As filed with the Securities and Exchange Commission on March 30, 2022
Registration No. 333-259487
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
| 3949 | ||||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Vcorp Services, LLC
701 S. Carson Street, Suite 200
Carson City, NV 89701
(888) 528-2677
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| Joseph M. Lucosky, Esq. | Rick A. Werner, Esq. |
| Lahdan S. Rahmati, Esq. | Jayun Koo, Esq. |
| Lucosky Brookman LLP | Haynes and Boone, LLP |
| 101 Wood Avenue South, 5th Floor | 30 Rockefeller Plaza, 26th Floor |
| Woodbridge, New Jersey 08830 | New York, NY 10112 |
| (732) 395-4400 | (212) 659-7300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ |
| 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 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 30, 2022
PRELIMINARY PROSPECTUS
Slinger Bag Inc.
[*] Shares
Common Stock
We are offering [*] shares of common stock, par value $0.001 (“common stock”, and each a “Share” and collectively, the “Shares”) of Slinger Bag Inc. (the “Company,” “we,” “our,” “us,” “Slinger”, or “Slinger Bag”) at $ [*] per share of common stock. Shares of our common stock are currently traded on the OTCQB of the OTC Markets Group under the symbol “CNXA”. On [*], 2022, the last reported sale of our common stock as quoted on the OTCQB, was $[*] per share. We have applied to list shares of our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CNXA”. We will not proceed with this offering in the event that shares of our common stock are not approved for listing on the Nasdaq.
A [*] to 1 Reverse Stock Split became effective with the Financial Industry Regulatory Authority (“FINRA”) on [*], 2022 where upon our common stock began to trade on a reverse split adjusted basis. All common stock per share numbers and prices included herein have been adjusted to reflect this Reverse Stock Split, [other than] audited financial statements. See “Description of Capital Stock” herein.
We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 15 of this prospectus. You should carefully consider these risk factors, as well as the information contained in this prospectus, before purchasing any of the securities offered by this prospectus.
| Per Share | Total | |||||||
| Offering price | $ | $ | ||||||
| Underwriters’ discounts and commissions (1) | $ | $ | ||||||
| Proceeds to our company before expenses | $ | $ | ||||||
| (1) | See “Underwriting” beginning on page 83 for additional information regarding underwriting compensation. |
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted a 45-day option to the representative of the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional 15% of the total number of securities to be offered by the Company to cover over-allotments, at the public offering price per share of common stock, less, in each case, the underwriting discounts payable by us. The securities issuable upon exercise of this overallotment option are identical to those offered by this prospectus and have been registered under the registration statement of which this prospectus forms a part.
The underwriters expect to deliver the securities against payment in New York, New York on or about [*], 2022.
| Spartan Capital Securities, LLC |
The date of this prospectus is [*], 2022
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. You should also read this prospectus together with the additional information described under “Additional Information.”
Unless the context otherwise requires, we use the terms “we,” “us,” “the Company,” or “our” to refer to Slinger Bag Inc. and its consolidated subsidiaries.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.
Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
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. Should one or more of these risks or uncertainties materialize or should any of the assumptions made by our management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. 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.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.
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PROSPECTUS SUMMARY
This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in shares of our common stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is April 30 and our fiscal years ended April 30, 2021 and 2020 are sometimes referred to herein as fiscal years 2020 and 2019, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our”, the “Company”, “our Company”, “Slinger”, or “Slinger Bag” refer to Slinger Bag Inc., a Nevada corporation, and our wholly owned subsidiaries, Foundation Sports Systems, LLC (aka Foundation Sports), Slinger Bag International (UK) Limited, Slinger Bag Canada Inc., Slinger Bag Ltd., Slinger Bag Services Ltd. and Slinger Bag Americas Inc., PlaySight Interactive Ltd., Slinger Bag Australia Pty Limited and Flixsense Pty Ltd. d/b/a Gameface unless the context indicates otherwise.
Business Overview
We are a connected sports company delivering products and technologies across the ‘Watch, Play, Learn’ commercial activities of sport. We are making sports more fun, accessible and connected through our ball launchers, AI technology, performance video, performance analytics, live streaming and club management software capabilities.
