company’s proxy distributed on May 2, 2024, and the annual meeting of the stockholders held on May 15, 2024, it has regained compliance with the Nasdaq Listing Rules for continued listing.
The January 2024 Offering
On January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $0.40 per share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
From April 2024 through May 2024, the Company acknowledged and agreed to the entrance into certain warrant purchase agreements (the “WPAs”) by the January 2024 Investors and 10 purchasers (the “Pre-Funded Warrants Purchasers”) pursuant to which the January 2024 Investors sold all of the 3,775,470 Pre-Funded Warrants to Pre-Funded Warrants Purchasers for an aggregate amount of $18,877,350 in cash.
Share Issuance to Smartsports
On January 23, 2024, the Company issued 10,000 shares of Common Stock to Smartsports LLC. Smartsports LLC is an investor relations consultant to the Company who is a party to a consulting agreement with the Company dated January 23, 2024 (the “Smartsports Consulting Agreement”). Pursuant to the Smartsports Consulting Agreement, the Company agreed to issue and deliver to Smartsports LLC 10,000 shares of Common Stock as a consulting fee for the provision of investor relations services (the “Consulting Fee Compensation”) and use its commercially reasonable efforts to prepare and file with the Securities Exchange Commission a registration statement covering the resale of all of the shares on Form S-1 as soon as is reasonably practicable.
Agile Capital LLC Agreement
On January 10, 2024, the Company entered into an agreement with Agile Capital Funding, LLC (the “Agile Jan Agreement”) pursuant to which the Company sold $1,460,000 in future receivables to Agile Capital Funding, LLC (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to Agile a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as defined below).
Cedar Advance Agreement No.1
On January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000 in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Unique Funding Solutions Agreement
On March 6, 2024, the Company entered into an agreement (the “UFS Agreement”) with Unique Funding Solutions (“UFS”) pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 2
On April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 3
On April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Operations
The Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Launcher, which is comprised of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing AI technology and performance analytics.
From inception to date, we have been focused on the ball sport market globally. Our first product, the Slinger Bag Launcher, is a patented, highly portable, versatile and affordable ball launcher built into an easy to transport wheeled trolley bag.
Tennis ball machines have been around since the 1950’s when they were introduced by Rene Lacoste. Improvements to performance were made in the 1970’s when Prince started its tennis business on the back of its first product – Little Prince – which was a vacuum operated ball machine. In the 1990’s the first battery operated machines came to the market and since that time very little, if anything, has changed in the structure of ball machines products outside of added computerization. Typically, the machines being marketed by traditional ball machine brands are large, cumbersome and awkward to operate. They are also generally expensive – often well above U.S. $1,000 compared to the entry price of $700 for a Slinger Bag Launcher. We believe that up until the introduction of the Slinger Bag Launcher, the majority of traditional tennis ball machines were sold to tennis facilities, institutions and tennis teachers, with only a few being sold directly to tennis playing consumers.
Recent Events
On May 15, 2024, the Company held its 2024 annual general meeting of stockholders at which the following items were approved:
| | 1. | The nominations of Mike Ballardie, Yonah Kalfa, Kirk Taylor, Stephen Crummey, and Rodney Rapson for election as directors at the Annual Meeting until the 2025 annual meeting of stockholders and until their respective successors are duly elected and qualified. |
| | 2. | The appointment of Olayinka Oyebola & Co. to continue as our independent registered public accounting firm for the fiscal year ended April 30, 2024. |
| | 3. | The approval of the issuance of shares of our common stock pursuant to that certain Share Exchange Agreement dated March 18, 2024 (the “Exchange Agreement”) among the Company, Mr. Hongyu Zhou (the “YYEM Seller”), and Yuanyu Enterprise Management Co., Limited (“YYEM”), in exchange for 50% of the issued and outstanding ordinary shares of YYEM. The Exchange Agreement is a part of a transaction between the Company, YYEM Seller, and YYEM, whereby the Company agreed to purchase a total of 70% of the issued and outstanding ordinary shares of YYEM by entering into a share purchase agreement (the “Purchase Agreement”) and the Exchange Agreement as described in the Company’s Schedule 14A filed on May 2, 2024. Upon the closing of the Acquisition, YYEM Seller will be issued the number of Exchange Shares equal to 82.4% of the Company’s issued and outstanding shares of common stock immediately following the closing of the Acquisition, and Connexa stockholders as of immediately prior to the closing of the Acquisition will retain the balance of approximately 17.6% of such outstanding shares. |
| | 4. | The amendment to the Company’s certificate of incorporation to increase the authorized shares of its common stock from 300,000,000 shares to 1,000,000,000 shares. |
| | 5. | The approval of an amendment to the Company’s certificate of incorporation to authorize a reverse stock split of its common stock within a range of 1-for-10 to 1-for-100, with the Board of Directors of the Company to set the specific ratio and determine the date for the Reverse Stock Split to be effective. |
| | 6. | The approval of the separation of the Company’s “Slinger Bag” business and products and the transactions contemplated by the separation agreement related to the transaction contemplated by the Exchange Agreement (the “Share Exchange Transaction”) Once the Share Exchange Transaction is closed, the current board of directors of the Company will resign and will appoint YYEM’s slate of directors to the board, which will effect of a change of control of the Company, and the current business of the Company, including its liabilities, will be spun off and sold to a company to be owned and controlled by Yonah Kalfa, the founder of the Slinger Bag business and an officer and director of the company, and Mike Ballardie, the Company’s current chief executive officer and director. The Company’s current shareholders will not have a participation in the Slinger Bag business from the date of the closing of the Share Exchange Transaction and onward. |
| | 7. | The approval of the amendment to the exercise price of the Warrants held by Morgan Capital LLC to $3.20 per share. |
| | 8. | The approval of the issuance of shares of Common Stock to certain investors party to the Company’s securities purchase agreements entered into in January 2024 when the Company received an investment of $16,500,000 in cash in exchange for the issuance and sale to each Investor of (i) 116,510 shares of the Company’s common stock (the “Common Stock Shares”) and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 1,258,490 shares of the Company’s common stock (the “Pre-Funded Warrant Shares”) at a combined purchase price of $4 per share of our common stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and became exercisable on May 15, 2024 allowing exercisability of the Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Common Stock Shares issued was 349,530 and the aggregate number of Pre-Funded Warrant Shares to be issued is 3,775,470. |
| | 9. | The approval of the issuance of 47,116 shares of Common Stock to Yonah Kalfa. As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and a member of the Company’s Board. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owed Mr. Kalfa $1,137,000 in salary (the “Salary Compensation”) through January 31, 2024. The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024. Due to administrative delays, the Company did not issue the shares in January 2024. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024). |
| | 10. | The approval of the issuance of 50,000 shares of Common Stock to each of Yonah Kalfa, Mike Ballardie and Kirk Taylor and 25,000 shares of common stock to each of Rodney Rapson and Steven Crummey, our directors, for their services and extraordinary contribution to the Company. |
| | 11. | The approval of the issuance of 16,750 shares of Common Stock to each of Juda Honickman, the Company’s chief marketing officer, and Mark Radom, the Company’s general counsel, for their services and extraordinary contribution to the Company. |
| | 12. | The approval of the amendment of the 2020 Slinger Bag Inc. Global Share Incentive Plan to make an additional 1,500,000 shares of the Common Stock available for the issuance of awards under the plan. |
On June 27, 2024, the Company effected a 1-20 reverse stock split. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted to reflect this reverse split.
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred to as the “Company.”
The Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Bag Launcher, which is comprised of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing AI technology and performance analytics for sports.
Critical Accounting Policies and Estimates
The critical accounting policies relate exclusively to our continuing operations.
Basis of Presentation
The consolidated financial statements of the Company are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). As a result of the transactions described above, the accompanying consolidated financial statements include the combined results of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface for the years ended April 30, 2024 and 2023. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Valuation of Inventory
Inventory is valued at the lower of the cost (determined principally on a first-in, first-out basis) or net realizable value. The Company’s valuation of inventory includes inventory reserves for inventory that will be sold below cost and the impact of inventory shrink. Inventory reserves are based on historical information and assumptions about future demand and inventory shrink trends. It is possible that changes to inventory reserve estimates could be required in future periods due to changes in market conditions.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The Company recognizes revenue for its performance obligation associated with its contracts with customers at a point in time once products are shipped. Amounts collected from customers in advance of shipping products ordered are reflected as deferred revenue on the accompanying consolidated balance sheets. The Company’s standard terms are non-cancelable and do not provide for the right-of-return, other than for defective merchandise covered under the Company’s standard warranty. The Company has not historically experienced any significant returns or warranty issues.
Business Combinations
Upon acquisition of a company, we determine if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, are recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the consolidated statement of operations.
Fair Value of Financial Instruments
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 — Unobservable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their categorization within the fair value hierarchy.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount of these financial instruments approximates fair value due to their short-term maturity. The Company’s derivative liabilities were calculated using Level 2 assumptions.
The Company’s contingent consideration in connection with the acquisition of Gameface and PlaySight were calculated using Level 3 inputs.
The Company estimates the fair value of its intangible assets using Level 3 assumptions, primarily based on the income approach utilizing the discounted cash flow method.
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are more likely than not to be realized.
Long-Lived Assets and Goodwill
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. If those net undiscounted cash flows do not exceed the carrying amount, impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value or discounted expected cash flows of those assets and is recorded in the period in which the determination is made.
The Company accounts for goodwill in accordance with ASC 350, Intangibles - Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill not be amortized, but reviewed for impairment if impairment indicators arise and, at a minimum, annually. The Company records goodwill as the excess purchase price over assets acquired and includes any work force acquired as goodwill. Goodwill is evaluated for impairment on an annual basis.
With the adoption of the ASU 2017-04, which eliminates the second step of the goodwill impairment test, the Company tests impairment of goodwill in one step. In this step, the Company compares the fair value of each reporting unit with goodwill to its carrying value. The Company determines the fair value of its reporting units with goodwill using a combination of a discounted cash flow and a market value approach. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the Company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the Company will not record an impairment charge.
Valuation of Warrants
The Company grants warrants to key employees and executives as compensation on a discretionary basis. The Company also grants warrants in connection with certain note payable agreements and other key arrangements. The Company is required to estimate the fair value of share-based awards on the measurement date and recognize as expense that value of the portion of the award that is ultimately expected to vest over the requisite service period.
Recent Accounting Pronouncements
Recently Adopted
The following are the results of our operations for the year ended April 30, 2024 as compared to April 30, 2023:
| | | For the Years Ended April 30, | | | | | | | |
| | | 2024 | | | 2023 | | | Change ($) | | | Change (%) | |
| | | | | | | | | | | | | |
| Net sales | | $ | 8,398,049 | | | $ | 9,922,799 | | | $ | (1,524,750 | | | | -15 | % |
| Cost of sales | | | 5,004,375 | | | | 7,144,335 | | | | (2,139,960 | ) | | | -30 | % |
| Gross profit | | | 3,393,674 | | | | 2,778,464 | | | | 615,210 | | | | 22 | % |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Selling and marketing expenses | | | 1,565,006 | | | | 1,928,198 | | | | (363,192 | ) | | | -19 | % |
| General and administrative expenses | | | 8,271,823 | | | | 22,743,877 | | | | (14,472,054 | ) | | | -64 | % |
| Research and development costs | | | - | | | | 65,164 | | | | (65,164 | ) | | | -100 | % |
| Total operating expenses | | | 9,836,829 | | | | 24,737,239 | | | | (14,900,410 | ) | | | -60 | % |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (6,443,155 | ) | | | (21,958,775 | ) | | | 15,515,620 | | | | -71 | % |
| | | | | | | | | | | | | | | | | |
| Other expenses (income): | | | | | | | | | | | | | | | | |
| Amortization of debt discount | | | (1,067,806 | ) | | | (4,095,030 | ) | | | 3,027,224 | | | | -74 | % |
| Loss on conversion of accounts payable to common stock | | | (289,980 | ) | | | - | | | | (289,908 | ) | | | - | % |
| | | | | | | | - | | | | | | | | | |
| Gain on change in fair value of derivative liability | | | 7,635,612 | | | | 10,950,017 | | | | (3,314,405 | ) | | | -30 | % |
| | | | | | | | - | | | | | | | | | |
| Derivative Expense | | | (14,119,784 | ) | | | (8,995,962 | ) | | | (5,123,822 | ) | | | 57 | % |
| Interest expense - related party | | | - | | | | (293,090 | ) | | | (293,090 | ) | | | -100 | % |
| Interest expense | | | (1,351,305 | ) | | | (884,985 | ) | | | (466,320 | ) | | | 53 | % |
| Total other (income) expense | | | (9,193,263 | ) | | | (3,319,050 | ) | | | (5,874,213 | ) | | | 177 | % |
| Net loss from Continuing Operations | | $ | (15,636,418 | ) | | $ | (25,227,825 | ) | | $ | 9,641,407 | | | | -38 | % |
Net sales
Our net sales during the year ended April 30, 2024 were $8,398,049, compared to net sales of $9,922,799, in the same period to April 30, 2023, a reduction of 15%. Net sales consisted partially of shipped orders related to new orders placed and fulfilled to consumers via our online marketplace and to our international distributors. The significant decrease in our online consumer marketing of Slinger Bag, coupled with on-going delays in inventory production in Asia, resulting in a significant lack of availability in Q4, all combined to contribute to the significant decrease in sales as of April 30, 2024.
Cost of sales
Our cost of sales during the year ended April 30, 2024 were $5,004,257, compared to $7,144,335 for the period to April 30, 2023, a reduction of 30%. Cost of Sales represents the costs of units shipped during the period. This reduction in Cost of Sales is a result of the reduction in net sales coupled with efficiencies in both our incoming and outgoing product supply chains. This resulted in a gross profit of $3,393,674, or 41%. compared to a gross profit of $2,778,464, or 28% for the period to April 30, 2023. The 41% in gross profit margin can be attributed to a combination of a reduction in transportation costs from Asia as well as inland USA, compared to the same period in 2023, coupled with a small increase in average selling price of the Slinger Bag units.
Selling and marketing expenses
During the year ended April 30, 2024, we incurred selling and marketing expenses of $1,565,006 compared with $1,928,198 during the year ended April 30, 2023, a reduction of 19%. This decrease is largely driven by a decrease in social media advertising, sponsorships, and other investments in our market driven primarily by reduced sales and consumer demand stemming from our production delays and significant out of stock position.
General and administrative expenses
General and administrative expenses consist primarily of compensation, including share-based compensation, and other employee-related costs, as well as legal fees and fees for professional services. During the year ended April 30, 2024, we incurred general and administrative expenses of $8,721,823 compared with $22,743,877 during the year ended April 30, 2023, a reduction of 64%. The decrease in general and administrative expenses is largely due to a reduction in our share based compensation and reductions in all professional fees and amortization costs.
Research and development costs
During the year ended April 30, 2024, we incurred research and development costs of $0 compared with $65,164 during the year ended April 30, 2023. This decrease is mainly driven by our need to pause all development activity in the period due to limited cash flow being available for investment.
Other expenses
During the year ended April 30, 2024, we recorded a gain on change in fair value of derivatives of $7,635,612, compared to $10,950,017 during the year ended April 30, 2023. Excluding the gain from the change in the fair value of the derivative liabilities during the years ended April 30, 2024 and 2023, we had other expenses totaling $16,828,875 and $14,269,067, respectively. The increase in other expenses for the year ended April 30, 2024 as compared to April 30, 2023 was primarily due an increase in derivative expenses coupled with increases in amortization of debt discounts, losses incurred on conversion of accounts payable to common stock, and an increase in interest expense.
Discontinued Operations
Discontinued operations incorporates the impact of the divestments of both PlaySight and Gameface during the period to April 30, 2024. Total loss from discontinued operations was $0 during the year ended April 30, 2024 compared to $45,875,860 in the year ended April 30, 2023.
The loss from discontinued operations was $0 during the period to April 30,2024 compared to $4,461,968 in the period to April 30, 2023.
Liquidity and Capital Resources
Our financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We had an accumulated deficit of $167,387,028 as of April 30, 2024, and more losses are anticipated in the development of the business. Accordingly, there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Liquidity and Capital Resources
Our financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. We had an accumulated deficit of $167,387,028 as of April 30, 2024, and more losses are anticipated in the development of the business. Accordingly, there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
The ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or being able to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from related parties, and/or private placement of debt and/or common stock.
The following is a summary of our cash flows from operating, investing and financing activities for the years ended April 30, 2024 and 2023:
| | | For the Years Ended April 30, | |
| | | 2024 | | | 2023 | |
| Cash flows used in operating activities | | $ | (3,001,433 | ) | | $ | (6,365,389 | ) |
| Cash flows used in investing activities | | $ | (16,500,000 | ) | | $ | - | |
| Cash flows provided by financing activities | | $ | 19,478,993 | | | $ | 5,821,187 | |
We had cash and cash equivalents of $229,705 as of April 30, 2024, as compared to $202,095 as of April 30, 2023.
Net cash used in operating activities was $3,001,433 during the year ended April 30, 2024, compared with $6,365,389 during the year ended April 30, 2023. Our cash used in operating activities during the year ended April 30, 2024 was primarily the result of our net loss for the years which was partially offset by our non-cash expenses as well as net decreases in inventories, prepaid inventories, prepaid expenses, other current assets and accounts payable and accrued expenses, offset by net increases in accounts receivable, other current liabilities and accrued interest.
Net cash used in investing activities was $16,500,000 for the year ended April, 30 2024, compared with net cash used in investing activities of $0 for the for year ended April 30, 2023. Investing activities for the year ended April, 30 2024 related to the acquisition of a 20% stake in Yuanyu Enterprise Management.
Net cash provided by financing activities was $19,478,993 for the year ended April 30, 2024, compared with $5,821,178 for the year ended April 30, 2023. Cash provided by financing activities for the year ended April 30, 2024 consisted of proceeds of $17,961,828 from issuance of common stock, $3,728,000 from notes payable, offset by $785,509 in repayments of notes payable and $1,425,326 in repayments of notes payable to related parties.
Cash provided by financing activities for the year ended April 30, 2023 consisted of proceeds of $8,744,882 from issuance of common stock, $2,000,000 from notes payable and related party notes payable, offset by $546,158 in payment of notes to related parties and $4,377,537 in notes payable.
Merchant Cash Advances
Meged Agreement
On June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables Purchased Amount is paid in full.
UFS Agreement
On August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement”) pursuant to which the Company sold $797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000 in cash less fees of $50,000. The Company has agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in the following collateral: all accounts receivable and all proceeds as such term is defined by Article 9 of the UCC. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Agile Agreement No.1
On November 16, 2023, the Company entered into an agreement with Agile Capital Funding, LLC (the “ACF Agreement”) pursuant to which the Company sold $693,500 in future receivables to Agile Capital Funding, LLC (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“ACF”) $28,895.83 each week until the ACF Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Agile Agreement No. 2
On January 10, 2024, the Company entered into an agreement with ACF (the “Agile Jan Agreement”) pursuant to which the Company sold $1,460,000 in future receivables to ACF (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The Company agreed to pay ACF (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as defined above).
Cedar Agreement No. 1
On January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000 in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
UFS Agreement
On March 6, 2024, the Company entered into an agreement with Unique Funding Solutions (the “UFS Agreement”) pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Agreement No. 2
On April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Agreement No. 3
On April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Description of Indebtedness
Loan and Security Agreement
On January 6, 2023, the Company entered into a loan and security agreement (the “Loan and Security Agreement”) with one or more institutional investors (the “Lenders”) and Armistice Capital Master Fund Ltd. as agent for the Lenders (the “Agent”) for the issuance and sale of (i) a note in an aggregate principal amount of up to $2,000,000 (the “Note”) with the initial advance under the Loan and Security Agreement being $1,400,000 and (ii) warrants (the “Warrants”) to purchase a number of shares of common stock of the Company equal to 200% of the face amount of the Note divided by the closing price of the common stock of the Company on the date of the issuance of the Notes (collectively, the “Initial Issuance”). The closing price of the Company’s common stock on January 6, 2023, as reported by Nasdaq, was $176.80 per share, so the Warrants in respect of the initial advance under the Note are exercisable for up to 90,498 shares of the Company’s common stock. The Warrants have an exercise price per share equal to the closing price of the common stock of the Company on the date of the issuance of the Note, or $4.42 per share and a term of five- and one-half (5½) years following the initial exercise date. The initial exercise date of the Warrants was September 13, 2023, the date stockholder approval was received and effective allowing exercisability of the Warrants under Nasdaq rules. Pursuant to the terms of the Loan and Security Agreement, an additional advance of $600,000 was made to the Company under the Note in February 2023. The Company’s obligations under the terms of the Loan and Security Agreement were fully and unconditionally guaranteed by all of the Company’s subsidiaries (the “Guarantors”).