With a focus on tennis, fast-growing racket sports padel and pickleball, as well as cricket, baseball and softball, we are building a 360-degree platform to serve today’s sports consumer in a variety of ways. The Company also has a footprint in sports such as basketball, soccer and ice hockey.
| ● | WATCH: Automated production, live streaming of practices, matches, lessons, tournaments and sporting events, OTT (over the internet) capabilities and content for fan engagement, digital marketing and betting, data and media providers. Playsight Interactive Ltd. (“Playsight”), our new subsidiary, as a leader in global sports video production and live streaming will lead the Watch category for our Company. | |
| ● | PLAY: Reimagining sport with the Slinger range of launchers supported by pro-level performance analysis and recommendations specific to each sport. Powered by industry-leading equipment, AI and coaching insights from a respected global ambassador team; market leading facility software facilitating club revenue generation, court bookings and participation. Slinger with its disruptive, innovative and much sought-after ball launcher along with Foundation Sports’ market leading facility management software will drive the Play element of our platform. | |
| ● | LEARN: Content specifically curated to analyze, inform, motivate and provide improvement and enjoyment of sport across all technologies and products within our ecosystem. Gameface is at the heart of the Slinger connected platform and will power all Slinger brands insights and learning capabilities. Gameface is democratizing access to analytics data by building an automated AI platform to analyze and extract data from sport videos across tennis, cricket, baseball, and other leading sport verticals. Gameface’s core capabilities are delivered through any camera or camera phone, which allows the company to build consumer-friendly and scalable solutions for the sports market without relying on specific hardware or camera types. |
Across its portfolio of brands, including Slinger, PlaySight, Gameface and Foundation Sports, over $50 million has been invested into proprietary video technology and OTT capabilities, AI specific to individual sports, as well as products, services and software for athletes, coaches, teams, leagues, sports fans and betting and media companies.
With the disruptive Slinger tennis ball launcher, we have a direct relationship with core tennis players and enthusiasts and we are rolling out ball launchers in the core sport verticals later in 2022 for Pickleball and Padel and in 2023 for Baseball, Softball and Cricket. We believe this unique consumer connection with customers who own Slinger launchers will enable the Company to bring its technology and innovation right into people’s homes through its media productions and sport-specific apps and software because these customers are more likely to subscribe to the software that will help them play and learn.
Our connected sports platform already has 1.5 million users registered to it – the majority from the sport of tennis. With this largely untapped tennis and other sports audience, the Company has its own internal marketplace to further its development in the sport and create a blueprint of technology expertise to bring to the other core verticals.
Tennis is already experiencing rapid growth right now, with 22% year-over-year participation growth from 2020 to 2021. There are 87 million players worldwide, with 21 million of those considering themselves to be ‘avid.’ This enthusiast base is our key target in the sport.
The macro trends across sports and sports technology, AI, sports betting and youth sports growth clearly highlight the opportunity ahead. With infrastructure across courts, fields, pitches and rinks across the globe expected to become “Smart” over the next few years, the sports technology market, currently valued at $18 billion, is projected to grow to over $40 billion by 2028, with over 40% of that growth coming from North America. The proliferation of 5G and improved camera technology is leading to a widespread consumer adoption of AI technologies, with that market already worth in excess of $1 billion and expected to grow at a compound annual growth rate of over 28% over the next decade. Sports betting ($140 billion total addressable market) and youth sports (a $19 billion market today) are also large markets with tailwinds, and we are well-positioned to build products and services needed and desired by each.
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Recent Developments
Securities Purchase Agreement
On August 6, 2021, the Company consummated the closing (the “Closing”) of a private placement offering (the “Offering”) pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of August 6, 2021 (the “Purchase Agreement”), between the Company and certain accredited investors (the “Purchasers”). At the Closing, the Company sold to the Purchasers (i) 8% Senior Convertible Note (the “Notes”) in an aggregate principal amount of $11,000,000 and (ii) warrants (the “Warrants” and together with the Notes, the “Securities”) to purchase up to 7,333,334 shares of common stock of the Company (the “Warrant Shares”). The Company received an aggregate of $11,000,000 in gross proceeds from the Offering, before deducting offering expenses and commissions.
The Company used the net proceeds from the sale of the Securities for working capital purposes and to pay 100% of the outstanding principal amount and accrued interest through August 6, 2021 of the $2,000,000 secured term promissory note dated April 15, 2021 that bore interest at the rate of 15% per annum (the “Loan”) to SB Invesco LLC, a Wyoming limited liability company and not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than the Loan and the payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents (as defined in the Purchase Agreement), (c) for the settlement of any outstanding litigation, (d) in violation of FCPA or OFAC regulations or (e) to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the United States Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying margin stock.
Spartan Capital Securities, LLC served as placement agent for the Offering.
The Purchase Agreement contains customary representations, warranties and agreements of the Company and Purchasers and customary closing conditions, indemnification rights, and other obligations of the parties.
Notes
The Notes mature on August 6, 2022 (the “Maturity Date”) and bear interest at 8% per annum payable on each conversion date (as to that principal amount then being converted), on each redemption date as well as mandatory redemption date (as to that principal amount then being redeemed) and on the Maturity Date, in cash. The Notes are convertible into shares of the Company’s common stock at any time following the date of issuance and prior to Mandatory Conversion (as defined in the Notes) at the conversion price equal to the lesser of: (i) $3.00, subject to adjustment set forth in the Notes and (ii) in the case of an uplist to the Nasdaq, the Uplist Conversion Price (as defined in the Notes) of the Company’s common stock during the 2 Trading Day (as defined in the Notes) period after each conversion date; provided, however, that at any time from and after December 31, 2021 or upon an Event of Default (as defined in the Notes), the holder of the Notes had the right, by delivery of written notice to the Company, elect to cause all, or any part, of the Notes to be converted, at any time thereafter, each an “Alternate Conversion”, pursuant to the Section 4(f) of the Notes, all, or any part of, the then outstanding aggregate principal amount of the Notes into shares of common stock at the Alternate Conversion price. The Notes rank pari passu with all other Notes now or thereafter issued under the terms set forth in the Notes. The Notes contain certain price protection provisions providing for adjustment of the number of shares of common stock issuable upon conversion of the Notes in case of certain future dilutive events or stock-splits and dividends.
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Warrants
The Warrants are exercisable for five years from August 6, 2021, at an exercise price equal to the lesser of $3.00 or a 20% discount to the public offering price that a share of the Company’s common stock or unit (if units are offered) is offered to the public resulting in the commencement of trading of the Company’s common stock on the Nasdaq, New York Stock Exchange or NYSE American. The Warrants contain certain price protection provisions providing for adjustment of the amount of securities issuable upon exercise of the Warrants in case of certain future dilutive events or stock-splits and dividends.
Subsidiary Guarantee
The Company’s obligations under the Purchase Agreement and under the Notes are guaranteed by the Company’s subsidiaries pursuant to a Subsidiary Guarantee, dated August 6, 2021 (the “Subsidiary Guarantee”) by and between Guarantors (as defined in the Subsidiary Guarantee) and the Purchasers. The Company’s obligations under the Notes are jointly and severally, unconditionally and irrevocably guaranteed by the Subsidiaries having that executed the Subsidiary Guarantee.
Registration Rights Agreement
The Purchase Agreement provides that the Company and the Purchasers shall enter into a registration rights agreement (the “Registration Rights Agreement”), providing for the registration of the shares of common stock issued and issuable pursuant to the terms of the Notes and the Warrants (collectively, “Registrable Securities”) without respect to any limitation or restriction on the conversion of the Notes or exercise of Warrants. The Registration Rights Agreement provides that the Company shall file a registration statement covering the shares underlying the Notes or Warrants with the Securities and Exchange Commission (“SEC”) and have the registration statement declared effective by the SEC within ninety (90) days of the Closing. A registration statement was filed with the SEC on September 8, 2021 and was declared effective on January 28, 2022.
The Private Offering
The Securities were not registered for sale under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements. The issuance and sale of the Securities was made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. No form of general solicitation or general advertising was conducted in connection with the issuance. The Securities contain (or will contain, where applicable) restrictive legends preventing the sale, transfer, or other disposition of such securities, unless registered under the Securities Act, or pursuant to an exemption therefrom.
Omnibus Amendment Agreement
On December 31, 2021, the Company entered into an Omnibus Amendment Agreement (the “Omnibus Agreement”) with certain Note holders who are collectively holders of 67% or more of the Registrable Securities outstanding on August 6, 2021, amending each of (i) the Purchase Agreement and (ii) the Registration Rights Agreement. Simultaneously with the execution of the Omnibus Agreement, the Company issued to each Purchaser a Replacement Note (as defined below) in replacement of the Note held prior to December 31, 2021 by such Note holder (each, an “Existing Note”).