On October 11, 2023, Connexa Sports Technologies Inc. (the “Company”) entered into a loan and security modification agreement (the “Loan and Security Modification Agreement”) with a one or more institutional investors (the “Lenders”) and a certain institutional investor, as agent for the Lenders (the “Agent”) amending the terms of the Loan and Security Agreement dated January 6, 2023 (the “LSA”) by and among the Company, the Lenders and the Agent to make an additional loan of $1,000,000 and modify the terms of the LSA to reflect the New Loan.
In connection with the Loan and Security Modification Agreement, the Company agreed to issue to the investor warrants (the “Common Warrants”) to purchase up to 8,460 shares of Common Stock at an exercise price of $19 per share. The Common Warrants are exercisable six months after their issuance and will expire five and one-half years from their date of issuance. The Common Warrants and the shares of our Common Stock issuable upon the exercise of the Common Warrants are not being registered under the Securities Act of 1933, as amended (the “Securities Act”), were not offered pursuant to the Registration Statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The warrants to purchase 8,460 shares of Common Stock are referred to herein as the “October Warrants”.
As previously disclosed, on December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with a certain holder (the “Holder”) whereby the Holder agreed to exercise for cash warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $2.94 per share in consideration of the Company’s agreement to issue new common stock purchase warrants (the “December Warrants” and, together with the October Warrants, the “Lender’s Warrants”) to purchase up to an aggregate of 497,221 shares of Common Stock at an exercise price of $5.88 per share (subject to adjustment).
As of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds of $3 million from the Lenders.
On February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant Amendment and Second Loan and Security Modification Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to waive certain events of default with regard to certain covenants and obligations the Company had pursuant to (a) that certain registration rights agreement between the Company and the Lenders and the Agent entered into in September 2022, (b) the Loan and Security Agreement (as modified), and (c) the Inducement Letter.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed to modify the Loan and Security Agreement such that the Note became convertible into up to 499,584 shares of Common Stock based on the agreed to conversion price of $6.40. The Company believes that the $6.40 conversion price meets the definition of “Minimum Price” in Nasdaq Listing Rule 5635(d). On March 26, 2024, the Holder had fully converted the Note into shares of Common Stock and the Note was fully paid.
Notes Payable - Related Party
On January 14, 2022, the Company entered into two loan agreements with Yonah Kalfa and Naftali Kalfa, each for $1,000,000 (together, the “Loan Agreements”), pursuant to which we received a total amount of $2,000,000. The loans bear interest at a rate of 8% per annum, and we agreed to repay the loans in full by July 3, 2022, or such other date as may be accepted by the lenders. On June 27, 2022, the Company entered into amendments for the two related party loan agreements with the lenders in which the repayment date was extended to July 31, 2024.
There were $1,169,291and $1,953,842 in outstanding borrowings from the Company’s related parties for the years ended April 30, 2024 and 2023, respectively. Accrued interest due to related parties as of April 30, 2024 and 2023 amounted to $917,957 and $917,957, respectively.
On January 6, 2023, we sold certain of our inventory including all components, parts, additions and accessions thereto to Yonah Kalfa and Naftali Kalfa who immediately consigned it back to us in exchange for a payment of $103 per ball launcher we sell until we have paid them an aggregate total of $2,092,700, which represents payment in full of the principal amounts of and accrued interest in respect of the Loan Agreements (as defined above) and certain other expenses they incurred in connection with the Company.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Effect of Inflation and Changes in Prices
We do not believe that inflation and changes in prices will have a material effect on our operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 8. FINANCIAL STATEMENTS
The financial statements and supplementary financial information required by this Item 8 are set forth immediately below and are incorporated herein by reference.
INDEX TO AUDITED FINANCIAL STATEMENTS
CONNEXA SPORTS TECHNOLOGIES, INC
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
CONNEXA SPORTS TECHNOLOGIES INC.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Connexa Sports Technologies Inc (the ‘Company’) as of April 30, 2024, and 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years ended April 30, 2024, and 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of April 30, 2024, and 2023, and the results of its operations and its cash flows for each of the two years ended April 30, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company suffered an accumulated deficit of $(167,387,028), net loss of $(15,636,418) and decline in net sales. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regards to these matters are also described in Note 2 to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. Communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not, by communicating the critical audit matters, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Revenue Recognition
The company recognize revenue for its performance obligations associated with its contract with customers at a point in time when the products are shipped. Significant judgment is exercised by the Company in determining the timing or pattern of delivery (i.e., timing of when revenue is recognized) for each performance obligation.
The related audit effort in evaluating management’s judgments in determining revenue recognition for customer agreements required a high degree of auditor judgment.
Our principal audit procedures related to the Company’s revenue recognition for customer agreements included the following:
| | ■ | We gained an understanding of internal controls related to revenue recognition. |
| | ■ | We evaluated management’s significant accounting policies for reasonableness. |
| | ■ | We selected a sample of revenues recognized and performed the following procedures: |
| | ○ | Obtained and read contract source documents for each selected transactions |
| | ○ | Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions. |
| | ○ | We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. |
Going Concern Uncertainty – See also Going Concern Uncertainty explanatory paragraph above
As described further in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations The ability of the Company to continue as a going concern is dependent on executing its business plan and ultimately to attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from private investors, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related to its ability to continue as a going concern.
We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:
| | ■ | We performed testing procedures such as analytical procedures to identify conditions and events that indicate that there could be substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
| | ■ | We reviewed and evaluated management’s plans for dealing with adverse effects of these conditions and events. |
| | ■ | We inquired of Company management and reviewed company records to assess whether there are additional factors that contribute to the uncertainties disclosed. |
| | ■ | We assessed whether the Company’s determination that there is substantial doubt about its ability to continue as a going concern was adequately disclosed. |
/s/ Olayinka Oyebola
OLAYINKA OYEBOLA & CO.
(Chartered Accountants)
Lagos, Nigeria
We have served as the Company’s auditor since 2023.
July 24th, 2024
CONNEXA SPORTS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (IN US$)
APRIL 30, 2024 AND 2023
| | | APRIL 30, 2024 | | | APRIL 30, 2023 | |
| ASSETS | | | | | | | | |
| | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 229,705 | | | $ | 202,095 | |
| Investment, at cost | | | 16,500,000 | | | | - | |
| Accounts receivable, net | | | 273,874 | | | | 399,680 | |
| Inventories, net | | | 1,609,196 | | | | 3,189,766 | |
| Prepaid inventory | | | 810,978 | | | | 936,939 | |
| Prepaid expenses and other current assets | | | 197,871 | | | | 263,020 | |
| | | | | | | | | |
| Total Current Assets | | | 19,621,624 | | | | 4,991,500 | |
| | | | | | | | | |
| Non-Current Assets: | | | | | | | | |
| Note receivable - former subsidiary | | | 2,000,000 | | | | 2,000,000 | |
| Fixed assets, net of depreciation | | | - | | | | 14,791 | |
| Intangible assets, net of amortization | | | 1,000 | | | | 101,281 | |
| | | | | | | | | |
| Total Non-Current Assets | | | 2,001,000 | | | | 2,116,072 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 21,622,624 | | | $ | 7,107,572 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 4,704,596 | | | $ | 5,496,629 | |
| Accrued expenses | | | 3,405,372 | | | | 4,911,839 | |
| Accrued interest | | | - | | | | 25,387 | |
| Accrued interest - related party | | | 917,957 | | | | 917,957 | |
| Accrued interest | | | 917,957 | | | | 917,957 | |
| Current portion of notes payable, net of discount | | | 1,564,513 | | | | 1,484,647 | |
| Current portion of notes payable - related parties | | | 1,169,291 | | | | - | |
| Current portion of notes payable | | | 1,169,291 | | | | - | |
| Derivative liabilities | | | 5,433 | | | | 10,489,606 | |
| Contingent consideration | | | - | | | | 418,455 | |
| Other current liabilities | | | 255,648 | | | | 22,971 | |
| | | | | | | | | |
| Total Current Liabilities | | | 12,022,810 | | | | 23,767,491 | |
| | | | | | | | | |
| Long-Term Liabilities: | | | | | | | | |
| Notes payable related parties, net of current portion | | | - | | | | 1,953,842 | |
| | | | | | | | | |
| Total Long-Term Liabilities | | | - | | | | 1,953,842 | |
| | | | | | | | | |
| Total Liabilities | | | 12,022,810 | | | | 25,721,333 | |
| | | | | | | | | |
| Commitments and contingency | | | - | | | | - | |
| | | | | | | | | |
| SHAREHOLDERS’ EQUITY (DEFICIT) | | | | | | | | |
| Common stock, par value, $0.001, 300,000,000 shares authorized, 1,828,541 and 16,929 shares issued and outstanding as of April 30, 2024 and April 30, 2023, respectively | | | 1,828 | | | | 17 | |
| Additional paid in capital | | | 176,801,473 | | | | 132,994,320 | |
| Accumulated deficit | | | (167,387,028 | ) | | | (151,750,610 | ) |
| Accumulated other comprehensive income | | | 183,541 | | | | 142,512 | |
| | | | | | | | | |
| Total Stockholders’ Equity (Deficit) | | | 9,599,814 | | | | (18,613,761 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | $ | 21,622,624 | | | $ | 7,107,572 | |
The accompanying notes are an integral part of these financial statements.
CONNEXA SPORTS TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$)
YEARS ENDED APRIL 30, 2024 AND 2023
| | | APRIL 30, 2024 | | | APRIL 30, 2023 | |
| | | | | | | |
| NET SALES | | $ | 8,398,049 | | | $ | 9,922,799 | |
| | | | | | | | | |
| COST OF SALES | | | 5,004,375 | | | | 7,144,335 | |
| | | | | | | | . | |
| GROSS PROFIT | | | 3,393,674 | | | | 2,778,464 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Selling and marketing expenses | | | 1,565,006 | | | | 1,928,198 | |
| General and administrative expenses | | | 8,271,823 | | | | 22,743,877 | |
| Research and development costs | | | - | | | | 65,164 | |
| | | | | | | | | |
| Total Operating Expenses | | | 9,836,829 | | | | 24,737,239 | |
| | | | | | | | | |
| OPERATING LOSS | | | (6,443,155 | ) | | | (21,958,775 | ) |
| | | | | | | | | |
| NON-OPERATING INCOME (EXPENSE) | | | | | | | | |
| Amortization of debt discounts | | | (1,067,806 | ) | | | (4,095,030 | ) |
| Loss on conversion of accounts payable to common stock | | | (289,980 | ) | | | - | |
| Change in fair value of derivative liability | | | 7,635,612 | | | | 10,950,017 | |
| Derivative expense | | | (14,119,784 | ) | | | (8,995,962 | ) |
| Interest expense | | | (1,351,305 | ) | | | (884,985 | ) |
| Interest expense - related party | | | - | | | | (293,090 | ) |
| Interest expense | | | - | | | | (293,090 | ) |
| | | | | | | | | |
| Total Non-Operating Income (Expenses) | | | (9,193,263 | ) | | | (3,319,050 | ) |
| | | | | | | | | |
| | | | | | | | | |
| DISCONTINUED OPERATIONS | | | | | | | | |
| Loss from discontinued operations | | | - | | | | (4,461,968 | ) |
| Loss on disposal of subsidiaries | | | - | | | | (41,413,892 | ) |
| LOSS FROM DISCONTINUED OPERATIONS | | | - | | | | (45,875,860 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Provision for income taxes | | | | | | | - | |
| | | | | | | | | |
| NET INCOME (LOSS) | | $ | (15,636,418 | ) | | $ | (71,153,685 | ) |
| | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | |
| Foreign currency translations adjustment | | | 41,029 | | | | 87,550 | |
| Comprehensive income (loss) | | $ | (15,595,389 | ) | | $ | (71,066,135 | ) |
| | | | | | | | | |
| Net income (loss) per share - basic and diluted (see Note 3) | | | | | | | | |
| Continuing operations | | $ | (32.44 | ) | | $ | (1,806.33 | ) |
| Discontinued operations | | $ | - | | | $ | (3,278.25 | ) |
| | | | | | | | | |
| Net loss per share - basic and diluted | | $ | (32.44 | ) | | $ | (5,084.58 | ) |
| | | | | | | | | |
| Weighted average common shares outstanding - basic and diluted | | | 482,005 | | | | 13,994 | |
The accompanying notes are an integral part of these financial statements.
CONNEXA SPORTS TECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (IN US$)
FOR THE YEARS ENDED APRIL 30, 2024 AND 2023
| | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | Accumulated | | | | | | | |
| | | | | | Additional | | | Other | | | | | | | |
| | | Common Stock | | | Paid-In | | | Comprehensive | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Capital | | | Income | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Balance - May 1, 2022 | | | 5,243 | | | $ | 5 | | | $ | 113,053,890 | | | $ | 54,962 | | | $ | (80,596,925 | ) | | $ | 32,511,932 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock issued for: | | | | | | | | | | | | | | | | | | | | | | | | |
| Conversion of notes payable | | | 5,487 | | | | 5 | | | | 14,046,295 | | | | - | | | | - | | | | 14,046,300 | |
| Acquisition | | | 3,537 | | | | 4 | | | | 915,541 | | | | - | | | | - | | | | 915,545 | |
| Services | | | 39 | | | | - | | | | 37,086 | | | | - | | | | - | | | | 37,086 | |
| Cash | | | 2,584 | | | | 3 | | | | 4,194,997 | | | | - | | | | - | | | | 4,195,000 | |
| Cashless exercise of warrants | | | 37 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Fractional share issuance | | | 2 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Share-based compensation | | | - | | | | - | | | | 746,511 | | | | - | | | | - | | | | 746,511 | |
| Change in comprehensive income | | | - | | | | - | | | | - | | | | 87,550 | | | | - | | | | 87,550 | |
| Change in comprehensive income (loss) | | | - | | | | - | | | | - | | | | 87,550 | | | | - | | | | 87,550 | |
| Net loss for the year | | | - | | | | - | | | | - | | | | - | | | | (71,153,685 | ) | | | (71,153,685 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance - April 30, 2023 | | | 16,929 | | | $ | 17 | | | $ | 132,994,320 | | | $ | 142,512 | | | $ | (151,750,610 | ) | | $ | (18,613,761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance - May 1, 2023 | | | 16,929 | | | $ | 17 | | | $ | 132,994,320 | | | $ | 142,512 | | | $ | (151,750,610 | ) | | $ | (18,613,761 | ) |
| Balance | | | 16,929 | | | $ | 17 | | | $ | 132,994,320 | | | $ | 142,512 | | | $ | (151,750,610 | ) | | $ | (18,613,761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock issued for: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash (including warrants) | | | 598,140 | | | | 598 | | | | 17,961,230 | | | | - | | | | - | | | | 17,961,828 | |
| Services | | | 38,499 | | | | 38 | | | | 295,920 | | | | - | | | | - | | | | 295,958 | |
| Accounts payable | | | 223,639 | | | | 224 | | | | 559,755 | | | | - | | | | - | | | | 559,979 | |
| Acquisition/Contingent Consideration | | | 168 | | | | - | | | | 418,454 | | | | - | | | | - | | | | 418,454 | |
| Cashless exercise of warrants | | | 232,489 | | | | 232 | | | | (232 | ) | | | - | | | | - | | | | - | |
| Satisfaction of profit guarantee on note payable | | | 716,893 | | | | 717 | | | | 5,125,569 | | | | - | | | | - | | | | 5,126,286 | |
| Fractional adjustment in reverse split | | | 1,784 | | | | 2 | | | | (2 | ) | | | - | | | | - | | | | - | |
| Reclassification of derivative liability upon amendment of agreement | | | - | | | | - | | | | 17,258,959 | | | | - | | | | - | | | | 17,258,959 | |
| Conversion of deferred compensation to warrants (equity) | | | - | | | | - | | | | 2,187,500 | | | | - | | | | - | | | | 2,187,500 | |
| Change in comprehensive income | | | - | | | | - | | | | - | | | | 41,029 | | | | - | | | | 41,029 | |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | (15,636,418 | ) | | | (15,636,418 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance - April 30, 2024 | | | 1,828,541 | | | $ | 1,828 | | | $ | 176,801,473 | | | $ | 183,541 | | | $ | (167,387,028 | ) | | $ | 9,599,814 | |
| Balance | | | 1,828,541 | | | $ | 1,828 | | | $ | 176,801,473 | | | $ | 183,541 | | | $ | (167,387,028 | ) | | $ | 9,599,814 | |
The accompanying notes are an integral part of these financial statements.
CONNEXA SPORTS TECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$)
YEARS ENDED APRIL 30, 2024 AND 2023
| | | 2024 | | | 2023 | |
| CASH FLOW FROM OPERTING ACTIVITIES | | | | | | | | |
| Net (loss) | | $ | (15,636,418 | ) | | $ | (71,153,685 | ) |
| Adjustments to reconcile net (loss) to net cash used in operating activities | | | | | | | | |
| Depreciation, amortization and impairment expense | | | 115,072 | | | | 11,555,332 | |
| Change in fair value of derivative liability | | | (7,635,612 | ) | | | (10,950,017 | ) |
| Shares and warrants issued for services | | | 295,958 | | | | 37,086 | |
| Share-based compensation | | | - | | | | 746,511 | |
| Loss on disposal | | | - | | | | 41,413,892 | |
| Derivative expense | | | 14,119,784 | | | | 8,995,962 | |
| Non-cash transaction costs | | | - | | | | 454,823 | |
| Amortization of debt discounts | | | 1,067,806 | | | | 4,095,030 | |
| Settlement expense | | | 1,928,948 | | | | - | |
| Loss on settlement of accounts payable | | | 289,980 | | | | - | |
| | | | | | | | | |
| Changes in assets and liabilities, net of acquired amounts | | | | | | | | |
| Accounts receivable | | | 127,448 | | | | (1,368,643 | ) |
| Inventories | | | 1,580,570 | | | | 4,413,056 | |
| Prepaid inventory | | | 125,961 | | | | (138,308 | ) |
| Prepaid expenses and other current assets | | | 100,047 | | | | 430,193 | |
| Accounts payable and accrued expenses | | | (1,114,312 | ) | | | (598,814 | ) |
| Other current liabilities | | | 1,461,386 | | | | 1,072,836 | |
| Accrued interest | | | 171,949 | | | | 158,187 | |
| Accrued interest - related parties | | | - | | | | 9,201 | |
| Accrued interest | | | - | | | | 9,201 | |
| Total adjustments | | | 12,634,985 | | | | 60,326,327 | |
| | | | | | | | | |
| Net cash used in operating activities of continuing operations | | | (3,001,433 | ) | | | (10,827,358 | ) |
| Net cash provided by operating activities of discontinued operations | | | - | | | | 4,461,969 | |
| Net cash used in operating activities | | | (3,001,433 | ) | | | (6,365,389 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Investment, at cost | | | (16,500,000 | ) | | | - | |
| Net cash used in investing activities of continuing operations | | | (16,500,000 | ) | | | - | |
| Net cash provided by operating activities of discontinued operations | | | - | | | | - | |
| Net cash used in investing activities | | | (16,500,000 | ) | | | - | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from issuance of common stock and warrants for cash | | | 17,961,828 | | | | 8,744,882 | |
| Proceeds from notes payable | | | 3,728,000 | | | | 2,000,000 | |
| Payments of notes payable - related parties | | | (785,509 | ) | | | (546,158 | ) |
| Payments of notes payable | | | (1,425,326 | ) | | | (4,377,537 | ) |
| Net cash provided by financing activities | | | 19,478,993 | | | | 5,821,187 | |
| | | | | | | | | |
| Effect of exchange rate fluctuations on cash and cash equivalents | | | 50,050 | | | | 81,295 | |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | | | 27,610 | | | | (462,907 | ) |
| | | | | | | | | |
| CASH AND RESTRICTED CASH - BEGINNING OF PERIOD | | | 202,095 | | | | 665,002 | |
| | | | | | | | | |
| CASH AND RESTRICTED CASH - END OF PERIOD | | $ | 229,705 | | | $ | 202,095 | |
| | | | | | | | | |
| CASH PAID DURING THE PERIOD FOR: | | | | | | | | |
| Interest expense | | $ | 706,942 | | | $ | 482,687 | |
| | | | | | | | | |
| Income taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
| SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | |
| | | | | | | | | |
| Conversion of convertible notes payable and accrued interest to common stock | | $ | - | | | $ | 14,046,300 | |
| Shares issued for contingent consideration | | $ | 418,455 | | | $ | 915,545 | |
| Warrants granted for deferred compensation | | $ | 2,187,500 | | | $ | - | |
| Derivative liability recorded for shares and warrants issued in private placement | | $ | - | | | $ | 4,999,882 | |
| Note receivable issued in sale of PlaySight | | $ | - | | | $ | 2,000,000 | |
The accompanying notes are an integral part of these financial statements.
CONNEXA SPORTS TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: ORGANIZATION AND NATURE OF BUSINESS
Organization
Lazex Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger Bag Americas”), which was 100% owned by Slinger Bag Ltd. (“SBL”), an Israeli company. In connection with the Stock Purchase Agreement, Slinger Bag Americas acquired 2,500 shares of common stock of Lazex for $332,239. On September 16, 2019, SBL transferred its ownership of Slinger Bag Americas to Lazex in exchange for the 2,500 shares of Lazex acquired on August 23, 2019. As a result of these transactions, Lazex owned 100% of Slinger Bag Americas and the sole shareholder of SBL owned 2,500 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name to Slinger Bag Inc.