The Purchase Agreement was amended to, among other things, (i) delete Exhibit A and replace it in its entirety with the 8% Senior Convertible Note (the “Replacement Note”) filed as Exhibit 10.2 to the Company’s current report on Form 8-K dated January 5, 2021, (ii) add a new definition of “Inventory Financing”, (iii) amend Section 4.18 to add at the end of Section 4.18 before the final period “, it being agreed that the provisions of this Section 4.18 shall not apply to the Qualified Subsequent Financing expected to occur after the date hereof”, (iv) delete Section 4.20 and replace it in its entirety with substantially the same text, including the following after the period, replacing the period with a semicolon: “; provided that the provisions of this Section 4.20 shall not apply to (i) in respect of any Holder to the extent that such Holder is an investor or a purchaser of the securities offered pursuant such Subsequent Financing, and (ii) with respect to an Inventory Financing.”, and (v) add a new Section 4.21 as follows: “4.21. Most-Favored Nation. So long as any of the Notes are outstanding, upon any issuance by the Company or any of its subsidiaries of any new security, with any term that a majority of the holders of the outstanding Principal Amount of Notes, reasonably believe is more favorable to the holder of such security or with a term in favor of the holder of such security that a majority of the holders of the outstanding Principal Amount of Notes reasonably believe was not similarly provided to the Purchasers in the Notes, the Warrant, or under this Agreement, then (i) the Company shall notify each Note holder of such additional or more favorable term within one (1) business day of the issuance or amendment (as applicable) of the respective security, and (ii) such term, at the option of a majority of the holders of the outstanding Principal Amount of Notes, shall become a part of the Transaction Documents (regardless of whether the Company complied with the notification provision of this Section). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, and original issue discounts. If a majority of the holders of the outstanding Principal Amount of Notes elects to have the term become a part of the Transaction Documents, then the Company shall immediately deliver acknowledgment of such adjustment to the Note holder (the “Acknowledgment”) within one (1) business day of Company’s receipt of request from Investor (the “Adjustment Deadline”), provided that Company’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby.”
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The Registration Rights Agreement was amended to, among other things, (i) delete the definition “Effectiveness Date” in Section 1 and replace it in its entirety with substantially the same text but revise the definition of “Effectiveness Date” causing the Initial Registration Statement required to be filed by January 31, 2022, and (ii) delete Section 2(d) and replace it in its entirety with substantially the same text but revised to delete the following “(2) no liquidated damages shall accrue or be payable hereunder with respect to any day on which the high price of the Common Stock on the Trading Market on which the Common Stock is then listed or traded is less than the then-applicable Conversion Price,” resulting in renumbering the text that follows as (2) instead of (3).
As consideration for entering into the Omnibus Agreement, the outstanding principal balance of the Existing Note held by each Note holder was increased by twenty percent (20%) and such increased principal balance is reflected on the Replacement Note issued to each Note holder.
Loan Agreements
On January 14, 2022, we entered into two loan agreements with Yonah Kalfa and Naftali Kalfa, each for $1 million, pursuant to which we received a total amount of $2 million. 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. We are not permitted to make any distribution or pay any dividends unless or until the loans are repaid in full.
Gameface Acquisition
On February 2, 2022, Slinger Bag Australia Pty Ltd., a wholly-owned subsidiary of Slinger Bag Americas Inc. (which, in turn, is a wholly-owned subsidiary of Slinger Bag Inc.) completed the acquisition of 100% of the issued and outstanding share capital of Flixsense Pty Ltd. d/b/a Gameface (“Gameface”) pursuant to share purchase agreements entered into with each of the shareholders of Gameface on February 2, 2022 in exchange for the issuance and delivery of 6,045,855 shares of the Company’s common stock and warrants to purchase an additional 478,225 shares of the Company’s common stock at $0.001 per share in each case, in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) thereof for transactions not involving a public offering and the safe harbors afforded by Rule 506 and Rule 902 thereunder, (collectively, the “Consideration Shares”) to the Gameface shareholders and the payment of $500,000 to Jalaluddin Shaik to be made by the end of March 2022 in lieu of the issuance of 142,587 shares of common stock that Mr. Shaik would otherwise have been entitled to receive. Gameface shareholders also were granted piggyback registration rights, which expire when any applicable Consideration Shares can be freely traded pursuant to Rule 144 under the Securities Act.
Out of the Consideration Shares, the Company has retained 666,667 shares as security for the obligations of Mr. Shaik and Divyaa Jalal, as trustees for the Jalaluddin Shaik Family Trust, in respect of any claim which may be made by or on behalf of the Company for breach of warranty or under an indemnity given under the terms of the Share Purchase Agreements by August 2, 2023. The retained shares will be issued promptly after August 2, 2023 to the extent that the Company has not made any such claims by that date.
Consignment Transaction
In order to raise funds for use in financing certain closing expenses to be incurred in connection with our acquisition of Playsight, on February 15, 2022, for and in consideration of $4,000,000.00 or $392.68 per Consigned Good (the “Purchase Price”), 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”), which Consigned Goods. The Company also agreed to purchase the Consigned Goods from Consignor and make the following payments to Consignor:
| (a) | On or before March 15, 2022, the Company paid to Consignor $557,998 ($392.68 per Consigned Goods Unit) for the purchase of 1,421 Consigned Goods. | |
| (b) | The Company also agreed to purchase the remaining Consigned Goods in accordance with the following Consigned Goods Purchase Price payment and other terms and conditions: |
| (i) | Within 3 business days after a Registration Statement (as defined in the Purchase and Registration Rights Agreements) filed under the Registration Rights Agreement for the Company’s uplist to the Nasdaq is declared to be effective (the “Registration Effective Date”) under the Securities Act (as defined in the Purchase and Registration Rights Agreements) by the Commission (as defined in the Purchase and Registration Rights Agreements), $4,546,841 ($392.68 per Consigned Good) for the purchase of 11,579 Consigned Goods. | |
| (ii) | If the Registration Statement Effective Date is not on or before April 14, 2022, then on April 15, 2022, $1,244,010 ($392.68 per Consigned Good) for the purchase of 3,168 Consigned Goods. | |
| (iii) | If the Registration Effective Date is not on or before April 30, 2022, then on May 1, 2022, $3,302,831 ($392.68 per Consigned Good) for the purchase of 8,411 Consigned Goods. |
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Playsight Acquisition
On February 16, 2022, the Company, SB Merger Sub Ltd., a private company formed under the laws of the State of Israel and a wholly owned subsidiary of the Company, PlaySight and Rohit Krishnan, in his capacity as the Shareholders’ Representative (as defined in the Playsight Agreement) (the “Shareholder Representative”), entered into an Addendum to and Amendment to Agreement for the Merger (the “Amendment”). Pursuant to and in accordance with the terms of the Amendment, the Company agreed to purchase a certain number of shares of its common stock from certain of its shareholders for a maximum aggregate liability of $1.44 million and to issue a total of 1,428,571 options (the “Options”), exercisable to 1,428,571 shares of the Company’s common stock, to certain of the Company’s employees.
Under the terms of the Playsight Agreement, the Company agreed, among other things, to issue 28,333,333 shares of the Company’s common stock (subject to adjustment) in exchange for the merger (the “Completion Merger Consideration”). As a result of the parties to the Agreement having agreed to such adjustment, the parties to the Amendment have agreed that the Completion Merger Consideration shall comprise the issue by the Company of 25,379,683 shares of the Company’s common stock and the Options in exchange for the merger, and a cash sum equal to the value of 1,524,899 shares of the Company’s common stock (which would otherwise have been issued in exchange for the merger) to be used to cover certain expenses.
Under the terms of the Playsight Agreement, closing of the merger was conditional upon the satisfaction or waiver of, among other things, each of the following conditions on or before February 28, 2022:
| a) | the clearance of the Company’s information Statement relating to the Agreement (the “Information Statement”), which will include audited financial statements of PlaySight (including confirmation that such Information Statement will not be reviewed), by the Securities and Exchange Commission for mailing or otherwise making available to the Company’s shareholders; | |
| b) | Israeli tax rulings having been obtained; | |
| c) | the Company having paid (i) all of the costs, charges and expenses of the accounting firm to be incurred by the Company and/or PlaySight relating to the financial information required to be included in the Company’s Information Statement and (ii) all the professional advisers’ costs, charges and expenses incurred by PlaySight in connection with the transactions contemplated by the Agreement, (iii) certain outstanding loans payable by PlaySight as at closing (excluding certain PlaySight convertible notes) as may be agreed by the Company and PlaySight and (iv) up to $5,000,000 in aggregate principal amount together with accrued interest of PlaySight convertible notes (collectively (i)-(iv), the “Transaction Costs”); and | |
| d) | Chen Sachar and Evgeni Khazanov (each a “Key Executive”) being employed by or providing consulting services to PlaySight at closing of the merger under the terms of an employment or consulting and non-competition agreement to be entered into between such Key Executive and PlaySight or its subsidiary prior to closing of the merger on terms satisfactory to the Company (the “Relevant Agreements”). |
Pursuant to Amendment, the parties agreed to waive the foregoing closing conditions set forth in the Playsight Agreement (which in the case of the condition that the Israeli tax rulings having been obtained is a waiver of such condition insofar as it relates to the tax ruling pursuant to section 102 of the Israel Tax Ordinance) and the Company agreed to pay the Transaction Costs within no later than five (5) Business Days following the closing of the merger. The parties have agreed to use all commercially reasonable endeavors to cooperate and negotiate and finalize as soon as reasonably practicable acting reasonably and in good faith the Relevant Agreements.