On October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., (“Slinger Bag Canada”) a Canadian company incorporated on November 3, 2017. There were no assets, liabilities or historical operational activity of Slinger Bag Canada.
On February 10, 2020, Slinger Bag Americas became the 100% owner of SBL, along with SBL’s wholly owned subsidiary Slinger Bag International (UK) Limited (“Slinger Bag UK”), which was formed on April 3, 2019. On February 10, 2021, Zehava Tepler, the owner of SBL, contributed Slinger Bag UK to Slinger Bag Americas for no consideration.
Effective February 25, 2020, the Company increased the number of authorized shares of common stock from 75,000,000 to 300,000,000 via a four-to-one forward split of its outstanding shares of common. All share and per share information contained in this report have been retroactively adjusted to reflect the impact of the stock split. Effective June 27, 2024, the Company increased the number of authorized shares of common stock from 300,000,000 to 1,000,000,000.
On June 21, 2021, Slinger Bag Americas entered into a membership interest purchase agreement with Charles Ruddy to acquire a 100% ownership stake in Foundation Sports Systems, LLC (“Foundation Sports”).
On February 2, 2022, the Company entered into a share purchase agreement with Flixsense Pty, Ltd. (“Gameface”). As a result of the share purchase agreement, Gameface became a wholly owned subsidiary of the Company.
On February 22, 2022, the Company entered into a merger agreement with PlaySight Interactive Ltd. (“PlaySight”) and Rohit Krishnan (the “Shareholders’ Representative”). As a result of the merger agreement, PlaySight would become a wholly owned subsidiary of the Company.
During April 2022, the Company determined that the technology utilized in the Foundation Sports acquired entity would take substantially more financial resources and more time to bring to market and achieve profitability than originally anticipated. As a result, the goodwill and intangible assets related to Foundation Sports were fully impaired as of April 30, 2022, resulting in an impairment loss of $3,486,599. In addition, during April 2022 the Company decided to sell a portion of Foundation Sports. The Company continued to classify Foundation Sports in continuing operations, until December 5, 2022 when it sold 75% of Foundation Sports back to the original owners at which time it deconsolidated this subsidiary and recorded a loss on the sale. The Company also determined to dispose of the PlaySight entity during the year ended April 30, 2023. The Company completed the sale in November 2022 and recorded a loss on the sale at that time.
In April 2022, the Company changed its domicile from Nevada to Delaware. On April 7, 2022, the Company effected a name change to Connexa Sports Technologies Inc. We also changed our ticker symbol, “CNXA”. Connexa is now the holding company under which Slinger Bag and Gameface reside.
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred to as the “Company.”
On June 14, 2022, the Company effected a 1-for-10 reverse stock split, where the Company’s common stock began to trade on a reverse split adjusted basis. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted to reflect this reverse split. The Company also consummated a public offering of shares of its common stock and the listing of its common stock on the Nasdaq Capital Market.
On November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the board of directors of the Company. Gabriel and Rohit were members of the audit and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee. Neither Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies or practices.
On November 27, 2022, the Company entered into a share purchase agreement (the “Agreement”) with PlaySight, Chen Shachar and Evgeni Khazanov (together, the “Buyer”) pursuant to which the Buyer purchased 100% of the issued and outstanding shares of PlaySight from the Company in exchange for (1) releasing the Company from all of PlaySight’s obligations towards its vendors, employees, tax authorities and any other (past, current and future) creditors of PlaySight; (2) waiver by the Buyer of 100% of the personal consideration owed to them under their employment agreements in the total amount of U.S. $600,000 (which would have been increased in December 2022 to U.S. $800,000); and (3) cash consideration of U.S. $2 million to be paid to the Company as follows:
| | (i) | a promissory note in the amount of U.S. $2 million issued and delivered to the Company (the “Promissory Note”). |
| | | |
| | (ii) | The maturity due date of the Promissory Note is December 31, 2023 subject to a one year extension in the discretion of the Buyer until December 31, 2024. The Buyer timely elected to extend the maturity date of the Promissory Note to December 31, 2024. |
| | | |
| | (iii) | The Promissory Note can be partially paid over the time, but in the event it is not paid in full by December 31, 2024, then the remaining amount due (i.e. U.S. $2 million less any amount paid), will be converted into ordinary shares of PlaySight (the “Deposited Shares”), which will be deposited with the escrow company of Altshuler Shaham Trust Ltd. (the “Escrow Agent”) for the benefit of the Company or, at the election of the Company, issued in the form of a stock certificate or recorded in some other market-standard format to be held by the Escrow Agent. |
| | | |
| | (iv) | The number of the Deposited Shares shall be determined according to the post-money valuation of the last investment round of the Company, and in the absence of such investment round, the total number of the Deposited Shares shall be $2 million divided by the Company’s valuation to be determined at that time by a third party appraiser, to be nominated by both the Company and the Buyer (the “Appraiser”). The Company and the Buyer have agreed that the identity of the Appraiser shall be Murray Devine Valuation Advisers, to the extent their cost of the appraisal shall not be higher than the cost of other appraisers from the big 4 accounting firms (i.e. E&Y, KPMG, PWC and Deloitte). The Company and the Buyer have agreed to split the cost of the Appraiser. |
The Company has also released PlaySight from all of its obligations (except for those created by the Agreement) in respect of the Company, including any inter-company debts on the books, and the Buyer has released the Company from all of its obligations (except for those created by the Agreement) in respect of PlaySight and the Buyer.
The reason for the entry into the Agreement and the transactions contemplated thereby was to eliminate the need for the Company to provide further financing for PlaySight’s operations.
On December 5, 2022, the Company assigned 75% of its membership interest in Foundation Sports to Charles Ruddy, its founder and granted him the right for a period of three years to purchase the remaining 25% of its Foundation Sports membership interests for $500,000 in cash. As of December 5, 2022, the results of Foundation Sports will no longer be consolidated in the Company’s financial statements, and the investment was accounted for as an equity method investment. On December 5, 2022, the Company analyzed this investment and established a reserve for the investment at the full amount of $500,000. The Company intends to enter into a database access and marketing agreement with Foundation Sports pursuant to which Foundation Sports will (i) provide the Company with sporting or racquet facility information and contact data of its customers (subject to applicable law) and (ii) publish any promotional content, call to action, survey or similar promotional communications provided by the Company to Foundation Sport’s customers for its Customers to promote said material to their extended network of consumers in exchange for 7% of any gross revenue to be generated from such activities.
On March 7, 2023, Slinger Bag entered into an exclusive distribution agreement for Padel Tennis with a company located in Valencia, Spain called with Desarrollo y Promocion de Padel S.L. This agreement is contracted to deliver approximately $15 million in revenue by the end of 2028.
On September 13, 2023 the Company held a special meeting of stockholders in which the following items were approved: (i) the issuance of (i) 1,274 shares of the our common stock, par value $0.001 per share, that were issued on October 3, 2023, and, (ii) 14,753 shares of our common stock issuable upon exercise of Pre-Funded Warrants at an exercise price of $0.00002 per share, (iii) 16,026 shares of common stock issuable upon the exercise of 5-Year Warrants at an exercise price of $312 per share, (iv) 32,052 shares of common stock issuable upon the exercise of 7.5 Year Warrants at an exercise price of $344 per share and (v) 22,625 shares of our common stock issuable upon the exercise of 5.5 Year Warrants at an at an exercise price per share equal to $1,768per share to Armistice Capital Master Fund Ltd and (ii) a reverse stock split of our common stock within a range of one (1)-for-ten (10) to one (1)-for-forty (40) (“Reverse Stock Split”), with the Board of Directors of the Company to set the specific ratio and determine the date for the reverse split to be effective and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time within 12 months of the special meeting date.
On September 25, 2023, as a result of the shareholder approval obtained at the special meeting of stockholders on September 13, 2023 and the Reverse Stock Split, the aggregate number of Pre-Funded Warrants, 5-Year Warrants, 5.5-Year Warrants and 7-Year Warrants increased from 85,455 to 471,348 due to certain adjustments that were required to be made by the terms of the relevant warrants in the event of receipt of shareholder approval and the occurrence of the Reverse Stock Split.
On November 16, 2023, the Company entered into an agreement with Agile Capital Funding (the “ACF Agreement”) pursuant to which the Company sold $693,500 in future receivables to ACF (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The Company agreed to pay ACF $28,895.83 each week until the ACF Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and member of the Company’s board of directors. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owes Mr. Kalfa $1,137 in salary (the “Salary Compensation”) through January 31, 2024 to Mr. Kalfa.
The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, on January 20, 2024 the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024.
Due to administrative delays, the Company did not issue the shares in January. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024).
No shareholder approval was required for the issuance of the 220,265 shares because it was less than 20% of the number of the Company’s outstanding shares of Common Stock as of March 14, 2024 and was issued at a price per share ($4.54) above the Minimum Price as defined under Nasdaq Listing Rule 5635(d).
The Company sought and obtained shareholder approval, pursuant to Nasdaq Listing Rule 5635(c), to issue the balance of 47,115 shares (267,380 minus 220,265) to Mr. Kalfa.
The Shares were issued on May 24, 2024 without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.
On January 20, 2024, the Company agreed to issue to Mike Ballardie, the Company’s chairman of the board and chief executive officer, warrants to purchase 317,514 shares of common stock (the “MB Warrants”) at an exercise price of $0.02 per share and with a term of 10-years as compensation for his extraordinary contribution to the company, in exchange for Mr. Ballardie’s waiver of his right to receive any bonus payments as described in clause 2.2 of his service agreement with Slinger Bag International (UK) Limited dated 1 November 2020 (the “Service Agreement”) to which he would otherwise be entitled to receive through January 31, 2024.
Acquisition and Recent Transactions
On March 18, 2024, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) and a share exchange agreement (the “Share Exchange Agreement,” and together with the Share Purchase Agreement, the “Agreements”) to acquire a total of 70% of the issued and outstanding ordinary shares of Yuanyu Enterprise Management Co., Limited (“YYEM”), a Hong Kong company, from the sole shareholder of YYEM, Mr. Hongyu Zhou (the “Seller”), for a combined $56 million. The consummation of the transactions contemplated in the Agreements will result in a change in control of the Company as the shareholders of YYEM will become the owners 82.4% of the issued and outstanding shares of common stock of the Company (the “Common Stock”). As part of this transaction, as further described below under the heading of “The Separation Agreement”, the Company has agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity to be owned by Yonah Kalfa and Mike Ballardie.
The Acquisition Structure
Pursuant to the Share Purchase Agreement, the Company agreed to purchase, and the Seller agreed to sell, 2,000 ordinary shares of YYEM, representing 20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”), payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024.
Pursuant to the Share Exchange Agreement, the Company has agreed to purchase, and the Seller has agreed to sell, 5,000 ordinary shares of YYEM, representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the Seller (the “Share Exchange Transaction,” and together with the Share Purchase Transaction, the “Transactions”). The shares are expected to represent 82.4% of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction (the “Share Exchange Consideration”).
The Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless they have been held for at least six months and subject to other conditions.
Separation Agreement
In connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business, assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy Business”) to a newly established entity (“NewCo”), and that after the Closing Date, NewCo will have the sole right to and obligations of the Legacy Business and will be liable to the Company for any losses arising from third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo will be owned by Yonah Kalfa and Mike Ballardie.
On a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.1 million (which represents the assets of the Company as of January 31, 2024, minus, on a pro forma basis, the $16.5 million used for the purchase of 20% ownership of YYEM in April 2024), and the liabilities of the Legacy Business were $12.0 million (which represents the liabilities of the Company as of April 30, 2024).
Financial Accommodations
As an inducement to the Company to complete the Transactions, the Agreements provide that aggregate payments of (a) $4,500,000 shall be made to the Company in cash by YYEM and (b) $500,000 shall be made to NewCo (as defined under the header “The Separation Agreement”) in cash by YYEM, as follows: (i) $800,000 payable within two (2) business days of the date of the Agreements; (ii) $1,200,000 payable within three (3) business days of the Company changing its ticker symbol from “CNXA” to “YYAI,” or such other symbol as the parties may agree; (iii) $2,000,000 payable at the Closing and (iv) $500,000 to be paid within 30 days from the Closing Date and paid to NewCo. Out of the $4,500,000, the Company paid $2,142,857 to certain companies for arranging the Transactions.
Management following the Acquisition
At or after the Closing, the board of directors of Connexa (the “Board”) shall comprise those individuals designated by YYEM Seller, and all current members of the Board shall resign with such resignation being effective on the later of the Closing or the appointment or election of the new directors.
Closing Conditions
The Share Exchange, as amended, provides that:
| | ● | on or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
| | ● | on or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio to be determined by the parties; |
| | ● | as a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common Stock will be delisted from Nasdaq; and |
| | ● | the Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was obtained on May 15, 2024, and a new listing application was submitted to Nasdaq in May 2024, which is currently under review by Nasdaq. |
We cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing Deliverables
At the Closing, the Company shall deliver to YYEM Seller the following:
| | ● | copies of all resolutions of the Board authorizing the execution, delivery, and performance of the Exchange Agreement and the other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
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| | ● | the Exchange Shares; |
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| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfilment of the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
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| | ● | a duly executed bought and sold note, as applicable; and |
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| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior to the Closing pursuant to the Exchange Agreement. |
At the Closing, YYEM Seller shall deliver to the Company the following:
| | ● | payment of the Closing Cash Payment (as defined in the Exchange Agreement); |
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| | ● | a good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
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| | ● | if the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
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| | ● | a counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
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| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfilment of the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
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| | ● | a duly executed bought and sold note as may be required under the law of Hong Kong; and |
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| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Reverse Stock Split
The Company’s Board and stockholders have approved the Proposed Reverse Stock Split of its Common Stock within a range of 1-for-10 to 1-for-100, with the Board having set the specific ratio at 1-20 and determined the date for the Proposed Reverse Stock Split to be effective to be June 27, 2024.
Meged Agreements
On June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables Purchased Amount is paid in full.
On September 19, 2023, the Company entered into an agreement with Meged (the “Second Meged Agreement”) pursuant to which the Company sold $423,000 in future receivables to Meged (the “Meged Second Receivable Amount”) in exchange for paying the then outstanding balance of $70,153 of the Meged Receivables Purchased Amount in full with the balance being retained by the Company in cash for general purposes. The Company agreed to pay Meged $15,107 each week until the Meged Second Receivable Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to Meged under the Second Meged Agreement, the Company granted to Meged a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
UFS Agreement
On August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement”) pursuant to which the Company sold $797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000 in cash less fees of $50,000. The Company agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount was paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Special Meeting of Stockholders
On September 13, 2023 the Company held a special meeting of stockholders in which the following items were approved: (i) the issuance of (i) 1,274 shares of the our common stock, par value $0.001 per share, that were issued on October 3, 2023, and, (ii) 14,753 shares of our common stock issuable upon exercise of Pre-Funded Warrants at an exercise price of $0.00002 per share, (iii) 16,026 shares of common stock issuable upon the exercise of 5-Year Warrants at an exercise price of $312 per share, (iv) 32,052 shares of common stock issuable upon the exercise of 7.5 Year Warrants at an exercise price of $344 per share and (v) 22,625 shares of our common stock issuable upon the exercise of 5.5 Year Warrants at an at an exercise price per share equal to $1,768per share to Armistice Capital Master Fund Ltd and (ii) a reverse stock split of our common stock within a range of one (1)-for-ten (10) to one (1)-for-forty (40) (“Reverse Stock Split”), with the Board of Directors of the Company to set the specific ratio and determine the date for the reverse split to be effective and any other action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time within 12 months of the special meeting date.
On September 25, 2023, as a result of the shareholder approval obtained at the special meeting of stockholders on September 13, 2023 and the Reverse Stock Split, the aggregate number of Pre-Funded Warrants, 5-Year Warrants, 5.5-Year Warrants and 7-Year Warrants increased from 85,455 to 471,348 due to certain adjustments that were required to be made by the terms of the relevant warrants in the event of receipt of shareholder approval and the occurrence of the Reverse Stock Split.
Armistice Transactions from September 2023 to April 2024
From September 18, 2023 through April 30, 2024, the Company issued Armistice 473,935 shares of Common Stock related to the exercise of the pre-funded warrants.
On October 11, 2023, the Company, the Lenders and the Agent (as defined in the LSA) entered into a loan and security modification agreement to allow for an additional loan of $1,000,000 pursuant to the loan and security modification agreement. In addition, on October 11, 2023, the Company agreed to issue warrants to purchase up to 8,460 shares of Common Stock at an exercise price of $138 per share (the “October Warrants”).
On December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice with regard to certain of the Company’s existing warrants to purchase up to a total of 248,611 shares of Common Stock, consisting of: (i) 70,508 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $35.46 per share with a term of five year (the “September 2022 Five Year Warrants”); (ii) 155,479 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $70.92 per share with a term of seven and one half years (the “September 2022 Seven and a Half Year Warrants”); and (iii) 22,625 shares of Common Stock issuable upon the exercise of warrants issued on January 6, 2023 (the “January 2023 Warrants” and, together with the September 2022 Five Year Warrants and the September 2022 Seven and a Half Year Warrants, the “2022 and 2023 Warrants”).
Pursuant to the Inducement Letter, Armistice agreed to exercise for cash the 2022 and 2023 Warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $5.88 per share in consideration of the Company’s agreement to issue common stock purchase warrants to purchase up to an aggregate of 497,221 shares of Common Stock (the “December Warrants”). The Company received aggregate gross proceeds of $1,461,827.68 from the exercise of the 2022 and 2023 Warrants by the Holder, before deducting offering expenses payable by it. The transaction closed on December 7, 2023.
The resale of the shares of the Common Stock underlying the 2022 and 2023 Warrants and 224,472 shares of Common Stock owned by Sapir LLC, a consultant engaged by the Company were registered pursuant to an existing registration statement on Form S-1 (File No. 333-275407), declared effective by the Securities and Exchange Commission (the “SEC”) on December 4, 2023.
As of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds of $3 million from the Lenders.
On February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant Amendment and Second Loan and Security Modification Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to waive certain events of default with regard to certain covenants and obligations the Company had pursuant to (a) that certain registration rights agreement between the Company and the Lenders and the Agent entered into in September 2022, (b) the LSA (as modified), and (c) the Inducement Letter.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed to modify the Loan and Security Agreement such that the Note is now convertible into up to 499,584 shares of Common Stock based on the agreed to conversion price of $6.40. The Company believed that the $6.40 conversion price meets the definition of “Minimum Price” in Nasdaq Listing Rule 5635(d).
Pursuant to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to use their reasonable best efforts to voluntarily convert all amounts owed under the Note on or prior to the last trading day before the trading day on which the next meeting of the Company’s shareholders would take place.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that following shareholder approval, which the Company obtained on May 15, 2024, the October Warrants and December Warrants have been amended to lower the exercise price of such warrants to $3.20 per share.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed that Slinger Bag Americas Inc., a Delaware subsidiary of the Company (“Slinger”) would, within ten (10) business days of the six month anniversary of the effectiveness of the registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note (the “Effectiveness Date”), pay in cash to the Lenders and the Agent the difference, if any, between (i) $6 million (the “Guaranteed Amount”) and (ii) the combined gross proceeds realized by the Lenders and the Agent from its sale of the shares of Common Stock issued pursuant to (a) conversions of the Note and (b) exercises of the October Warrants and December Warrants(the “Realized Amount”). Slinger is obligated to fund an escrow account with $2 million within ten (10) weeks of February 21, 2024. The Company and the Lenders and the Agent also agreed that if, due to a Force Majeure Event, the Lenders and the Agent had not fully converted the Note prior to the six-month anniversary of the Effectiveness Date, the Company would repurchase the Note and the October Warrants and December Warrants by paying in cash to the Lenders and the Agent the difference, if any, between the Guaranteed Amount and the Realized Amount.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that once the Note was fully repaid (either via a combination of cash payments and conversions into shares of Common Stock or just via conversions into shares of Common Stock) all liens and security interests of the Lenders and the Agent in any and all of the property of the Company and the Guarantors (as defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Pursuant to the Waiver, Amendment, and Modification Agreement, the Company agreed to prepare and file a registration statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note with the SEC within five (5) business days of February 21, 2024 and use commercially reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as practical thereafter and, in any event, within thirty (30) calendar days of February 21, 2024. A registration statement was filed and became effective on March 1, 2024 in compliance with this obligation.