On July 21, 2021, Slinger Bag Americas Inc., a Delaware corporation and subsidiary of the Company, and PlaySight entered into a Convertible Loan Agreement (the “CLA”), under which the lender thereunder lent PlaySight funds in an amount of $2,000,000. The CLA was extinguished in connection with the closing of the merger.
| 9 |
Information Statement
On March 15, 2022, the Company filed a definitive Information Statement on Schedule 14C (the “Information Statement”). On March 18, 2022, the Information Statement was mailed to the Company’s stockholders. There are three actions described in the Information Statement: a change in domicile from Nevada to Delaware; a change in the Company’s name to Connexa Sports Technologies Inc.; and a reverse stock split.
Reverse Stock Split
On [*], 2022, We effected a reverse stock split of our common stock at a ratio of 1-for-[*]. No fractional shares will be issued in connection with the reverse stock split and all such fractional interests will be rounded up to the nearest whole number of shares of common stock. The conversion or exercise prices of our issued and outstanding convertible securities, stock options and warrants will be adjusted accordingly. Following the effectiveness of the reverse stock split, all information presented in this prospectus other than in our consolidated financial statements and the notes thereto will be adjusted to give effect to such reverse stock split.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
| ● | an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; | |
| ● | an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
| ● | reduced disclosure about our executive compensation arrangements; | |
| ● | exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; and | |
| ● | extended transition periods for complying with new or revised accounting standards. |
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies.
| 10 |
Summary of the Offering
| Issuer: | Slinger Bag Inc. | |
| Common stock to be offered: | [*] shares of common stock, at a public offering price of $[*] per share. | |
| Over-allotment option: | We have granted to the representative of the underwriters a 45-day option to purchase up to an additional 15% of the total number of securities to be offered by the Company at the public offering price of $[*] per share, less the underwriting discounts payable by us, solely to cover over-allotments, if any. | |
Common stock outstanding prior to this offering: (1)
Common stock to be outstanding after the offering: (1)
|
[*] shares
[*] shares | |
Use of proceeds: |
We estimate that the net proceeds to us from this offering will be approximately $[*] million, or approximately $[*] million if the underwriters exercise their over-allotment option in full, assuming an offering price of $[*] per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital, expanded sales and marketing activities, and increased research and development expenditures. See “Use of Proceeds” for additional information. | |
| Proposed Nasdaq Capital Market Trading Symbol and Listing: | We will apply to list our common stock on the Nasdaq Capital Market under the symbol “CNXA”. We will not proceed with this offering in the event our common stock is not approved for the listing on the Nasdaq. | |
| Risk factors: | Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 15 before deciding to invest in our securities.
| |
| Lock-up: | We, our directors, executive officers, and shareholders who own [5%] or more of the outstanding shares if our common stock have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of [*] days, commencing on the date of this prospectus. See “Underwriting” for additional information. |
| (1) | The number of shares of our common stock outstanding prior to and to be outstanding immediately after this offering, is based on [*] shares outstanding as of [*], 2022. Unless otherwise indicated, the Shares outstanding after this offering excludes the following: |
| ● | [*] shares of Common Stock issuable upon exercise of outstanding stock options as of [*], 2022, with a weighted-average exercise price of $[*] per share; | |
| ● | [*] shares of Common Stock issuable upon exercise of outstanding warrants as of [*], 2022, with a weighted-average exercise price of $[*] per share; | |
| ● | [*] shares of Common Stock reserved for future issuance under our 2020 Global Share Incentive Plan (the “2020 Plan”) as of [*], 2022; | |
| ● | [*] shares of Common Stock issuable upon conversion of the Notes; and | |
| ● | any shares of Common Stock issuable upon exercise of over-allotment option granted to the representative of the underwriters. |
| 11 |
Summary Consolidated Financial Information
The following summary consolidated financial information at and for the fiscal years ended April 30, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated information at and for the nine-month periods ended January 31, 2022 and 2021 have been derived from our unaudited financial statements included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.
Consolidated Statements of Operations and Comprehensive Loss
| For the Year Ended | For the Nine Months Ended | |||||||||||||||
| April 30, 2021 | April 30, 2020 | January 31, 2022 | January 31, 2021 | |||||||||||||
| Net sales | $ | 10,804,214 | $ | 686,179 | $ | 12,139,860 | $ | 7,308,701 | ||||||||
| Cost of sales | 7,680,290 | 1,370,897 | 8,302,386 | 5,762,143 | ||||||||||||
| Gross income (loss) | 3,123,924 | (684,718 | ) | 3,837,474 | 1,546,558 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing expenses | 1,761,154 | 563,003 | 2,515,067 | 1,051,785 | ||||||||||||
| General and administrative expenses (1) | 4,749,922 | 5,291,075 | 41,535,188 | 2,974,404 | ||||||||||||
| Research and development costs | 339,385 | 179,982 | 553,274 | 180,705 | ||||||||||||
| Transaction costs | - | 198,443 | - | - | ||||||||||||
| Total operating expenses | 6,850,461 | 6,232,503 | 44,603,529 | 4,206,894 | ||||||||||||
| Loss from operations | (3,726,537 | ) | (6,917,221 | ) | (40,766,055 | ) | (2,660,336 | ) | ||||||||
| Other expense (income): | ||||||||||||||||
| Amortization of debt discounts | 376,506 | 1,565,174 | 5,400,285 | 325,426 | ||||||||||||
| Loss on extinguishment of debt | 3,030,495 | - | 7,096,730 | 1,528,580 | ||||||||||||
| Induced conversion loss | 51,412 | - | - | 51,412 | ||||||||||||
| Gain on change in fair value of derivatives | (1,939,639 | ) | - | (15,074,880 | ) | - | ||||||||||
| Loss on issuance of convertible notes | - | - | 5,889,369 | - | ||||||||||||
| Interest expense - related party | 608,668 | 171,918 | 106,895 | 454,029 | ||||||||||||
| Interest expense, net (2) | 12,740,781 | 573,431 | 446,339 | 169,455 | ||||||||||||
| Total other expense | 14,868,223 | 2,310,523 | 3,864,738 | 2,528,902 | ||||||||||||
| Loss before income taxes | (18,594,760 | ) | (9,227,744 | ) | (44,630,793 | ) | (5,189,238 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | (18,594,760 | ) | (9,227,744 | ) | (44,630,793 | ) | (5,189,238 | ) | ||||||||
| Other comprehensive gain (loss), net of tax | ||||||||||||||||
| Foreign currency translation adjustments | (15,134 | ) | (5,034 | ) | (26,806 | ) | (2,121 | ) | ||||||||
| Total other comprehensive gain (loss), net of tax | (15,134 | ) | (5,034 | ) | (26,806 | ) | (2,121 | ) | ||||||||
| Comprehensive loss | $ | (18,609,894 | ) | $ | (9,232,778 | ) | $ | (44,657,599 | ) | $ | (5,191,359 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.70 | ) | $ | (0.37 | ) | $ | (1.19 | ) | $ | (0.20 | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | 26,723,038 | 24,689,813 | 37,360,953 | 26,497,184 | ||||||||||||
| (1) | Includes non-cash share-based compensation and shares issued in connection with services as follows: |
| General and administrative expenses | $ | 869,348 | $ | 3,741,746 | $ | 34,281,180 | $ | 447,478 |
| (2) | Includes non-cash interest expense as follows: |
| Interest expense | $ | 12,501,178 | $ | 358,855 | $ | - | $ | - |
Summary Consolidated Balance Sheet Data
| At April 30, | At January 31, | |||||||||||
| 2021 | 2020 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 928,796 | $ | 79,847 | $ | 1,082,446 | ||||||
| Working capital | (18,553,120 | ) | (3,105,916 | ) | (13,733,056 | ) | ||||||
| Total assets | 5,697,512 | 1,381,001 | 18,634,564 | |||||||||
| Total long-term notes payable, net | 10,477 | 1,887,914 | - | |||||||||
| Common stock and additional paid-in capital | 10,392,699 | 5,239,719 | 63,208,091 | |||||||||
| Total shareholders’ deficit | (18,450,744 | ) | (4,993,830 | ) | (10,292,951 | ) | ||||||
| 12 |
RISK FACTOR SUMMARY
Investing in shares of our common stock will involve certain risks. Set forth below is a summary of the principal risks associated with an investment in our common stock. You should consider carefully the following discussion of risks, as well as the discussion of risks included in this prospectus including in the section “Risk Factors” starting on page 15, before you decide that an investment in our shares is appropriate for you.