On April 15, 2024, the Company acknowledged and agreed to the entrance into a warrant purchase agreement (the “Morgan WPA”) by Armistice and Morgan Capital LLC (“Morgan”) pursuant to which Armistice sold the October and December 2023 Warrants to Morgan for $2,500,000 in cash. Pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to, within 10 Business Days of the six month anniversary of the Waiver, Amendment, and Modification Agreement, pay in cash to Armistice the difference, if any, between (i) $6 million and (ii) the combined gross proceeds to be realized by the Holder from its sale of the Company’s common stock issued pursuant to (a) conversions of the note (which as of the date hereof has been fully converted into shares of the Company’s common stock) and (b) exercises of the Warrants would be terminated and of no further effect and force. In addition, pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to maintain an escrow account with its counsel in the amount of no less than $2,000,000 would be terminated and of no further effect and force. Armistice further agreed that any and all liens and security interests of Armistice in any and all of the property of the Company and the Guarantors (as such terms are defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any liens and security interests evidenced by Uniform Commercial Code financing statements.
Amendment to Bylaws
On October 12, 2023, the Board of Directors of the Company approved an amendment to the Bylaws of the Company to reduce the percentage of shares of stock, issued and outstanding and entitled to vote, to be present in person or represented by proxy in order to constitute a quorum for the transaction of any business from a majority to thirty-three and one third percent (33 1/3%).
Share Issuance to Sapir
On November 14, 2023, the Company issued 11,224 shares of Common Stock to Sapir LLC. Sapir LLC is controlled by Aitan Zacharin, an investor relations and financial structuring consultant to the Company who is a party to an amended and restated consulting agreement with the Company dated April 30, 2020 (the “AZ Consulting Agreement”). Pursuant to the AZ Consulting Agreement, the Company owed Mr. Zacharin $127,500 as consulting fee compensation through November 30, 2023 (the “Consulting Fee Compensation”). In addition, the Company granted Mr. Zacharin $127,500 as discretionary compensation (“Discretionary Compensation”) pursuant to Section 2.1(d) of the AZ Consulting Agreement. In consideration of the Consulting Fee Compensation and the Discretionary Compensation, the issuance of shares of Common Stock consisted of (i) 8,017 shares of Common Stock as payment of the Consulting Fee Compensation, and (ii) 3,207 shares of Common Stock as payment of the Discretionary Compensation.
Nasdaq Compliance
On January 30, 2024, the Company received a letter from the staff of the Nasdaq Stock Market confirming that following the receipt of a an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing Panel’s (“Panel”) decision dated April 12, 2023, as amended, and (ii) in application of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year monitoring period, the Nasdaq Listing Qualifications staff (the “Staff”) finds that the Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to such deficiency and the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
It is further reported that, in application of Listing Rule 5815(d)(4)(B), the Company is also subject to a mandatory panel monitor in respect of its periodic filing requirements in Listing Rule 5250(c)(1) (the “Periodic Filing Rule”) for a period of one year from October 11, 2023. If, within that one-year monitoring period, the Staff finds the Company again out of compliance with the Periodic Filing Rule, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to that deficiency and Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
On December 12, 2023, the Company received a letter (the “Notice”) from the Staff informing the Company that because the closing bid price for the Common Stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given a period of 180 calendar days from December 12, 2023, or until June 10, 2024, to regain compliance with the Minimum Bid Price Requirement.
On June 11, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that (i) the Company did not regained compliance with the Rule within the prescribed time period and is not eligible for a second 180-day remediation period. Specifically, the Company did not comply with the $5,000,000 minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market under the Equity Standard and (ii) unless the Company requests an appeal by June 18, 2024, of this determination, Nasdaq has determined that the Company’s securities will be scheduled for delisting from Nasdaq and will be suspended at the opening of business on June 21, 2024, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market (the “Delisting Determination”).
The Company appealed of the Delisting Determination on June 18, 2024 by requesting a hearing before the Panel to stay the suspension of the Company’s securities. The hearing panel date was set for July 25, 2024. Through the subsequent filing of the Form 25-NSE with the SEC. On June 27, 2024, the Company effected a 1-20 reverse stock split, which brought its share price to $8.31, which, in turn, caused the Company to regain compliance with the Minimum Bid Price Requirement and on July 11, 2024, the company’s closing bid price was in excess of $1 for a continuous 10-day trading period. On July 18, 2024, the Company received Nasdaq confirmation that the hearing has been cancelled and the Delisting Determination has been withdrawn.
There can be no assurance that the Company will be able to satisfy Nasdaq’s continued listing requirements.
The January 2024 Offering
On January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $0.40 per share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
From April 2024 through May 2024, the Company acknowledged and agreed to the entrance into certain warrant purchase agreements (the “WPAs”) by the January 2024 Investors and 10 purchasers (the “Pre-Funded Warrants Purchasers”) pursuant to which the January 2024 Investors sold all of the 3,775,470 Pre-Funded Warrants to Pre-Funded Warrants Purchasers for an aggregate amount of $18,877,350 in cash.
Share Issuance to Smartsports
On January 23, 2024, the Company issued 10,000 shares of Common Stock to Smartsports LLC. Smartsports LLC is an investor relations consultant to the Company who is a party to a consulting agreement with the Company dated January 23, 2024 (the “Smartsports Consulting Agreement”). Pursuant to the Smartsports Consulting Agreement, the Company agreed to issue and deliver to Smartsports LLC 10,000 shares of Common Stock as a consulting fee for the provision of investor relations services (the “Consulting Fee Compensation”) and use its commercially reasonable efforts to prepare and file with the Securities Exchange Commission a registration statement covering the resale of all of the shares on Form S-1 as soon as is reasonably practicable.
Agile Capital LLC Agreement
On January 10, 2024, the Company entered into an agreement with Agile Capital Funding, LLC (the “Agile Jan Agreement”) pursuant to which the Company sold $1,460,000 in future receivables to Agile Capital Funding, LLC (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to Agile a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as defined below).
Cedar Advance Agreement No.1
On January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000 in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Unique Funding Solutions Agreement
On March 6, 2024, the Company entered into an agreement (the “UFS Agreement”) with Unique Funding Solutions (“UFS”) pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 2
On April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Advance Agreement No. 3
On April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Operations
The Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Launcher, which is comprised of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing AI technology and performance analytics.
From inception to date, we have been focused on the ball sport market globally. Our first product, the Slinger Bag Launcher, is a patented, highly portable, versatile and affordable ball launcher built into an easy to transport wheeled trolley bag.
Tennis ball machines have been around since the 1950’s when they were introduced by Rene Lacoste. Improvements to performance were made in the 1970’s when Prince started its tennis business on the back of its first product – Little Prince – which was a vacuum operated ball machine. In the 1990’s the first battery operated machines came to the market and since that time very little, if anything, has changed in the structure of ball machines products outside of added computerization. Typically, the machines being marketed by traditional ball machine brands are large, cumbersome and awkward to operate. They are also generally expensive – often well above U.S. $1,000 compared to the entry price of $700 for a Slinger Bag Launcher. We believe that up until the introduction of the Slinger Bag Launcher, the majority of traditional tennis ball machines were sold to tennis facilities, institutions and tennis teachers, with only a few being sold directly to tennis playing consumers.
Recent Events
On May 15, 2024, the Company held its 2024 annual general meeting of stockholders at which the following items were approved:
| 1. | The nominations of Mike Ballardie, Yonah Kalfa, Kirk Taylor, Stephen Crummey, and Rodney Rapson for election as directors at the Annual Meeting until the 2025 annual meeting of stockholders and until their respective successors are duly elected and qualified. |
| 2. | The appointment of Olayinka Oyebola & Co. to continue as our independent registered public accounting firm for the fiscal year ended April 30, 2024. |
| 3. | The approval of the issuance of shares of our common stock pursuant to that certain Share Exchange Agreement dated March 18, 2024 (the “Exchange Agreement”) among the Company, Mr. Hongyu Zhou (the “YYEM Seller”), and Yuanyu Enterprise Management Co., Limited (“YYEM”), in exchange for 50% of the issued and outstanding ordinary shares of YYEM. The Exchange Agreement is a part of a transaction between the Company, YYEM Seller, and YYEM, whereby the Company agreed to purchase a total of 70% of the issued and outstanding ordinary shares of YYEM by entering into a share purchase agreement (the “Purchase Agreement”) and the Exchange Agreement as described in the Company’s Schedule 14A filed on May 2, 2024. Upon the closing of the Acquisition, YYEM Seller will be issued the number of Exchange Shares equal to 82.4% of the Company’s issued and outstanding shares of common stock immediately following the closing of the Acquisition, and Connexa stockholders as of immediately prior to the closing of the Acquisition will retain the balance of approximately 17.6% of such outstanding shares. |
| 4. | The amendment to the Company’s certificate of incorporation to increase the authorized shares of its common stock from 300,000,000 shares to 1,000,000,000 shares. |
| 5. | The approval of an amendment to the Company’s certificate of incorporation to authorize a reverse stock split of its common stock within a range of 1-for-10 to 1-for-100, with the Board of Directors of the Company to set the specific ratio and determine the date for the Reverse Stock Split to be effective. |
| 6. | The approval of the separation of the Company’s “Slinger Bag” business and products and the transactions contemplated by the separation agreement related to the transaction contemplated by the Exchange Agreement (the “Share Exchange Transaction”) Once the Share Exchange Transaction is closed, the current board of directors of the Company will resign and will appoint YYEM’s slate of directors to the board, which will effect of a change of control of the Company, and the current business of the Company, including its liabilities, will be spun off and sold to a company to be owned and controlled by Yonah Kalfa, the founder of the Slinger Bag business and an officer and director of the company, and Mike Ballardie, the Company’s current chief executive officer and director. The Company’s current shareholders will not have a participation in the Slinger Bag business from the date of the closing of the Share Exchange Transaction and onward. |
| 7. | The approval of the amendment to the exercise price of the Warrants held by Morgan Capital LLC to $3.20 per share. |
| 8. | The approval of the issuance of shares of Common Stock to certain investors party to the Company’s securities purchase agreements entered into in January 2024 when the Company received an investment of $16,500,000 in cash in exchange for the issuance and sale to each Investor of (i) 116,510 shares of the Company’s common stock (the “Common Stock Shares”) and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 1,258,490 shares of the Company’s common stock (the “Pre-Funded Warrant Shares”) at a combined purchase price of $4 per share of our common stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and became exercisable on May 15, 2024 allowing exercisability of the Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Common Stock Shares issued was 349,530 and the aggregate number of Pre-Funded Warrant Shares to be issued is 3,775,470. |
| 9. | The approval of the issuance of 47,116 shares of Common Stock to Yonah Kalfa. As previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and a member of the Company’s Board. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owed Mr. Kalfa $1,137,000 in salary (the “Salary Compensation”) through January 31, 2024. The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, the Company agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024. Due to administrative delays, the Company did not issue the shares in January 2024. Rather, on March 15, 2024, the Company issued 220,265 shares of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024). |
| 10. | The approval of the issuance of 50,000 shares of Common Stock to each of Yonah Kalfa, Mike Ballardie and Kirk Taylor and 25,000 shares of common stock to each of Rodney Rapson and Steven Crummey, our directors, for their services and extraordinary contribution to the Company. |
| 11. | The approval of the issuance of 16,750 shares of Common Stock to each of Juda Honickman, the Company’s chief marketing officer, and Mark Radom, the Company’s general counsel, for their services and extraordinary contribution to the Company. |
| 12. | The approval of the amendment of the 2020 Slinger Bag Inc. Global Share Incentive Plan to make an additional 1,500,000 shares of the Common Stock available for the issuance of awards under the plan. |
On June 27, 2024, the Company effected a 1-20 reverse stock split. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock and per share amounts have been retrospectively adjusted to reflect this reverse split.
The Company operates in the sport equipment and technology business. The Company is the owner of the Slinger Launcher, which is a portable tennis ball launcher as well as other associated tennis accessories and Gameface AI an Australian artificial intelligence sports software company.
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL, and Gameface are collectively referred to as the “Company.”
Basis of Presentation
The accompanying consolidated financial statements of the Company are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). As a result of the transactions described above, the accompanying consolidated financial statements include the combined results of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL, and Gameface for the years ended April 30, 2024, and 2023. The operations of Foundation Sports and PlaySight are included as discontinued operations in our statements of operations as these entities were sold in November 2022 and December 2022 as disclosed in Note 16.
Impact of Russian and Ukrainian Conflict and Israel-Hamas War
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. We are closely monitoring the unfolding events due to the Russia-Ukraine conflict and its regional and global ramifications. We have one distributor in Russia, which is not material to our overall financial results. We do not have operations in Ukraine or Belarus.
In October 2023, Hamas attacked Israel and has been engaged in warfare with Israel to-date.
We are monitoring any broader economic impact from these conflicts. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could have a material adverse effect on our financial condition, results of operations, and cash flows.
Note 2: GOING CONCERN
The financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit of $167,387,028 as of April 30, 2024, and more losses are anticipated in the development of the business. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or being able to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from related parties, and/or private placement of debt and/or common stock. In the event that the Company is unable to successfully raise capital and/or generate revenues, the Company will likely reduce general and administrative expenses, and cease or delay its development plan until it is able to obtain sufficient financing. The Company has begun reducing operating expenses and cash outflows by selling PlaySight, as well as selling 75% of Foundation Sports in November and December 2022, respectively to the former shareholders of those companies. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all. We have recorded the 25% investment in Foundation Sports at $0. We have recorded our 20% ownership stake in YYEM at $16,500,000.
Note 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Financial Statement Reclassification
Certain prior year amounts within accounts payable, accrued expenses, and certain operating expenses have been reclassified for consistency with the current year presentation and had no effect on the Company’s balance sheet, net loss, shareholders’ deficit or cash flows.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The majority of payments due from banks for credit card transactions process within 24 to 48 hours and are accordingly classified as cash and cash equivalents.
Accounts Receivable
The Company’s accounts receivable are non-interest bearing trade receivables resulting from the sale of products and payable over terms ranging from 15 to 60 days. The Company provides an allowance for doubtful accounts at the point when collection is considered doubtful. Once all collection efforts have been exhausted, the Company charges-off the receivable with the allowance for doubtful accounts. The Company recorded $40,000 and $209,690 in allowance for doubtful accounts for the years ended April 30, 2024 and 2023.
Inventory
Inventory is valued at the lower of the cost (determined principally on a first-in, first-out basis) or net realizable value. The Company’s valuation of inventory includes inventory reserves for inventory that will be sold below cost and the impact of inventory shrink. Inventory reserves are based on historical information and assumptions about future demand and inventory shrink trends. The Company’s inventory as of April 30, 2024 and April 30, 2023 consisted of the following:
SCHEDULE OF INVENTORY
| | | April 30, 2024 | | | April 30, 2023 | |
| Finished Goods | | $ | 995,533 | | | $ | 1,509,985 | |
| Component/Replacement Parts | | | 770,737 | | | | 1,712,553 | |
| Capitalized Duty/Freight | | | 26,171 | | | | 517,228 | |
| Inventory Reserve | | | (183,245 | ) | | | (550,000 | ) |
| Total | | $ | 1,609,196 | | | $ | 3,189,766 | |
Prepaid Inventory
Prepaid inventory represents inventory that is in-transit that has been paid for but not received from the Company’s third-party vendors. The Company typically prepays for the purchase of materials and receives the products within three months after making payments. The Company continuously monitors delivery from, and payments to, the vendors. If the Company has difficulty receiving products from a vendor, the Company would cease purchasing products from such vendors in future periods. The Company has not had difficulty receiving products during the reporting periods.
Property and equipment
Property and equipment acquired through business combinations are stated at the estimated fair value at the date of the acquisition. Purchases of property and equipment are stated at cost, net of accumulated depreciation and impairment losses. Expenditures that materially increase the useful life of the assets are capitalized. Ordinary repairs and maintenance are expensed as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, which is an average of 5 years.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. While we may be exposed to credit risk, we consider the risk remote and do not expect that any such risk would result in a significant effect on our results of operations or financial condition. See Note 4 for further details on the Company’s concentration of credit risk as well as other risks and uncertainties.
Revenue Recognition
The Company recognizes revenue for their continuing operations in accordance with Accounting Standards Codification (“ASC”) 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The Company recognizes revenue for its performance obligation associated with its contracts with customers at a point in time once products are shipped. Amounts collected from customers in advance of shipping products ordered are reflected as contract liabilities on the accompanying consolidated balance sheets. The Company’s standard terms are non-cancelable and do not provide for the right-of-return, other than for defective merchandise covered under the Company’s standard warranty. The Company has not historically experienced any significant returns or warranty issues.
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers”. The core principle of this revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
The Company determines that it has a contract with a customer when each party’s rights regarding the products or services to be transferred can be identified, the payment terms for the services can be identified, the Company has determined the customer has the ability and intent to pay, and the contract has commercial substance. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.
Step 2: Identify the performance obligations in the contract
The Company’s customers are buying an integrated system. In evaluating whether the equipment is a separate performance obligation, the Company’s management considered the customer’s ability to benefit from the equipment on its own or together with other readily available resources and if so, whether the service and equipment are separately identifiable (i.e., is the service highly dependent on, or highly interrelated with the equipment). Because the Products and Services included in the customer’s contract are integrated and highly interdependent, and because they must work together to deliver the Solution, the Company has concluded that Products installed on customer’s premise and Services contracted for by the customer are generally not distinct within the context of the contract and, therefore, constitute a single, combined performance obligation.
Step 3: Determine the transaction price
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer includes predetermined fixed amounts, variable amounts, or both. The Company’s contracts do not include any rights of returns or refunds.
The Company collects each year’s service fees in advance and should therefore consider the existence of a significant financing component. However, due to the fact that the payments are provided for the service of a one-year term, the Company elected to apply the practical expedient under ASC 606 which exempts the adjustment of the consideration for the existence of a significant financing component when the period between the transfer of the services and the payment for such services is one year or less.
Step 4: Allocate the transaction price to the performance obligations in the contract
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price (“SSP”). The Company has identified a single performance obligation in the contract, and therefore, the allocation provisions under ASC 606 do not apply to the Company’s contracts.
Step 5: Recognize revenue when the Company satisfies a performance obligation
Revenues for the Company’s single, combined performance obligation are recognized on a straight-line basis over the customer’s contract term, which is the period in which the parties to the contract have enforceable rights and obligations (Typically 3-4 years).
Business Combinations
Upon acquisition of a company, we determine if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, are recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company elected to apply pushdown accounting to all entities acquired.
Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the consolidated statement of operations.
Fair Value of Financial Instruments
Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 — Unobservable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their categorization within the fair value hierarchy.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, investments and accounts payable. The carrying amount of these financial instruments approximates fair value due to their short-term maturity.
The Company’s contingent consideration in connection with the acquisition of Gameface was calculated using Level 3 inputs. The fair value of contingent consideration as of April 30, 2024 and 2023 was $0 and $418,455, respectively.
The Company estimates the fair value of its intangible assets using Level 3 assumptions, primarily based on the income approach utilizing the discounted cash flow method.
The investment, at cost of $16,500,000 and $0 as of April 30, 2024 and 2023 have been classified using level 3 inputs.
The Company’s derivative liabilities were calculated using Level 2 assumptions on the issuance and balance sheet dates via a Black-Scholes option pricing model and consisted of the following ending balances and gain amounts as of and for the year ended April 30, 2024:
SCHEDULE OF DERIVATIVE LIABILITIES
| Note derivative is related to | | April 30, 2024 balance | | | (Gain) loss for the year ended
April 30, 2024 | |
| 8/6/21 warrants | | $ | 4,898 | | | $ | (97,026 | ) |
| 6/17/22 underwriter warrants | | | 535 | | | | (5,996 | ) |
| 9/30/22 warrants issued with common stock | | | - | | | | (16,484,486 | ) |
| 1/6/2023 warrants issued with note payable | | | - | | | | (2,720,053 | ) |
| 10/11/2023 warrants issued with note payable | | | - | | | | (46,909 | ) |
| 12/7/2023 warrants issued with note payable | | | - | | | | 11,718,858 | |
| Total | | $ | 5,433 | | | $ | (7,635,612 | ) |
The Company’s derivative liabilities were calculated using Level 2 assumptions on the issuance and balance sheet dates via a Black-Scholes option pricing model and consisted of the following ending balances and gain amounts as of and for the year ended April 30, 2023:
| Note derivative is related to | | April 30, 2023 ending balance | | | (Gain) loss for the year ended
April 30, 2023 | |
| 4/11/21 profit guaranty | | $ | 1,456,854 | | | $ | 395,304 | |
| 8/6/21 convertible notes | | | 101,924 | | | | (2,611,410 | ) |
| 6/17/22 underwriter warrants | | | 6,531 | | | | (57,951 | ) |
| Other derivative liabilities eliminated in uplist | | | - | | | | (1,604,413 | ) |
| 9/30/22 warrants issued with common stock | | | 6,109,559 | | | | (6,170,728 | ) |
| 1/6/2023 warrants issued with note payable | | | 2,814,738 | | | | (900,819 | ) |
| Total | | $ | 10,489,606 | | | $ | (10,950,017 | ) |
The Company also recognized derivative expense of $14,119,784 and 8,995,962 at inception on the issuance dates of the derivative instruments for the years ended April 30, 2024 and 2023, respectively.. The Black-Scholes option pricing model assumptions for the derivative liabilities during the years ended April 30, 2024 and 2023 consisted of the following:
SCHEDULE OF DERIVATIVE AND WARRANTS GRANTED VALUATION USING BLACK-SCHOLES PRICING METHOD
| | | Year Ended
April 30, 2024 | | | Year Ended
April 30, 2023 | |
| Expected life in years | | | 2.5 -10 years | | | | 3.25-10 years | |
| Stock price volatility | | | 150 | % | | | 50 - 150 % | |
| Risk free interest rate | | | 4.08-5.37 % | | | | 2.90%-4.34 % | |
| Expected dividends | | | 0 | % | | | 0 | % |
Refer to Note 10 and Note 11 for more information regarding the derivative instruments.
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are more likely than not to be realized.
Intangible Assets
Intangible assets relate to the “Slinger” technology trademark, which the Company purchased on November 10, 2020. The Company also acquired intangible assets as a part of the Gameface acquisition. These intangible assets include tradenames, internally developed software, and customer relationships. The acquired intangible assets are amortized based on the estimated present value of cash flows of each class of intangible assets in order to determine their economic useful life. All intangible assets acquired with the PlaySight transaction are included in discontinued operations. Refer to Note 6 for more information.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. Factors which could trigger impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets or significant negative industry or economic trends. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. If those net undiscounted cash flows do not exceed the carrying amount, impairment, if any, is based on the excess of the carrying amount over the fair value based on the market value or discounted expected cash flows of those assets and is recorded in the period in which the determination is made. There was impairment of long-lived assets identified during the year ended April 30, 2024 and 2023 in our continuing operations. Refer to Note 6 for more information.
Goodwill
The Company accounts for goodwill in accordance with ASC 350, Intangibles - Goodwill and Other (“ASC 350”). ASC 350 requires that goodwill not be amortized, but reviewed for impairment if impairment indicators arise and, at a minimum, annually. The Company records goodwill as the excess purchase price over assets acquired and includes any work force acquired as goodwill. Goodwill is evaluated for impairment on an annual basis.
With the adoption of the ASU 2017-04, which eliminates the second step of the goodwill impairment test, the Company tests impairment of goodwill in one step. In this step, the Company compares the fair value of each reporting unit with goodwill to its carrying value. The Company determines the fair value of its reporting units with goodwill using a combination of a discounted cash flow and a market value approach. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the Company will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the Company will not record an impairment charge.
The Company impaired all goodwill as of April 30, 2023.
Share-Based Payment
The Company accounts for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (ASC 718). Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
Warrants
The Company grants warrants to key employees and executives as compensation on a discretionary basis. The Company also grants warrants in connection with certain note payable agreements and other key arrangements. The Company is required to estimate the fair value of share-based awards on the measurement date and recognize as expense that value of the portion of the award that is ultimately expected to vest over the requisite service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 11 and Note 14.
The warrants granted during the years ended April 30, 2024 and 2023 were valued using a Black-Scholes option pricing model on the date of grant using the following assumptions:
SCHEDULE OF WARRANTS GRANTED VALUATION USING BLACK-SCHOLES PRICING METHOD
| | | Year Ended April 30, 2024 | | Year Ended April 30, 2023 |
| Expected life in years | | | 5-10 years | | | | 5 – 10 years | |
| Stock price volatility | | | 150 | % | | | 50% - 150% | |
| Risk free interest rate | | | 4.59 | % | | | 2.50% - 4.68% | |
| Expected dividends | | | 0 | % | | | 0 | % |
Foreign Currency Translation
Our functional currency is the U.S. dollar. The functional currency of our foreign operations, generally, is the respective local currency for each foreign subsidiary. Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date. Our consolidated statements of comprehensive loss are translated at the weighted average rate of exchange during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive loss in shareholders’ equity. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (loss) in the period in which they occur.
Earnings Per Share
Basic earnings per share are calculated by dividing income available to shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period.
All common stock equivalents such as shares to be issued for the conversion of notes payable and warrants were excluded from the calculation of diluted earnings per share as the effect is antidilutive. As a result, the basic and diluted earnings per share are the same for each of the periods presented.
Note 4: CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES
Accounts Receivable Concentration
As of April 30, 2024, the Company had two customers that accounted for 100%, compared to two customers accounting for 47% of the Company’s trade receivables balance as of April 30, 2023.
Accounts Payable Concentration
As of April 30, 2024 and 2023, the Company had four significant suppliers that accounted for 63% and 59% of the Company’s trade payables balances, respectively.
Note 5: INTANGIBLE ASSETS
Intangible assets reflect only those intangible assets of our continuing operations, and consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
| | | Amortization (in years) | | | Carrying Value | | | Accumulated Amortization | | | Impairment Loss | | | Net Carrying Value | |
| | | Weighted | | | | |
| | | Average Period | | | April 30, 2024 | |
| | | Amortization (in years) | | | Carrying Value | | | Accumulated Amortization | | | Impairment Loss | | | Net Carrying Value | |
| Tradenames and patents | | | 15.26 | | | $ | 385,582 | | | $ | 24,031 | | | $ | 360,551 | | | $ | 1,000 | |
| Customer relationships | | | 9.92 | | | | 3,930,000 | | | | 50,038 | | | | 3,879,962 | | | | — | |
| Internally developed software | | | 4.91 | | | | 580,000 | | | | 79,608 | | | | 500,392 | | | | — | |
| Total intangible assets | | | | | | $ | 4,895,582 | | | $ | 153,677 | | | $ | 4,740,905 | | | $ | 1,000 | |
| | | Amortization (in years) | | | Carrying Value | | | Accumulated Amortization | | | Impairment Loss | | | Net Carrying Value | |
| | | Weighted | | | | |
| | | Average Period | | | April 30, 2023 | |
| | | Amortization (in years) | | | Carrying Value | | | Accumulated Amortization | | | Impairment Loss | | | Net Carrying Value | |
| Tradenames and patents | | | 15.26 | | | $ | 385,582 | | | $ | 24,031 | | | | 260,270 | | | $ | 101,281 | |
| Customer relationships | | | 9.92 | | | | 3,930,000 | | | | 50,038 | | | | 3,879,962 | | | | — | |
| Internally developed software | | | 4.91 | | | | 580,000 | | | | 79,608 | | | | 500,392 | | | | — | |
| Total intangible assets | | | | | | $ | 4,895,582 | | | $ | 153,677 | | | $ | 4,640,624 | | | $ | 101,281 | |
Amortization expense for the years ended April 30, 2024 and 2023 was approximately $1,000 and $101,281, respectively. The Company impaired $100,281 for the year ended April 30, 2024. The remaining $1,000 is a nominal value related to the Company’s patents. This amount is not expected to be amortized any further.
Note 6: ACCRUED EXPENSES
The composition of accrued expenses is summarized below:
SCHEDULE OF ACCRUED EXPENSES
| | | April 30, 2024 | | | April 30, 2023 | |
| Accrued payroll | | $ | 1,304,363 | | | $ | 1,535,186 | |
| Accrued bonus | | | 1,022,751 | | | | 1,720,606 | |
| Accrued professional fees | | | 37,212 | | | | 490,424 | |
| Other accrued expenses | | | 1,041,046 | | | | 1,165,623 | |
| Total | | $ | 3,405,372 | | | $ | 4,911,839 | |
Note 7: NOTE PAYABLE - RELATED PARTY
The discussion of note payable – related party only includes those that existed as of April 30, 2023. For a discussion of all prior note payable – related party we refer you to the Annual Report on Form 10-K filed September 14, 2023 for the fiscal year end April 30, 2023.
On January 14, 2022, the Company entered into two loan agreements with related party lenders, each for $1,000,000, pursuant to which the Company received a total amount of $2,000,000. The loans bear interest at a rate of 8% per annum and are required to be repaid in full by April 30, 2022 or such other date as may be accepted by the lenders. The Company is not permitted to make any distribution or pay any dividends unless or until the loans are repaid in full. On June 28, 2022, the Company entered into amendments for the two related party loan agreements with the lenders in which the repayment date was extended to July 31, 2024.
There was $1,169,291 and $1,953,842 in outstanding borrowings from related parties as of April 30, 2024 and 2023. Interest expense related to the related parties for the years ended April 30, 2024 and 2023 amounted to $0 and $293,090, respectively. Accrued interest due to related parties as of April 30, 2024 and 2023 amounted to $917,957 and $917,957, respectively. The accrued interest includes notes that were either repaid or converted but the interest remained.
On January 6, 2023, we sold certain of our inventory including all components, parts, additions and accessions thereto to Yonah Kalfa and Naftali Kalfa who immediately consigned it back to us in exchange for a payment of $103 per ball launcher we sell until we have paid them an aggregate total of $2,092,700, which represents payment in full of the principal amounts of and accrued interest in respect of the Loan Agreements (as defined above) and certain other expenses they incurred in connection with the Company.
Note 8: CONVERTIBLE NOTES PAYABLE
The discussion of convertible notes payable only includes those that existed as of April 30, 2023. For a discussion of all prior convertible notes payable we refer you to the Annual Report on Form 10-K filed September 14, 2023 for the fiscal year end April 30, 2023.
As of April 30, 2024, all outstanding convertible notes payable had been fully converted into outstanding common shares. On June 17, 2022, the Company issued 109,737 shares of common stock in conversion of the $13,200,000 in convertible notes payable and $846,301 in accrued interest. In addition, the remaining $122,222 of unamortized discount on the convertible notes payable was amortized and included in our consolidated statements of operations for the fiscal year end April 30, 2023.
Note 9: NOTES PAYABLE
The discussion of notes payable only includes those that existed as of April 30, 2023. For a discussion of all prior notes payable we refer you to the Annual Report on Form 10-K filed September 14, 2023 for the fiscal year end April 30, 2023.
On April 11, 2021, the Company and the lender entered into an agreement whereby the lender converted the promissory note into 681 shares of Company stock, which were issued to the lender at a 20% discount from the closing price of the stock on the day prior to the conversion. In addition to the discount, the agreement contains a guarantee that the aggregate gross sales of the shares by the lender will be no less than $1,500,000 over the next three years and if the aggregate gross sales are less than $1,500,000 the Company will issue additional shares of common stock to the lender for the difference between the total gross proceeds and $1,500,000, which could result in an infinite number of shares being required to be issued.
The Company evaluated the conversion option of the note payable to shares under the guidance in ASC 815-40, Derivatives and Hedging, and determined the conversion option qualified for equity classification. The Company also evaluated the profit guarantee under ASC 815, Derivatives and Hedging, and determined it to be a make-whole provision, which is an embedded derivative within the host instrument. As the economic characteristics are dissimilar to the host instrument, the profit guarantee was bifurcated from the host instrument and stated as a separate derivative liability, which is marked to market at the end of each reporting period with the non-cash gain or loss recorded in the period as a gain or loss on derivative.
On the date of conversion, the Company recognized a $1,501,914 loss on extinguishment of debt, which represented the difference between the promissory note and the fair value of the shares issued of $1,250,004, which were recorded in shares issued in connection with conversion of note payable within shareholders’ equity, as well as the derivative liability of $1,251,910, which was valued using a Black-Scholes option pricing model.
The fair value of the derivative liability was $1,456,854 as of April 30, 2023.
On August 21, 2023, the Company amended its arrangement with MidCity and agreed to issue 42,500 shares of stock monthly for eight months to settle the profit guarantee under its prior note arrangement from April 2020. The parties agreed to a one-time true-up at March 31, 2024 if any further amounts are due MidCity at that time. As a result of this new agreement with MidCity fixing the terms of the guarantee, the Company has removed the criteria that created a net share settlement issue and thus no longer treats this as a derivative liability. The remaining liability has been adjusted against additional paid in capital at the date of the agreement.
On February 15, 2022, for and in consideration of $4,000,000 the Company conveyed, sold, transferred, set over, assigned and delivered to Slinger Bag Consignment, LLC, a Virginia limited liability company (“Consignor”), all of the Company’s right, title and interest in and to 13,000 units of certain surplus inventory, including all components, parts, additions and accessions thereto (collectively, the “Consigned Goods”). The Company has repaid this in full as of April 30, 2024.
On April 1, 2022, the Company entered into a $500,000 note payable. The note was to mature on July 1, 2022 and bears interest at eight percent (8%) per year. The Company pays interest monthly and will pay all accrued and unpaid interest on the maturity date in which the outstanding principal is due. On August 1, 2022, the Company repaid the $500,000.
Cash Advance Agreements
UFS Agreements
On August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement”) pursuant to which the Company sold $797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000 in cash less fees of $50,000. The Company agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in the following collateral: all accounts receivable and all proceeds as such term is defined by Article 9 of the UCC. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
On March 6, 2024, the Company entered into an agreement (the “UFS Agreement”) with Unique Funding Solutions (“UFS”) pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement, the Company granted to UFS a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar Agreements
On January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000 in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
On April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
On April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Meged Agreements
On June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables Purchased Amount is paid in full.
On September 19, 2023, the Company entered into an agreement with Meged (the “Second Meged Agreement”) pursuant to which the Company sold $423,000 in future receivables to Meged (the “Meged Second Receivable Amount”) in exchange for paying the then outstanding balance of $70,153.20 of the Meged Receivables Purchased Amount in full with the balance being retained by the Company in cash for general purposes. The Company agreed to pay Meged $15,107.14 each week until the Meged Second Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to Meged under the Second Meged Agreement, the Company granted to Meged a security interest in the following collateral: all accounts receivable and all proceeds as such term is defined by Article 9 of the UCC. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Agile Capital Funding Agreements
On November 16, 2023, the Company entered into an agreement with Agile Capital Funding (the “ACF Agreement”) pursuant to which the Company sold $693,500 in future receivables to ACF (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The Company agreed to pay ACF $28,895.83 each week until the ACF Receivable Amount is paid in full.
In order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
On January 10, 2024, the Company entered into an agreement with Agile Capital Funding, LLC (the “Agile Jan Agreement”) pursuant to which the Company sold $1,460,000 in future receivables to Agile Capital Funding, LLC (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to Agile a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount.
Note 10: RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attain adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by officers, directors, or shareholders. Amounts represent advances, amounts paid in satisfaction of liabilities, or accrued compensation that has been deferred. The advances are considered temporary in nature and have not been formalized by a promissory note.
The Company has outstanding notes payable of $1,169,291 and $1,953,842 and accrued interest of $917,957 and $917,957 due to a related party as of April 30, 2024 and April 30, 2023, respectively (see Note 7).
The Company recognized net sales of $177,219 and $164,661 during the years ended April 30, 2024 and 2023, respectively, to related parties. As of April 30, 2024 and 2023, related parties had accounts receivable due to the Company of $17,720 and $28,800, respectively.
Note 11: SHAREHOLDERS’ EQUITY (DEFICIT)
Common Stock
The Company had 300,000,000 shares authorized as at April 30, 2024 and, as at the date hereof, has 1,000,000,000 shares of common stock authorized with a par value of $0.001 per share. As of April 30, 2024 and April 30, 2023, the Company had 1,828,541 and 16,929 shares of common stock issued and outstanding, respectively.
Equity Transactions During the Year Ended April 30, 2024
The Company issued an aggregate of 1,811,612 shares of its common stock consisting of the following:
For the period May 1, 2023 through July 31, 2023, the Company issued 9,486 shares of common stock to ambassadors under their agreements (10), to vendors in settlement of accounts payable (3,375), for settlement with former owners of FSS (168), for the exercise of warrants (1,350) and to satisfy the profit guarantee on a note (4,819).
For the period August 1, 2023 through October 31, 2023, the Company issued 192,226 shares of common stock for services rendered (686), for settlement with former owners of Gameface and the remaining contingent consideration (99), for the exercise of warrants (185,408) and to satisfy the profit guarantee on a note (4,250). In addition, we issued 1,785 to satisfy our requirement under the 1 for 40 reverse split that occurred in this time period.
For the period November 1, 2023 through January 31, 2024, the Company issued 909,983 shares of common stock in exercises of warrants and in a securities purchase agreement with three investors (598,141), shares owed to shareholders of previously purchased companies (3), settlements (128,375), services rendered (37,804), and cashless exercises of warrants (2,145,661).
For the period February 1, 2024 through April 30, 2024, the Company issued 799,919 shares of common stock in cashless exercises of warrants (71), settlements (579,584) and for conversion of deferred compensation/services (220,265).
Equity Transactions During the Year Ended April 30, 2023
The Company issued an aggregate of 11,686 shares of its common stock consisting of the following:
| | On June 15, 2022, the Company issued 5,485 shares of common stock to the Convertible Noteholders upon conversion of convertible notes. |
| | |
| | On June 15, 2022, the Company issued 1,311 shares to investors who participated in the Company’s Nasdaq uplist round. |
| | |
| | On June 27, 2022, the Company issued 32 shares of common stock to Gabriel Goldman for consulting services performed in the first quarter of calendar 2022. Gabriel Goldman became a director of the Company on June 15, 2022. |
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| | On June 27, 2022, the Company issued 748 shares of common stock to the former Gameface shareholders in connection with the purchase of Gameface. |
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| | On August 25, 2022, the Company issued 1,500 shares of common stock to Midcity Capital Ltd (“Midcity”) pursuant to a cashless conversion of warrants Midcity received from its warrant agreement with the Company dated March 2020. |
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| | On September 28, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with a single institutional investor (the “Investor”) for the issuance and sale of (i) 1,274 shares of common stock and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 14,753 shares of its common stock, together with accompanying common stock warrants, at a combined purchase price of $312 per share of the common stock and associated common stock warrant and $311.92 per Pre-Funded Warrant and associated common stock warrants for an aggregate amount of approximately $5.0 million (the “Offering”). The Pre-Funded Warrants have an exercise price of $0.008 per share of common stock and are exercisable until the Pre-Funded Warrants are exercised in full. The shares of common stock and Pre-Funded Warrants were sold in the offering together with common stock warrants to purchase 16,026 shares of common stock at an exercise price of $312 per share and a term of five years following the initial exercise date (the “5-Year Warrants”) and common stock warrants to purchase 32,052 shares of common stock at an exercise price of $344 per share and a term of seven and one half years (the “7.5-Year Warrants”) following the initial exercise date (collectively, the “Warrants”). The Warrants issued in the Offering contain variable pricing features. The Warrants and Pre-Funded Warrants will be exercisable beginning on the date stockholder approval is received and effective allowing exercisability of the Warrants and Pre-Funded Warrants under Nasdaq rules. Net proceeds to the Company were $4,549,882. |
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| | On October 12, 2022, the Company issued 2,405 shares of common stock, on November 21, 2022 issued 34 shares of common stock and January 26, 2023 issued 350 shares of common stock in connection with the acquisition of PlaySight. |
| | On January 26, 2023, the Company issued 8 shares of common stock for services rendered to their ambassadors. |
There were 2 shares issued in a fractional share issuance.
The Company granted the following warrants for the year ended April 30, 2024:
The Company granted 2,500 warrants to a consultant for services valued at $50,873.
The Company granted an investor an additional 38,590 warrants as a result of our reset provisions in the warrant agreements dated September 28, 2022. The Company recognized an $11,398,589 charge to derivative expense as a result of this issuance.
The Company granted 846 warrants in the amended loan agreement on October 1, 2023.
On December 6, 2023, the “Company entered into an inducement offer letter agreement (the “Inducement Letter”) with the Armistice Selling Shareholder of certain of the Company’s existing warrants to purchase up to a total of 24,862 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), consisting of: (i) 7,051 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $709.20 per share with a term of five year (the “September 2022 Five Year Warrants”); (ii) 15,548 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $3709.20 per share with a term of seven and one half years (the “September 2022 Seven and a Half Year Warrants”); and (iii) 2,263 shares of Common Stock issuable upon the exercise of warrants issued on January 6, 2023 (the “January 2023 Warrants” and, together with the September 2022 Five Year Warrants and the September 2022 Seven and a Half Year Warrants, the “Existing Warrants).
Pursuant to the Inducement Letter, Armistice agreed to exercise for cash the 2022 and 2023 Warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $5.88 per share in consideration of the Company’s agreement to issue common stock purchase warrants to purchase up to an aggregate of 497,221 shares of Common Stock (the “December Warrants”). The Company received aggregate gross proceeds of $1,461,827.68 from the exercise of the 2022 and 2023 Warrants by the Holder, before deducting offering expenses payable by it. The transaction closed on December 7, 2023.
On January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $0.40 per share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
The resale of the shares of the Common Stock underlying the Existing Warrants and 11,224 shares of Common Stock owned by Sapir LLC, a consultant engaged by the Company were registered pursuant to an existing registration statement on Form S-1 (File No. 333-275407), declared effective by the Securities and Exchange Commission (the “SEC”) on December 4, 2023.
The Company also agreed to file a registration statement on Form S-1 (or other appropriate form if it is not then Form S-1 eligible) providing for the resale of the New Warrant Shares issued or issuable upon the exercise of the New Warrants (the “Resale Registration Statement”), within sixty (60) days after the Closing Date, and to use commercially reasonable efforts to have such Resale Registration Statement declared effective by the SEC within 120 days following the Closing Date and to keep the Resale Registration Statement effective at all times until no holder of the New Warrants owns any New Warrants or New Warrant Shares. The Company will have to pay partial liquidated damages pursuant to the Resale Registration Statement provision of the Inducement Letter if certain deadlines and requirements are not met. In the Inducement Letter, the Company agreed not to issue any shares of Common Stock or Common Stock equivalents or to file any other registration statement with the SEC (in each case, subject to certain exceptions) until sixty (60) days after the Closing Date. The Company also agreed not to effect or agree to effect any Variable Rate Transaction (as defined in the Inducement Letter) until one (1) year after the Closing Date (subject to an exception). In addition, the Company agreed in the Inducement Letter to grant the Holder a participation right in future financings until the date the principal amount of a promissory note issued to the Holder in January 2023 and as modified in October 2023 has been fully repaid.
On January 20, 2024 the Company granted an officer 317,514 warrants with a strike price of $0.02 and a term of ten years in conversion of $1,187,500 in deferred compensation that was accrued for them.
Warrants Granted During the Year Ended April 30, 2024 and April 30, 2023
On September 28, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with a single institutional investor (the “Investor”) for the issuance and sale of (i) 1,274 shares of common stock and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 14,753 shares of its common stock, together with accompanying common stock warrants, at a combined purchase price of $312 per share of the common stock and associated common stock warrant and $311.92 per Pre-Funded Warrant and associated common stock warrants for an aggregate amount of approximately $5.0 million (the “Offering”). The Pre-Funded Warrants have an exercise price of $0.008 per share of common stock and are exercisable until the Pre-Funded Warrants are exercised in full. The shares of common stock and Pre-Funded Warrants were sold in the offering together with common stock warrants to purchase 16,026 shares of common stock at an exercise price of $312 per share and a term of five years following the initial exercise date (the “5-Year Warrants”) and common stock warrants to purchase 32,052 shares of common stock at an exercise price of $344 per share and a term of seven and one half years (the “7.5-Year Warrants”) following the initial exercise date (collectively, the “Warrants”). The Warrants issued in the Offering contain variable pricing features. The Warrants and Pre-Funded Warrants will be exercisable beginning on the date stockholder approval is received and effective allowing exercisability of the Warrants and Pre-Funded Warrants under Nasdaq rules. Net proceeds to the Company were $4,549,882. The exercise price of the Warrants was reset in January 2023 to $176.80 per share and in October 2023 to $70.92 per share.
On January 6, 2023, the Company entered into a loan and security agreement (the “Loan and Security Agreement”) with one or more institutional investors (the “Lenders”) and Armistice Capital Master Fund Ltd. as agent for the Lenders (the “Agent”) for the issuance and sale of (i) a note in an aggregate principal amount of up to $2,000,000 (the “Note”) with the initial advance under the Loan and Security Agreement being $1,400,000 and (ii) warrants (the “Warrants”) to purchase a number of shares of common stock of the Company equal to 200% of the face amount of the Note divided by the closing price of the common stock of the Company on the date of the issuance of the Notes (collectively, the “Initial Issuance”). The closing price of the Company’s common stock on January 6, 2023, as reported by Nasdaq, was $176.80 per share, so the Warrants in respect of the initial advance under the Note are exercisable for up to 90,498 shares of the Company’s common stock. The Warrants have an exercise price per share equal to the closing price of the common stock of the Company on the date of the issuance of the Note, or $4.42 per share and a term of five- and one-half (5½) years following the initial exercise date. The initial exercise date of the Warrants was September 13, 2023, the date stockholder approval was received and effective allowing exercisability of the Warrants under Nasdaq rules. Pursuant to the terms of the Loan and Security Agreement, an additional advance of $600,000 was made to the Company under the Note in February 2023. The Company’s obligations under the terms of the Loan and Security Agreement were fully and unconditionally guaranteed by all of the Company’s subsidiaries (the “Guarantors”).
The following represents a summary of the warrants:
SCHEDULE OF WARRANTS ISSUED, EXERCISED AND EXPIRED
| | | Year Ended April 30, 2024 | | | Year Ended April 30, 2023 | |
| | | Number | | | Weighted
Average
Exercise Price | | | Number | | | Weighted
Average
Exercise
Price | |
| Beginning balance | | | 89,615 | | | $ | 684.20 | | | | 4,853 | | | $ | 8,890.00 | |
| | | | | | | | | | | | | | | | | |
| Granted | | | 5,254,438 | | | | 0.59 | | | | 85,706 | | | | 234.00 | |
| Exercised | | | (472,651 | ) | | | - | | | | - | | | | - | |
| Forfeited | | | - | | | | - | | | | - | | | | - | |
| Expired | | | (179 | ) | | | - | | | | (944 | ) | | | - | |
| Ending balance | | | 4,871,223 | | | $ | 1.44 | | | | 89,615 | | | $ | 684.20 | |
| Intrinsic value of warrants | | $ | 3,712,223 | | | | | | | $ | 2,344,529 | | | | | |
| Weighted Average Remaining Contractual Life (Years) | | | 9.25 | | | | | | | | 6.45 | | | | | |
As of April 30, 2024, 4,871,223 warrants are vested.
Note 12: COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under short-term leases with terms under a year. Total rent expense for the nine months ended April 30, 2024 and 2023 amounted to $9,426 and $4,900, respectively.
Contingencies
In connection with the Gameface acquisition on February 2, 2022, the Company agreed to earn-out consideration of common shares of the Company’s common stock with a fair value of $1,334,000.
The Company issued 14,960 common shares to the former Gameface shareholders in June 2022. The remaining balance of the contingent consideration of $418,455 was converted on October 23, 2023.
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it currently believes would individually or taken together have a material adverse effect on the Company’s business or financial statements.
On February 8, 2023, Oasis Capital, LLC (“Oasis”) filed a complaint against the Company in the United States District Court for the Southern District of New York seeking damages (i) in the amount of $764,647.53 in for an alleged breach of the terms of the 8% senior convertible note and the securities purchase agreement entered into between Oasis and the Company in connection with the Note (as defined below), which in December 2021 was increased to $600,000 in principal amount (the “Note”) and (ii) an unspecified amount of damage for an alleged breach of the exclusivity provisions of a term sheet that the Company and Oasis entered into on July 7, 2022 plus an actual damages in an amount to be proven at trial, interest and costs, reasonable attorney’s fees and such other legal and equitable relief as the court deems just and proper. On June 30, 2023, the United States District Court for the Southern District of New York granted the Company’s motion to dismiss this complaint but with leave to amended complaint. On July 31, Oasis filed an amended complaint against the Company and its Chief Executive Officer, Mike Ballardie, seeking damages in an amount to be proven at trial, interest and costs for breach of fiduciary duty and violations of Section 10(b) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. On February 28, 2024, the Company and Oasis settled this matter by entering into a settlement agreement pursuant to which the Company paid Oasis $225,000 in cash in exchange for a dismissal of the action by Oasis and a full release.
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us or has a material interest adverse to us.
Nasdaq Compliance
On July 26, 2023, the Company received a letter from the Listing Qualifications Department of Nasdaq indicating that the Company’s stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2023 did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity be at least $2.5 million (the “Minimum Stockholders’ Equity Requirement”). In addition, the Company did not meet the alternatives of listed securities or net income from continuing operations as of the date of the letter. The Company timely submitted a compliance plan to the Panel and on August 23, 2023 received notice from Nasdaq that it has until January 22, 2024 to demonstrate compliance with the Minimum Stockholders’ Equity Requirement. On January 22, 2024, the Company consummated and received a cash investment of $16,500,000 (as described in more detail below), which increased the Company’s stockholder equity to $4,045,326, which has brought the Company back into compliance with the Minimum Stockholders’ Equity Requirement. On January 30, 2024, the Company received a letter from Nasdaq confirming that following the receipt of a an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing Panel’s decision dated April 12, 2023, and (ii) in application of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year monitoring period, the Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide Nasdaq with a plan of compliance with respect to such deficiency and Nasdaq will not be permitted to grant additional time for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Ruel 5810(c)(3). Instead, Nasdaq will issue a delist determination letter and the Company will have the opportunity to request a new hearing. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
On December 12, 2023, the Company received a letter (the “Notice”) from the Staff informing the Company that because the closing bid price for the Common Stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given a period of 180 calendar days from December 12, 2023, or until June 10, 2024, to regain compliance with the Minimum Bid Price Requirement.
On June 11, 2024, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that (i) the Company did not regained compliance with the Rule within the prescribed time period and is not eligible for a second 180-day remediation period. Specifically, the Company did not comply with the $5,000,000 minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market under the Equity Standard and (ii) unless the Company requests an appeal by June 18, 2024, of this determination, Nasdaq has determined that the Company’s securities will be scheduled for delisting from Nasdaq and will be suspended at the opening of business on June 21, 2024, and a Form 25-NSE will be filed with the Securities and Exchange Commission (the “SEC”), which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market (the “Delisting Determination”).
The Company appealed of the Delisting Determination on June 18, 2024 by requesting a hearing before the Panel to stay the suspension of the Company’s securities and the filing of the Form 25-NSE with the SEC. On June 27, 2024, the Company effected a 1-20 reverse stock split, which brought its share price to $8.71, which, in turn, caused the Company to regain compliance with the Minimum Bid Price Requirement and on July 11, 2024, the Company completed 10 consecutive trading days with the bid price in excess of $1 and on July 18, 2024 received Nasdaq confirmation that the hearing panel has been cancelled and the Delisting Determination has been withdrawn.
Note 13: YYEM PURCHASE AGREEMENT
On March 18, 2024, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) and a share exchange agreement (the “Share Exchange Agreement,” and together with the Share Purchase Agreement, the “Agreements”) to acquire a total of 70% of the issued and outstanding ordinary shares of Yuanyu Enterprise Management Co., Limited (“YYEM”), a Hong Kong company, from the sole shareholder of YYEM, Mr. Hongyu Zhou (the “Seller”), for a combined $56 million. The consummation of the transactions contemplated in the Agreements will result in a change in control of the Company as the shareholders of YYEM will become the owners 82.4% of the issued and outstanding shares of common stock of the Company (the “Common Stock”). As part of this transaction, as further described below under the heading of “The Separation Agreement”, the Company has agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity to be majority owned by Yonah Kalfa and Mike Ballardie.
The Acquisition Structure
Pursuant to the Share Purchase Agreement, the Company agreed to purchase, and the Seller agreed to sell, 2,000 ordinary shares of YYEM, representing 20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”), payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024. The $16,500,000 has been classified as an investment on the consolidated balance sheet as of April 30, 2024.
Pursuant to the Share Exchange Agreement, the Company has agreed to purchase, and the Seller has agreed to sell, 5,000 ordinary shares of YYEM, representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the Seller (the “Share Exchange Transaction,” and together with the Share Purchase Transaction, the “Transactions”). The shares are expected to represent 82.4% of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction (the “Share Exchange Consideration”).
The Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities” within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly unless they have been held for at least six months and subject to other conditions.
Separation Agreement
In connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business, assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy Business”) to a newly established entity (“NewCo”), and that after the Closing Date, NewCo will have the sole right to and obligations of the Legacy Business and will be liable to the Company for any losses arising from third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo will be owned by Yonah Kalfa and Mike Ballardie.
On a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.1 million (which represents the assets of the Company as of January 31, 2024, minus, on a pro forma basis, the $16.5 million used for the purchase of 20% ownership of YYEM in April 2024), and the liabilities of the Legacy Business were $12.0 million (which represents the liabilities of the Company as of April 30, 2024).
Financial Accommodations
As an inducement to the Company to complete the Transactions, the Agreements provide that aggregate payments of (a) $4,500,000 shall be made to the Company in cash by YYEM and (b) $500,000 shall be made to NewCo (as defined under the header “The Separation Agreement”) in cash by YYEM, as follows: (i) $800,000 payable within two (2) business days of the date of the Agreements; (ii) $1,200,000 payable within three (3) business days of the Company changing its ticker symbol from “CNXA” to “YYAI,” or such other symbol as the parties may agree; (iii) $2,000,000 payable at the Closing and (iv) $500,000 to be paid within 30 days from the Closing Date and paid to NewCo. Out of the $4,500,000, the Company paid $2,142,857 to certain companies for arranging the Transactions.
Management following the Acquisition
At or after the Closing, the board of directors of Connexa (the “Board”) shall comprise those individuals designated by YYEM Seller, and all current members of the Board shall resign with such resignation being effective on the later of the Closing or the appointment or election of the new directors.
Closing Conditions
The Share Exchange, as amended, provides that:
| | ● | on or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
| | ● | on or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio to be determined by the parties; |
| | ● | as a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common Stock will be delisted from Nasdaq; and |
| | ● | the Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was obtained on May 15, 2024, and a new listing application was submitted to Nasdaq in May 2024, which is currently under review by Nasdaq and the 1:20 reverse split took place on 27 June 2024. |
We cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing Deliverables
At the Closing, the Company shall deliver to YYEM Seller the following:
| | ● | copies of all resolutions of the Board authorizing the execution, delivery, and performance of the Exchange Agreement and the other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
| | | |
| | ● | the Exchange Shares; |
| | | |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
| | | |
| | ● | a duly executed bought and sold note, as applicable; and |
| | | |
| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior to the Closing pursuant to the Exchange Agreement. |
At the Closing, YYEM Seller shall deliver to the Company the following:
| | ● | payment of the Closing Cash Payment (as defined in the Exchange Agreement); |
| | ● | a good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
| | | |
| | ● | if the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
| | | |
| | ● | a counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
| | | |
| | ● | all documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
| | | |
| | ● | a duly executed bought and sold note as may be required under the law of Hong Kong; and |
| | | |
| | ● | all other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Note 14: INCOME TAXES
The Company does business in the US through its subsidiaries Slinger Bag Inc. and Slinger Bag Americas. It also does business in Israel through SBL whose operations are reflected in the Company’s consolidated financial statements. The Company’s operations in Canada, Israel, and the UK were immaterial for the years ended April 30, 2024 and 2023.
Net deferred tax assets from operations in the US, using an effective tax rate of 21%, consisted of the following:
SCHEDULE OF NET DEFERRED TAX ASSETS
| | | 2024 | | | 2023 | |
| | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Loss carryforwards | | $ | 6,298,000 | | | $ | 3,049,000 | |
| Research and development costs | | | | | | | | |
| Stock options | | | 7,606,000 | | | | 8,454,000 | |
| Capital loss carryforward/Disposal | | | 186,000 | | | | 11,039,000 | |
| Related party accruals | | | 1,013,000 | | | | 1,001,000 | |
| Inventory reserve | | | 63,000 | | | | 133,000 | |
| Interest deferral | | | 223,000 | | | | 221,000 | |
| Start-up costs | | | 66,000 | | | | 81,000 | |
| Other | | | 138,000 | | | | 131,000 | |
| Valuation allowance | | | (15,593,000 | ) | | | (24,109,000 | ) |
| Net deferred tax assets | | $ | - | | | $ | — | |
The income tax provision differs from the amount of income tax determined by applying the applicable statutory income tax rate to pretax loss due to the following for the years ended April 30, 2024 and 2023:
SCHEDULE OF INCOME TAX PROVISION
| | | 2024 | | | 2023 | |
| | | | | | | |
| Income tax benefit based on book loss at US statutory rate | | $ | 2,808,000 | | | $ | (10,983,000 | ) |
| Share-based compensation and shares for services | | | — | | | | — | |
| Debt discount amortization | | | 3,250,000 | | | | 860,000 | |
| Related party accruals | | | (94,000 | ) | | | 226,000 | |
| Stock options | | | — | | | | (145,000 | ) |
| Interest expense | | | 132,000 | | | | 79,000 | |
| Depreciation | | | 20,000 | | | | (18,000 | ) |
| Inventory reserve | | | (107,000 | ) | | | 26,000 | |
| Interest deferral | | | — | | | | (5,000 | ) |
| Acquisition costs | | | 24,000 | | | | 260,000 | |
| Accrued legal | | | — | | | | (76,000 | ) |
| Loss on sale of capital assets | | | — | | | | 8,713,000 | |
| Accrued payroll | | | — | | | | — | |
| Change in fair value of derivatives | | | (1,603,000 | ) | | | 481,000 | |
| Other | | | (274,000 | ) | | | 40,000 | |
| Valuation allowance | | | 1,460,000 | | | | 542,000 | |
| Total income tax provision | | $ | - | | | $ | — | |
The Company had net operating loss carryforwards of $37,481,805 and $17,038,000 as of April 30, 2024 and 2023, respectively, which may be available to be used to offset future taxable income in the US for the years ended 2024 through 2042. The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization. The Company has not completed a full study to assess whether an “ownership change” as defined in Section 382 has occurred or whether there have been multiple ownership changes since inception. Future changes in the Company’s stock ownership, which may be outside of the Company’s control, may trigger an “ownership change”. In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change”. Tax years that remain subject to examination are 2018 and forward.
Net deferred tax assets from operations in Israel, using an effective tax rate of 23%, consisted of the following:
SCHEDULE OF NET DEFERRED TAX ASSETS
| | | 2024 | | | 2023 | |
| Deferred tax assets: | | | | | | | | |
| Loss carryforwards | | $ | 295,000 | | | $ | 241,000 | |
| Start-up costs | | | — | | | | — | |
| Research and development costs | | | (113,000 | ) | | | (113,000 | ) |
| Valuation allowance | | | (182,000 | ) | | | (128,000 | ) |
| Net deferred tax assets | | $ | — | | | $ | — | |
The income tax provision differs from the amount of income tax determined by applying the applicable Israeli statutory income tax rate of 23% due to the following for the years ended April 30, 2024 and 2023:
SCHEDULE OF INCOME TAX PROVISION
| | | 2024 | | | 2023 | |
| | | | | | | |
| Income tax provision (benefit) based on book income (loss) at Israeli statutory rate | | $ | (54,000 | ) | | $ | (54,000 | ) |
| Valuation allowance | | | 54,000 | | | | 54,000 | |
| | | | | | | | | |
| Total income tax provision | | $ | — | | | $ | — | |
The Company had net operating loss carryforwards of approximately $6,298,000 and $3,049,000 as of April 30, 2024 and 2023, respectively, which may be available to be used to offset future taxable income in Israel. All of the Company’s tax years since inception are open for examination.
The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. There were no interest or penalties recognized in the accompanying consolidated statements of comprehensive loss for the years ended April 30, 2024 and 2023.
Note 15: DISCONTINUED OPERATIONS
On November 27, 2022, the Company entered into a share purchase agreement (the “Agreement”) with PlaySight, Chen Shachar and Evgeni Khazanov (together, the “Buyer”) pursuant to which the Buyer purchased 100% of the issued and outstanding shares of PlaySight from the Company in exchange for (1) releasing the Company from all of PlaySight’s obligations towards its vendors, employees, tax authorities and any other (past, current and future) creditors of PlaySight; (2) waiver by the Buyer of 100% of the personal consideration owed to them under their employment agreements in the total amount of $600,000; and (3) cash consideration of $2,000,000 to be paid to the Company in the form of a promissory note that was to mature on December 31, 2023.
On December 5, 2022, the Company assigned 75% of its membership interest in Foundation Sports to Charles Ruddy, its founder and granted him the right for a period of three years to purchase the remaining 25% of its Foundation Sports membership interests for $500,000 in cash. As of December 5, 2022, the results of Foundation Sports will no longer be consolidated in the Company’s financial statements, and the investment was accounted for as an equity method investment. On December 5, 2022, the Company analyzed this investment and established a reserve for the investment at the full amount of $500,000.
Current reclassified the following operations as discontinued operations for the year ended April 30, 2023 –
SCHEDULE OF DISCONTINUED OPERATIONS
| | | 2023 | |
| Revenue | | $ | 3,954,149 | |
| Operating expenses | | | 8,416,117 | |
| Other (income) loss | | | - | |
| Net loss from discontinued operations | | $ | (4,461,968 | ) |
The following represents the calculation of the loss on disposal of PlaySight and Foundation Sports for the year ended April 30, 2023:
SCHEDULE OF CALCULATION OF THE LOSS ON DISPOSAL
| | | | | |
| Note receivable | | $ | 2,000,000 | |
| Cash and restricted cash | | | (714,507 | ) |
| Accounts receivable | | | (411,249 | ) |
| Prepaid expenses | | | (106,031 | ) |
| Inventory | | | (296,920 | ) |
| Finished products used in operations | | | (4,117,986 | ) |
| Contract assets | | | (298,162 | ) |
| Right of use asset | | | (103,228 | ) |
| Goodwill | | | (25,862,000 | ) |
| Property and equipment | | | (116,505 | ) |
| Intangible assets | | | (18,576,475 | ) |
| Contract liabilities | | | 3,785,408 | |
| Lease liabilities | | | 78,016 | |
| Accounts payable and accrued expenses | | | 3,325,747 | |
| Loss on disposal of discontinued operations | | $ | (41,413,892 | ) |
Note 16: SUBSEQUENT EVENTS
From May 1, 2024 through the date hereof, the Company issued the following shares of common stock:
| | On May 24, 2024, the Company issued 47,116 shares of common stock to Yonah Kalfa in satisfaction of deferred compensation obligations. On May 24, 2024, the Company issued 150,000 shares of common stock to its directors as compensation for the service and for their extraordinary contributions to the Company and warrants to purchase 50,000 shares of common stock with an exercise price of $0.02 and a term of 10 years to Mike Ballardie as compensation for his service and for his extraordinary contribution to the Company. On May 24, 2024, the Company issued 33,500 shares of common stock consisting of 16,750 shares of common stock to each of Juda Honickman and Mark Radom for their extraordinary contributions to the Company. On June 27, 2024, the Company issued 511,214 shares of common stock upon the exercise of warrants. On July 8, 2024, the Company issued 110,665 shares of common stock to satisfy DTC’s request for round-up shares as a result of the Company’s recent 1-20 reverse split. On July 23, 2024, the Company issued 10 shares of common stock to a former shareholder of PlaySight in satisfaction of the Company’s obligation to issue shares of its common stock in exchange for its shares of PlaySight. This issuance was delayed until July 23, 2024 due to administrative issues.
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 28, 2022, the Board of Directors and the audit committee of Connex Sports Technologies Inc. (the “Company”) approved the re-engagement of Mac Accounting Group, LLP (“Mac”) as the Company’s independent registered public accounting firm for the fiscal year ended April 30, 2023, effective immediately, and dismissed WithumSmith + Brown, PC (“Withum”) as the Company’s independent registered public accounting firm.
Until Withum was engaged on February 17, 2022, Mac was the Company’s auditor and had audited the Company’s consolidated financial statements for the fiscal years ended April 30, 2022 and 2021.
Withum never issued an audit opinion on our financial statements, and during the course of their engagement there were no disagreements with Withum on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Withum, would have caused Withum to make reference to the matter in their audit opinion, if issued. There were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K) during the period Withum was engaged as the Company’s auditor.
On March 21, 2023, the Board of Directors and the audit committee of the Company approved the engagement of Olayinka Oyebola & Co. (“OOC”) as the Company’s independent registered public accounting firm for the fiscal year ended April 30, 2023, effective immediately, and dismissed Mac Accounting Group, LLP (“Mac”) as the Company’s independent registered public accounting firm.
Until OOC was engaged on March 21, 2023, Mac was the Company’s auditor and had audited the Company’s consolidated financial statements for the fiscal years ended April 30, 2022 and 2021.
Mac never issued an audit opinion on our financial statements for the fiscal year ended April 30, 2023, and during the course of their engagement there were no disagreements with Mac on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Mac, would have caused Mac to make reference to the matter in their audit opinion, if issued. There were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K) during the period Mac was engaged as the Company’s auditor.
ITEM 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of April 30, 2024.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the year ended April 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:
| | ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; and |
| | | |
| | ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | | |
| | ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material impact on the financial statements. |
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our evaluation of internal control over financial reporting includes using the criteria in Internal Control-Integrated Framework (2013), an integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, for the evaluation of internal control to identify the risks and control objectives related to the evaluation of our control environment.
Based on our evaluation under the framework described above, our management has concluded that our internal control over financial reporting was not effective as of April 30, 2024 due to the following material weaknesses that were identified:
| | ● | The Company lacked adequate segregation of duties due to the small size of the organization. |
| | | |
| | ● | The Company lacked a chief financial officer and personnel with experience and expertise in public company accounting and internal control over financial reporting. |
While the Company continues to have limited internal finance staff, Management believes there are strong processes and controls in place over financial reporting. Over the past fiscal year, significant improvements were implemented in our internal controls over financial reporting that have remediated prior disclosed weaknesses regarding the Company’s lack of controls over inventory reporting, as well as timely review of transactions and reconciliations. As of April 30, 2024, management is satisfied those deficiencies have been corrected and implemented processes will ensure reporting accuracy and timeliness.
Lastly, while the Company continues to lack internal resources with adequate knowledge/expertise to ensure US GAAP compliance, the Company engages on a contractual basis a strong, experienced firm to oversee those services and provide guidance to the Company in these matters. Between those resources, and our tax consultants, management believes reporting is US GAAP compliant, and the prior weaknesses have been remediated as of April 30, 2024.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
ITEM 9B. OTHER INFORMATION
Management Changes
Not applicable.
Acquisitions
Not applicable.
ITEM 9C. DISCLOSURE REGARDIG FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS, DIRECTOR NOMINEES, AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages as at the date hereof are as follows:
| Name | | Age | | Positions and Offices* |
| Mike Ballardie | | 63 | | President, Chief Executive Officer, Treasurer and Director |
| Juda Honickman | | 37 | | Chief Marketing Officer |
| Mark Radom | | 55 | | General Counsel |
| Yonah Kalfa | | 40 | | Chief Innovation Officer and Director |
| Kirk Taylor | | 43 | | Director |
| Stephen Crummey | | 79 | | Director |
| Rodney Rapson | | 40 | | Director |
*Paul McKeown, our former chief business integration officer, resigned in January 2023, and Tom Dye’s (former Chief Operating Officer) employment agreement terminated on April 30, 2024 but both continue to provide service to the Company as outside consultants.
On November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the board of directors of the Company. Gabriel and Rohit were members of the audit and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee. Neither Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies or practices. On July 14, 2023, Messrs. Crummey and Rapson joined the Company’s board of directors.
The directors named above will serve until the next annual meeting of the shareholders or until his resignation or removal from office. Thereafter, directors are anticipated to be elected for one-year terms at the annual shareholders’ meeting. Officers will hold their positions pursuant to their respective service agreements.
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.
Professional History of Mike Ballardie
Mike Ballardie has served as our President, Chief Executive Officer and a Director since June 2019. Mike is an experienced and widely recognized tennis industry leader with 35 years of experience in tennis as a player, a coach and business leader. Mike started his tennis business career at Wilson in the late 1980s where he spent 11 years growing and ultimately leading Wilson’s Europe, Middle East and Africa Racquet sports division.
In 2002, Mike joined Prince Sports Europe as vice-president and managing director and stayed in this role through 2012. In 2003, Mike was part of the management buyout team that acquired the Prince brand from Benetton Sports in partnership with a private equity group. In 2007, after a highly successful business turnaround the business was sold with the management team in place to another U.S. based private equity group.
In 2013, Mike became the Chief Executive Officer of Prince Global Sports, a role in which he stayed until 2016.
After Prince Global Sports, Mike owned and operated FED Sports Consulting where he managed all aspects of a major restructuring project involving Waitt Brands (a holding company for Prince Global Sports) and Trilium Ltd (UK), a childcare business, from 2018 to 2019.
Immediately prior to joining Prince Sports, Mike worked for VF Corp., where he built the international business for their JanSport brand from scratch.
Mike also served for many years as an Executive Board Director for the Tennis Industry Association (TIA) both in the USA and in the UK. Mike has been at the forefront of many of the most successful tennis racket innovations over this period and highly regarded across this industry sector.
Professional History of Tom Dye
Tom Dye joined the Company as Chief Operating Officer on May 1, 2020. Tom has over 35 years of senior management experience in diverse consumer goods and manufacturing segments across the Americas, Asia, Europe, Australia and Middle East. From 1977 to 1990, Tom served as Vice President of International Operations at Wilson Sporting Goods where he was responsible for multiple international start-up operations, including launching the first wholly U.S. owned sporting goods company in Japan. From 1990 to 2001, Tom served as President of International Exports at The Coleman Company. From 2002 to 2009, Tom served in a number of roles at Prince Global Sports, the leading global manufacturer of tennis rackets, in various roles, including Vice President of Operations, Vice President/General Manager of International Operations, National Sales Manager and acting Chief Financial Officer. From 2012 to 2014, Mr. Dye served as Chief Operating Officer at Prince Global Sports. From 2015 to 2017, Tom served as Chief Operating Officer of HazTek, Inc. From 2017 to 2018, Tom consulted for Smith Optics, a sports optical company. From 2018 until being hired by the Company in May 2020, Tom retired in September 2023.
Professional History of Juda Honickman
Juda Honickman is Chief Marketing Officer for Slinger Bag Inc. Juda joined Slinger Bag Inc in October 2017 to lead product design and overall strategy for the Company’s pre-sale crowdfunding initiative which exceeded its goal by 2,600%. He is responsible for overseeing the planning, development and execution of the Company’s marketing and advertising initiatives along with ensuring that the Company’s offering and brand messaging is distributed across all channels and is effectively targeting audiences in order to meet sales objectives. In his role, Juda oversees the global communications of Slinger’s brand, including consumer insights, digital marketing, creative development, agency management, marketing effectiveness, social responsibility, sponsorships, media and employee communications. Juda previously served as The Director of Marketing and Strategy for a global legal tech company and before that oversaw marketing and sales for an innovative consumer tech business.
Professional History of Mark Radom
Since September 2019, Mark Radom has been general counsel of Slinger Bag Inc. Mr. Radom has also served as general counsel of The Greater Cannabis Company, Inc. and from February 2010 through July 2015, general counsel and chief carbon officer of Blue Sphere Corporation. From 2009 through 2010, Mr. Radom was managing director of Carbon MPV Limited, a Cyprus company focused on developing renewable energy and carbon credit projects. From 2007 to 2009, Mr. Radom was general counsel and chief operating officer of Carbon Markets Global Limited, a London-based carbon credit and renewable energy project developer. Mr. Radom has extensive experience in business development in the renewable energy and carbon credit sectors. He has sourced over $100,000,000 in renewable energy, industrial gas and carbon credit projects and managed many complex aspects of their implementation. He was legal counsel for a number of carbon and ecological project developers and was responsible for structuring joint ventures and advising on developing projects through the CDM/JI registration cycle and emission reduction purchase agreements under the auspices of the Kyoto Protocol. Prior to this, he worked on Wall Street and in the City of London as a U.S. securities and capital markets lawyer where he represented sovereigns, global investment banks and fortune 500 companies across a broad range of capital raising and corporate transactions. He is a graduate of Duke University and Brooklyn Law School. Mr. Radom is admitted to practice law in New York and New Jersey and speaks fluent Russian.
Professional History of Yonah Kalfa
Yonah Kalfa joined Slinger Bag as its Chief Innovation Officer in September 2020. Prior to joining Slinger Bag, Mr. Kalfa owned and operated NA Dental, a company active in the dental supply business since 2010. Mr. Kalfa is a director of Pharmedica Ltd., Plaqless Ltd., Dusmit Ltd. and Parasonic Ltd.
Professional History of Kirk Taylor
Kirk is the Chief Financial Officer of American Resources Corporation where he conducts all tax and financial accounting roles of the organization, and has substantial experience in tax credit analysis and financial structure. Kirk’s main focus over his 13 years in public accounting had been the auditing, tax compliance, financial modeling and reporting on complex real estate and business transactions utilizing numerous federal and state tax credit and incentive programs. Prior to joining American Resources Corporation, Kirk was Chief Financial Officer of Quest Energy, Inc., ARC’s wholly-owned subsidiary. Prior to joining Quest Energy in 2015, he was a Manager at K.B. Parrish & Co. LLP where he worked since 2014. Prior to that, he worked at Katz Sapper Miller since 2012 as Manager. In addition, Kirk is an instructor for the CPA examination and has spoken at several training and industry conferences. He received a BS in Accounting and a BS in Finance from the Kelley School of Business at Indiana University, Bloomington Indiana and is currently completing his Masters of Business Administration from the University of Saint Francis at Fort Wayne, Indiana. Kirk serves his community in various ways including as the board treasurer for a community development corporation in Indianapolis, Indiana. Kirk does not have any family relationships with any of the Company’s directors or executive officers. There are no arrangements or understandings between Kirk and any other persons pursuant to which he was selected as an officer. He has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Professional History of Stephen Crummey
Stephen has served as the senior vice president of Investor Relations at NuEra Capital Corporation since August 2022. Previously, Stephen was (i) a partner in Covid Rapid Exam from January 2021 to September 2022, (ii) an advisor to IdentifySensors Biologics from September 2021 through August 2022, (iii) an advisor to Cmind AI from 2019 to April 2021 and (iv) chairman of CyVision Technologies, Inc. from August 2017 through March 2021. Stephen does not have any family relationships with any of the Company’s directors or executive officers. There are no arrangements or understandings between Stephen and any other persons pursuant to which he was selected as an officer. He has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Professional History of Rodney Rapson
Mr. Rapson has served as the chief executive officer of Inspiretek Pty Ltd since November 2022, managing director of PlaySight Europe from January 2027 through January 2022 and managed Base Tennis Academy from September 2010 through December 2022. Rodney does not have any family relationships with any of the Company’s directors or executive officers. There are no arrangements or understandings between Rodney and any other persons pursuant to which he was selected as an officer. He has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
TERM OF OFFICE
All directors hold office until the next annual meeting of the shareholders of the Company and until their successors have been duly elected and qualified. The Company’s Bylaws provide that the Board of Directors will consist of no less than three members. Officers are elected by and serve at the discretion of the Board of Directors.
DIRECTOR INDEPENDENCE
Our board of directors is currently composed of five members. With the exception of Mike Ballardie and Yonah Kalfa, we have determined that all of the directors are independent as such term is defined under The Nasdaq Stock Market Rules (the “Nasdaq Rules”). We have also determined that as a result of being employed as executive officers, Mssrs. Ballardie and Kalfa are not independent under the Nasdaq Rules.
The following table identifies the independent and non-independent current board and committee members:
| Name: | | Independent | | Audit | | Compensation | | Nominating |
| Mike Ballardie | | | | | | | | |
| Yonah Kalfa | | | | | | | | |
| Steven Crummey | | Yes | | Yes | | | | |
| Kirk Taylor | | Yes | | Yes | | | | Yes |
| Rodney Rapson | | Yes | | Yes | | Yes | | Yes |
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The Audit Committee reviews the Company’s financial reporting process on behalf of the Board and administers our engagement of the independent registered public accounting firm. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its examinations, the evaluations of our internal controls, and the overall quality of our financial reporting. Kirk P. Taylor, Stephen Crummey and Rodney Rapson who each satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules, serve on our audit committee.
Audit Committee Financial Expert
We have determined that Kirk Taylor is qualified as an Audit Committee Financial Expert, as that term is defined under the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.
Compensation Committee
The function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to shareholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering the 2020 Global Incentive Plan. Rodney Rapson is the sole independent director on the compensation committee.
Nominating and Corporate Governance Committee
The responsibilities of the Nominating and Corporate Governance Committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establishing procedures for the nomination process including procedures, oversight of possible conflicts of interests involving the Board and its members, developing corporate governance principles, and the oversight of the evaluations of the Board and management. The Nominating and Corporate Governance Committee has not established a policy with regard to the consideration of any candidates recommended by shareholders. If we receive any shareholder recommended nominations, the Corporate Governance Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith. Kirk Taylor and Rodney Rapson who satisfy the “independence” requirements of Nasdaq’s rules, serve on our compensation committee upon their appointment to the board, with Mr. Rapson serving as the chairman.
Board and Committee Meetings in the 2024 Fiscal Year
In the 2024 fiscal year, the Board acted by written consent in lieu of having any meetings and there were no committee meetings insofar as the committees were not established until July 2023, which was after the 2024 fiscal year had ended.
Board Diversity
While we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Our Board believes that diversity brings a variety of ideas, judgments and considerations that benefit the Company and its shareholders. Although there are many other factors, the Board seeks individuals with experience on public company boards or the investment community, experience on operating growing businesses, and experience with online universities.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our common stock to file initial reports of ownership and changes in ownership of our common stock and other equity securities with the SEC. These individuals are required by the regulations of the SEC to furnish us with copies of all Section 16(a) forms they file. Due to administrative error, the required forms were filed prior to the date hereof, but not prior to the deadline for such forms due to an administrative error.
DIRECTOR COMPENSATION
Each non-employee director will receive 7,500 shares of common stock on the anniversary date each non-employee director was appointed to the Board. In the event, a director should resign from the Board mid-year, such director would receive a pro rata issuance of common stock at their anniversary date based on the number of days of service since their prior anniversary date. No fractional shares will be issued to non-employee director, and any calculation resulting in a fractional share will be rounded up to the next whole share. Messrs. Goldman and Krishnan did not receive any compensation for or in respect of the period during which they served as directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our officers currently serves, or in the past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our board of directors.
RISK OVERSIGHT
Our Board will oversee a company-wide approach to risk management. Our Board will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our Board will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.
Specifically, our compensation committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our Board of Directors will be responsible for overseeing the management of risks associated with the independence of our Board.
CODE OF BUSINESS CONDUCT AND ETHICS
As of April 30, 2024, the Company has not adopted a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions as the Company has only recently commenced operations. Our Board adopted a code of business conduct and ethics that applies to our directors, officers and employees (the “Code of Business Conduct and Ethics”), to be effective upon effectiveness of the June registration statement. Upon completion of the offering, a copy of the code will be available on the Company’s website. The Company intends to disclose on their website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to their principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.
CERTAIN LEGAL PROCEEDINGS
No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past ten years.
SIGNIFICANT EMPLOYEES
Other than our officers and directors, we currently have one other person who became in February 2022 what we consider to be a significant employee:
| | ● | Jalaluddin Shaik, President of Gameface. |
Jalaluddin Shaik founded and became the chief executive officer of Gameface in 2017. Prior to founding Gameface, Mr. Shaik led product teams at some of the world’s biggest brands, including Telstra, Sony, and Apple. While at Telstra, Shaik led the creation of the Telstra video streaming platform ‘Presto’, that reaches over 10M Australians. In addition to his role at Telstra, Shaik was the design lead on the Apple airplay technology integration to 80% of Tier1 Audio OEM (Original Equipment Manufacturers) such as Denon, Bose, Pioneer, Yamaha, leading a team of 30 engineers. Previously (2003-2010), Shaik built and deployed various end to end video decoding solutions at Sony and Intel. Mr. Shaik is a graduate of Visvesvaraya Technological University with a bachelor’s degree in Computer Science with a major in machine learning.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our then Officers for all services rendered in all capacities to us for the fiscal years ended as indicated.
| Name and Principal Position | | Year
ended
April 30 | | | Salary
($) | | | Bonus
($) | | | Share Awards
($)(1) | | | Non-Equity
Incentive Plan
Compensation
($) | | | All other compensation
($) | | | Total ($) | |
| Mike Ballardie (1) | | 2024 | | | | 324,714 | | | | 300,000 | | | | | | | | | | | | 475,595 | | | | 1,100,309 | |
| | | 2023 | | | | 570,169 | | | | 300,000 | | | | - | | | | 285,000 | | | | 105,318 | | | | 1,260,487 | |
| Judah Honickman (2) | | 2024 | | | | 190,198 | | | | 95,940 | | | | | | | | | | | | 55,199 | | | | 341,337 | |
| | | 2023 | | | | 179,502 | | | | 87,400 | | | | | | | | | | | | 27,144 | | | | 294,046 | |
| Paul McKeown (3) | | 2024 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | 2023 | | | | 366,023 | | | | 77,411 | | | | | | | | | | | | | | | | 443,434 | |
| Tom Dye (4) | | 2024 | | | | 80,000 | | | | | | | | | | | | | | | | 10,395 | | | | 90,395 | |
| | | 2023 | | | | 160,000 | | | | 40,000 | | | | | | | | | | | | 16,902 | | | | 216,902 | |
| Mark Radom (5) | | 2024 | | | | 183,000 | | | | 54,000 | | | | | | | | | | | | | | | | 237,000 | |
| | | 2023 | | | | 150,000 | | | | 28,500 | | | | | | | | | | | | | | | | 178,500 | |
| Yonah Kalfa (6) | | 2024 | | | | | | | | | | | | | | | | | | | | 441,000 | | | | 441,000 | |
| | | 2023 | | | | | | | | - | | | | | | | | | | | | 495,000 | | | | 495,000 | |
| Jason Seifert (7) | | 2024 | | | | - | | | | - | | | | | | | | | | | | - | | | | - | |
| | | 2023 | | | | 35,833 | | | | | | | | | | | | | | | | 8,442 | | | | 44,275 | |
| (1) | Calculated in accordance with ASC Topi c 718, consistent with the Company’s financial statements. Mr. Ballardie has served as the Company’s Principal Executive Officer and as Chairman of the Board of Directors since September 16, 2019 and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (3) | Mr. Honickman has served as the Company’s Chief Marketing Officer since September 16, 2019 and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (3) | Paul McKeown served as the Company’s Chief Financial Officer from April 30, 2020 through July 6, 2021 and from July 6, 2021 to January 31, 2023 as the Company’s Chief Business Integration Officer and had an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (4) | Tom Dye served as the Company’s Chief Operating Officer from April 30, 2020 through April 30, 2023 and had an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (5) | Mark Radom has served as the Company’s General Counsel since September 16, 2019 and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (6) | Yonah Kalfa has served as the Company’s Chief Innovation Officer since September 7, 2020 and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (7) | Jason Seifert served as the Company’s Chief Financial Officer from July 6, 2021 through June 25, 2022 and had an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
EMPLOYMENT AGREEMENTS
The Company is a party to service agreements with each of its executive officers.
Mike Ballardie. On April 6, 2020, we entered into a service agreement with our Chief Executive Officer, Mike Ballardie, which was amended on November 1, 2020. Pursuant to the service agreement, Mr. Ballardie will serve as our Chief Executive Officer for a period of five years. During the five-year term, Mr. Ballardie receives a monthly base salary of $50,000 and a bonus payment at a minimum of 50% of the annual base salary. We also issued Mr. Ballardie warrants to purchase 25,000 shares of our common stock. The warrants were exercisable at issuance at an exercise price of $0.01 per share and have an expiration date of April 6, 2030. We also provide standard indemnification and directors’ and officers’ insurance. We may terminate Mr. Ballardie’s employment with cause (as defined under the agreement) and without cause by giving at least 180 days prior written notice. If we terminate Mr. Ballardie without cause, all his unvested stock and option compensation of any nature will vest without any further action. Mr. Ballardie may resign for good reason (as defined under the agreement) or without good reason by giving at least 180 days prior written notice. If we terminate Mr. Ballardie without cause or he resigns for good reason, we must pay severance in an amount in lieu of base salary and benefits that would have accrued to Mr. Ballardie for the greater of (a) the unexpired portion of the term of the agreement or (b) two years, to be paid in full within 30 days of termination. In addition, vesting of all unvested common or preferred shares and options and warrants will continue for 12 months following such termination if we terminate Mr. Ballardie without cause or he resigns for good reason. Mr. Ballardie is also subject to standard confidentiality and non-competition provisions.
Tom Dye. On April 30, 2020, we entered into a service agreement with our Chief Operating Officer, Tom Dye. Pursuant to the service agreement, Mr. Dye served as our Chief Operating Officer for a period of three years. During the three-year term, Mr. Dye received an annual base salary of $120,000 and a bonus payment at a minimum of 25% of the annual gross base salary. We agreed to issue Mr. Dye warrants to purchase a total of 166 shares of common stock to be issued at the time that certain performance goals are met. The warrants that were to Mr. Dye on April 30, 2020 are exercisable at issuance at an exercise price of 2,400.00 per share and have an expiration date of April 30, 2030. The warrants that were to Mr. Dye on February 9, 2021 are exercisable at issuance at an exercise price of $31,520.00 per share and have an expiration date of February 9, 2031. We also agreed to issue a one-time bonus of 188 shares of common stock to Mr. Dye after the value of the Company’s outstanding stock equals $100 million. The Company will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Dye’s employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate Mr. Dye without cause, all Mr. Dye’s unvested stock and option compensation of any nature will vest without any further action, and we will pay two years base salary severance within 30 days of termination. In addition, vesting of all unvested common or preferred shares and options and warrants will continue for 12 months following such termination. Mr. Dye may resign for good reason (as defined under the agreement) or without good reason by giving at least 30 days prior written notice. Mr. Dye is also subject to standard confidentiality and non-competition provisions. Between April 30, 2023 and September 30, 2023, Mr Dye operated as a consultant to the company and is now retired.
Paul McKeown. On July 5, 2021, we entered into a service agreement with our former Chief Financial Officer, Paul McKeown. Pursuant to the service agreement, Mr. McKeown served as our Chief Business Integration Officer until January 31, 2023, when he resigned. During the term of this agreement, Mr. McKeown received a base salary at an hourly rate of $150 per hour and an annual performance bonus of at least 30% of the annual gross base salary. and We also issued Mr. McKeown warrants to purchase 188 shares of common stock. The warrants were exercisable at issuance at an exercise price of $8 per share and have an expiration date of The Company will also provide standard indemnification and directors’ and officers’ insurance. Mr. McKeown was also subject to standard confidentiality and non-competition provisions. Since January 2023, Mr McKeown has operated as a consultant to the Company.
Juda Honickman. On April 30, 2020, we entered into a service agreement with Nest Consulting Inc., a Delaware corporation, owned by our Chief Marketing Officer, Juda Honickman. Pursuant to the service agreement, Mr. Honickman will serve as our Chief Marketing Officer for a period of three years. During the three-year term, Mr. Honickman receives an annual base salary of $102,000 and a bonus payment at a minimum of 50% of his annual base salary. We also issued warrants to purchase 313 shares of common stock to Mr. Honickman. The warrants were exercisable at issuance at an exercise price of $2,400.00 per share and have an expiration date of April 30, 2030. The Company will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Honickman’s employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate Mr. Honickman without cause, all Mr. Honickman’s unvested stock and option compensation of any nature will vest without any further action and will pay two years base salary severance within 30 days of termination. In addition, Mr. vesting of all unvested common or preferred shares and options and warrants will continue for 12 months following termination. Mr. Honickman may resign for good reason (as defined under the agreement) or without good reason by giving at least 30 days prior written notice. Mr. Honickman is also subject to standard confidentiality and non-competition provisions.
Mark Radom. On February 1, 2022, we entered into the second amended and restated service agreement with our General Counsel, Mark Radom. Pursuant to the service agreement, Mr. Radom will serve as General Counsel for a period of two. During the two-year term, we agreed to pay Mr. Radom a monthly base salary of $12,500, which was subsequently increased to $18,500, and a bonus payment at a minimum of 25% of the annual base salary. We agreed to issue Mr. Radom warrants to purchase a total of 166 shares of common stock to be issued at the time that certain performance goals are met. The warrants that were to Mr. Radom on April 30, 2020 are exercisable at issuance at an exercise price of 2,400.00 per share and have an expiration date of April 30, 2030. The warrants that were to Mr. Radom on February 9, 2021 are exercisable at issuance at an exercise price of $31,520.00 per share and have an expiration date of February 9, 2031. We also agreed to issue a one-time bonus of 188 shares of common stock to Mr. Radom after the value of the Company’s outstanding stock equals $100 million. The Company will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Radom’s employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate Mr. Radom without cause, all Mr. Radom’s unvested stock and option compensation of any nature will vest without any further action, and we will pay two years base salary severance within 30 days of termination. In addition, vesting of all unvested common or preferred shares and options and warrants will continue for 12 months following termination. Mr. Radom may resign for good reason (as defined under the agreement) or without good reason by giving at least 120 days prior written notice. Mr. Radom is also subject to standard confidentiality and non-competition provisions.
Yonah Kalfa. On September 7, 2020, we entered into a service agreement with our Chief Innovation Officer, Yonah Kalfa. Pursuant to the service agreement, Mr. Kalfa will serve as our Chief Innovation Officer for a period of three years. During the three-year term, Mr. Kalfa receives an annual base salary of 1,162,800 Israeli New Shekel (approximately $350,000) and a bonus payment at a minimum of 25% of the annual gross base salary. Mr. Kalfa agreed to defer receipt of his base salary until otherwise agreed in writing. The Company will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Kalfa’s employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate Mr. Kalfa without cause, we will pay two years base salary severance within 30 days of termination. Mr. Kalfa may resign for good reason (as defined under the agreement) or without good reason by giving at least 30 days prior written notice. Mr. Kalfa is also subject to standard confidentiality and non-competition provisions.
DIRECTOR COMPENSATION
The following table sets forth director compensation for the years ended April 30, 2024 and 2023:
| Name | | Year
Ended
April 30 | | | Fees
earned or
paid in
cash ($) | | | Stock Awards
($) | | | Total ($) | |
| Mike Ballardie | | 2024 | | | | - | | | | 207,750 | | | | 207,750 | |
| | | 2023 | | | | - | | | | 73,125 | | | | 73,125 | |
| Kirk Taylor | | 2024 | | | | - | | | | 207,750 | | | | 207,750 | |
| | | 2023 | | | | | | | | 73,125 | | | | 73,125 | |
| Stephen Crummey | | 2024 | | | | - | | | | 103,875 | | | | 103,875 | |
| | | 2023 | | | | - | | | | - | | | | - | |
| Yonah Kalfa | | 2024 | | | | - | | | | 207,750 | | | | 207,750 | |
| | | 2023 | | | | - | | | | 73,125 | | | | 73,125 | |
| Rodney Rapson | | 2024 | | | | - | | | | 103,875 | | | | 103,875 | |
| | | 2023 | | | | - | | | | - | | | | - | |
*The Company awarded Yonah Kalfa, Mike Ballardie and Kirk Taylor 50,000 shares of common stock as compensation for their service as directors and for their exceptional support of the Company for the fiscal years ended April 30, 2024 and April 30, 2023 and 25,000 shares of common stock to each of Rodney Rapson and Steve Crummey for their service as directors and for their exceptional support of the Company for the fiscal year ended April 30, 2024. These awards were approved at the Company’s Annual General Meeting held on May 15, 2024.
Stock Options/SAR Grants.
None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date hereof with respect to any person (including any “group”, as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who is known to us to be the beneficial owner of more than five percent (5%) of any class of our voting securities, and as to those shares of our equity securities beneficially owned by each of our directors and executive officers and all of our directors and executive officers as a group. Unless otherwise specified in the table below, such information, other than information with respect to our directors and executive officers, is based on a review of statements filed with the Securities and Exchange commission (the “Commission”) pursuant to Sections 13 (d), 13 (f), and 13 (g) of the Exchange Act with respect to our common stock.
Information relating to beneficial ownership of the Common Stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty (60) days after the date hereof, through the exercise of any stock option, warrant or other right. Such securities are deemed outstanding for computing the percentage of the person holding such security but are not deemed outstanding for computing the percentage of any other person. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The following table lists, as at the date hereof, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
| | | Common Stock | |
| Name | | # of Shares | | | % of Class (1) | |
| Yonah Kalfa (2)** | | | 320,505 | | | | 12.1 | % |
| Mike Ballardie (3) | | | 988 | | | | * | |
| Judah Honickman (4) | | | 16,750 | | | | * | |
| Kirk Taylor (5) | | | 50,000 | | | | 1.9 | % |
| Rodney Rapson (6) | | | 22,651 | | | | * | |
| Mark Radom (7) | | | 16,754 | | | | * | |
| Steven Crummey (8) | | | 25,000 | | | | * | |
| All current officers and directors as a group (7 persons) | | | 452,648 | | | | 15.9 | % |
| | | | | | | | | |
| **5% Holders | | | | | | | | |
* indicates a share ownership percentage of less than one percent (1%).
** indicates a share ownership of 5% or higher
(1) Percentages are based on a total of 2,659,149 shares of Common Stock outstanding on the date hereof.
(2) Yonah Kalfa is the founder of the Company, a director and the Company’s Chief Innovation Officer. Mike Ballardie is the Company’s Chief Executive Officer, a director and chairman of the Board.
In September 2021, Mr. Kalfa was granted warrants to purchase 1,250 shares of Common Stock at an exercise price of par (i.e., $0.001) in September 2021 and transferred 525 of such warrants to a third party in August 2022. All such warrants have a term of 10 years from the date of issuance and are vested immediately upon grant. In January 2024, Mr. Kalfa received 267,380 shares of Common Stock for extraordinary contribution to the Company and in exchange for waiving his right to receive $1,000,000 in deferred salary. In May 2024, Mr. Kalfa also received 15,000 shares of Common Stock for two years of serving as a director and 35,000 shares of Common Stock for extraordinary contribution to the Company and 263 shares of Common Stock as an award under the Company’s 2020 Plan.
Mr. Kalfa currently owns a total of 321,492 shares consisting of (i) 320,505 shares of Common Stock; and (ii) 988 warrants to purchase shares of Common Stock.
(3) In April 2020, Mr. Ballardie was awarded warrants to purchase 625 shares of Common Stock at an exercise price of $0.01 and in September 2021 was awarded warrants to purchase another 1,250 shares of Common Stock at an exercise price of $0.02 per share. In August 2022, Mr. Ballardie transferred 263 of such warrants to a third party. All such warrants have a contractual life of 10 years from the date of issuance and are vested immediately upon grant. In January 2024, Mr. Ballardie received warrants to purchase 315,875 shares of Common Stock at an exercise price of $0.02 for extraordinary contribution to the Company and agreed to waive his right to receive any bonus payments through January 31, 2024. In May 2024, Mr. Ballardie also received warrants to purchase 50,263 shares of Common Stock at an exercise price of $0.02 consisting of (i) warrants to purchase 15,000 shares of Common Stock for two years of serving as a director, (ii) warrants to purchase 35,000 shares of Common Stock for extraordinary contribution to the Company and (iii) warrants to purchase 263 shares of Common Stock as an award under the Company’s 2020 Plan. All such warrants have a term of 10 years from the date of issuance and vested immediately upon grant.
(4) In April 2020, Judah Honickman was awarded warrants to purchase 313 shares of Common Stock at an exercise price of $2,320 and, in September 2021, warrants to purchase 13 shares of Common Stock at an exercise price of $27,600. All such warrants have a term of 10 years from the date of issuance and vested immediately upon grant. In May 2024, Mr. Honickman received an award of 16,750 shares for his extraordinary contribution to the Company. Earlier in 2024, the Company agreed to reset the exercise price of all of Mr. Honickman’s warrants to $3.10.
(5) In May 2024, Kirk Taylor received 15,000 shares of Common Stock for two years of serving as a director and 35,000 shares of Common Stock for extraordinary contribution to the Company.
(6) In May 2024, Rodney Rapson received 7,500 shares of Common Stock for one year of serving as a director and 17,500 shares of Common Stock for extraordinary contribution to the Company.
(7) In April 2020, Mark Radom was awarded warrants to purchase 158 shares of Common Stock at an exercise price of $2,320 and, in February 2021, warrants to purchase 188 shares of Common Stock at an exercise price of $31,360. All such warrants have a term of 10 years from the date of issuance and vested immediately upon grant. In May 2024, Mr Radom received an award of 33,500 shares for his extraordinary contribution to the Company. Earlier in 2024, the Company agreed to reset the exercise price of all of Mr. Radom’s warrants to $3.10.
(8) In May 2024, Steve Crummey received 7,500 shares of Common Stock for one year of serving as a director and 17,500 shares of Common Stock for extraordinary contribution to the Company.
(9) As of May 24, 2024, King II Ltd holds or has the ability to acquire up to a total of 265,040 shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants.
(10) As of May 24, 2024, Prosperity Age Ltd holds or has the ability to acquire up to a total of 515,040 shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants.
(11) As of May 24, 2024, Xingtan Enterprise Management Co. holds or has the ability to acquire up to a total of 735,000 shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants.
(12) As of May 24, 2024, Winz Technology Co., Limited holds or has the ability to acquire up to a total of 393,450 shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants.
(13) As of May 24, 2024, Hong Kong Chengxin Asset Management Co., Limited holds or has the ability to acquire up to a total of 320,950 shares of Common Stock consisting of 641,900 shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants.
Securities authorized for issuance under equity compensation plans.
The table below provides information regarding all compensation plans as of the end of the most recently completed fiscal year (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance.
On November 11, 2020, the Board approved the Slinger Bag Inc. Global Share Incentive Plan (2020), or the 2020 Plan, which was approved by stockholders holding in the aggregate 999,735 shares of Common Stock, or approximately 75.4% of the Common Stock outstanding on such date. The 2020 Plan provides for the grant of awards which are incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), unrestricted stock, restricted stock, restricted stock units, performance stock and other equity-based and cash awards or any combination of the foregoing, to eligible key management employees, non-employee directors, and non-employee consultants of the Company or any of its subsidiaries (each a “participant”) (however, solely employees of the Company and its subsidiaries are eligible for incentive stock option awards).
The Company reserved a total of 18,750 shares of Common Stock for issuance under awards to be made under the 2020 Plan, all of which may, but need not, be issued in connection with ISOs. As of the date hereof, all 37,500 shares had been awarded to management in accordance with the 2020 Plan and zero (0) shares of Common Stock remain available under the 2020 Plan for future awards. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any shares subject to such award shall again be available for the grant of a new award. The 2020 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it was adopted by the Board (except as to awards outstanding on that date). The Board in its discretion may terminate the 2020 Plan at any time with respect to any shares for which awards have not theretofore been granted; provided, however, that the 2020 Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted.
Future new hires, non-employee directors and additional non-employee consultants are eligible to participate in the 2020 Plan as well. The number of awards to be granted to officers, non-employee directors, employees and non-employee consultants cannot be determined at this time as the grant of awards is dependent upon various factors such as hiring requirements and job performance.
| Equity Compensation Plan Information | |
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | Weighted- average price of outstanding options, warrants and rights (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity compensation plans approved by security holders | | | - | | | | - | | | | 0 | |
| Equity compensation plans not approved by security holders | | | 1,225,516 | | | $ | 20.1 | | | | - | |
| Total | | | 1,225,516 | | | $ | 20.1 | | | | 0 | |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of fees incurred to our principal independent accountants for professional services rendered in connection with the audit of our financial statements and for the quarterly reviews of our financial statements.
| | | Fiscal 2024 | | | Fiscal 2023 | |
| Audit Fees | | $ | 30,000 | | | $ | 34,000 | |
| Tax Fees | | | 59,462 | | | | - | |
| All Other Fees | | | 128,517 | | | | - | |
| Total | | $ | 217,979 | | | $ | 34,000 | |
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements
Our financial statements as set forth in the Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K are hereby incorporated by reference.
(b) Exhibits
The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed as part of this Annual Report on Form 10-K or, as noted, incorporated by reference herein:
Exhibit Number | | Exhibit Description |
| | | |
| 3.1 | | Articles of Incorporation (Incorporated by reference to the Registrant’s Form S-1 (File No. 333-259487), filed with the Commission on June 14, 2022) |
| | | |
| 3.2 | | Bylaws (Incorporated by reference to the Registrant’s Form S-1 (File No. 333-259487), filed with the Commission on June 14, 2022) |
| | | |
| 4.1 | | Form of Warrant dated October 11, 2023 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on October 11, 2023) |
| | | |
| 4.2 | | Form of Warrant dated December 6, 2023 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on December 6, 2023) |
| | | |
| 4.3 | | Form of Pre-Funded Warrant dated January 19, 2024 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on January 24, 2024 |
| | | |
| 10.1 | | Loan and Security Modification Agreement dated October 11, 2023 between the Company, its subsidiaries and Armistice Capital Master Fund Ltd. (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on October 11, 2023) |
| | | |
| 10.2 | | Inducement Letter dated December 6, 2023 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on December 6, 2023) |
| | | |
| 10.3 | | Securities Purchase Agreement dated January 19, 2024 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on January 19, 2024) |
| | | |
| 10.4 | | Form of Voting Rights Agreement dated January 19, 2024 (Incorporated by reference to the Company’s Current Report as previously filed on Form 8-K on January 19, 2024) |
| | | |
| 10.5 | | Smartsports Consulting Agreement dated January 21, 2024 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 24, 2024) |
| | | |
| 10.6 | | Waiver, Warrant Amendment and Second Loan and Security Modification Agreement by and between the Company, the Guarantors, and the Lenders and the Agent, dated February 21, 2024 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 21, 2024) |
| | | |
| 10.7 | | Share Purchase Agreement dated March 18, 2024 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 21, 2024) |
| | | |
| 10.8 | | Share Exchange Agreement dated March 18, 2024 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 21, 2024) |
| | | |
| 10.9 | | Warrant Purchase Agreement by and between the Company, the Holder and Morgan Capital LLC dated April 15, 2024 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 18, 2024) |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Connexa Sports Technologies Inc. |
| | |
| Dated: July 24, 2024 | By: | /s/ Mike Ballardie |
| | | Mike Ballardie |
| | | Director, President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| Dated: July 24, 2024 | By: | /s/ Mike Ballardie |
| | | Mike Ballardie |
| | | Chief Financial Officer |
| | | (Principal Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | | Title | | Date |
| | | | | |
| /s/ Mike Ballardie | | | | |
| Mike Ballardie | | Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, and Director | | July 24, 2024 |
| | | | | |
| /s/ Juda Honickman | | | | July 24, 2024 |
| Juda Honickman | | Chief Marketing Officer | | |
| | | | | |
| /s/ Mark Radom | | | | July 24, 2024 |
| Mark Radom | | General Counsel | | |
| | | | | |
| /s/ Yonah Kalfa | | | | July 24, 2024 |
| Yonah Kalfa | | Chief Innovation Officer and Director | | |
| | | | | |
| /s/ Kirk Taylor | | | | July 24, 2024 |
| Kirk Taylor | | Director | | |
| | | | | |
| /s/ Stephen Crummey | | | | July 24, 2024 |
| Stephen Crummey | | Director | | |
| | | | | |
| /s/ Rodney Rapson | | | | July 24, 2024 |
| Rodney Rapson | | Director | | |