| ● | Our business is sensitive to consumer spending and general economic conditions. |
| ● | Our manufacturing takes place in China and, therefore, is susceptible to shutdowns and delays caused by the Coronavirus and other diseases and epidemics. Additionally, we rely on independent manufacturers and suppliers. Moreover, our extended supply chain requires long lead times and relies heavily on manufacturers in Asia. |
| ● | 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. |
| ● | Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure our brand and negatively affect our sales. |
| ● | 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. |
| ● | We operate in international markets and we are subject to the risks inherent in operating in such markets. Moreover, our product development company and chief marketing officer are located in Israel and, therefore, our business, financial condition and results of operation may be adversely affected by political, economic and military instability in or affecting Israel. |
| ● | 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. |
| ● | Our results of operations are subject to seasonal and quarterly fluctuations, which could result in fluctuations in our operating results and adversely affect the market price of our common stock. |
| ● | The growth of our business depends on the successful execution of our growth strategy, including our efforts to expand internationally by growing our e-commerce business. |
| ● | We may be unable to respond effectively to changes in market trends and consumer preferences, as a result of which our market share, 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. |
| ● | Fluctuations in our tax obligations and effective tax rate may have a negative effect on our operating results. |
| ● | Our business could suffer if we are unable to maintain our website or manage our inventory effectively. |
| ● | Expanding our business and executing our growth strategy may require additional capital in addition to cash provided by operating activities, which may not be available to us. Our future growth, development or expansion may not meet our expectations. |
| ● | 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. |
| 13 |
| ● | 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. |
| ● | Failure to protect confidential information of our consumers and our network against security breaches or failure to comply with privacy and security laws and regulations could damage our reputation, brand and business. |
| ● | For as long as we are an “emerging growth 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 emerging growth companies will make our common shares less attractive to investors. |
| ● | There is currently limited liquidity of shares of our common stock. |
| ● | Investors in this offering will experience immediate and substantial dilution in net tangible book value. |
| ● | There can be no assurances that our common stock, once listed on the Nasdaq, will not be subject to potential delisting if we do not continue to maintain the listing requirements of the Nasdaq. |
| ● | 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 price of shares of our common stock may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment as a result. |
| ● | Our products face intense competition. |
| ● | We rely on technical innovation and high-quality products to compete in the market for our products. |
| ● | We may fail to continue to obtain or maintain high-quality endorsers of our products, which could harm our business and prospects. |
| ● | We may not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures. |
| ● | We may 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. |
| ● | Our business is subject to 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. |
| ● | We have a history of losses and there is uncertainty of our profitability. |
| ● | We face risks related to environmental regulation and liability and to tax assessments. |
| ● | We face other risks and uncertainties related to our prospects, properties and business strategy. | |
| ● | We face risks from the Russian invasion of Ukraine 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 |
| 14 |
RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus before you decide to purchase shares of our common stock. The risks and uncertainties described in this prospectus are not the only ones we may face. Additional risks and uncertainties that we do not presently know about or that we currently believe are not material may also adversely affect our business, business prospects, results of operations or financial condition. Any of the risks and uncertainties set forth herein, could materially and adversely affect our business, results of operations and financial condition.
Risks Related to Our Business
Our business is sensitive to consumer spending and general economic conditions.
Consumer purchases of discretionary premium sporting good items, which include all of our products, may be adversely affected by the current COVID-19 (“Coronavirus”) pandemic, as well as economic conditions such as 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 www.slingerbag.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 in the early years of Slinger’s growth, gaining distribution and share outweighs the immediate margin consideration and has decided to take the added increase in import tariffs as a margin loss.
Our manufacturing takes place in China and, therefore, 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, our sole manufacturing facility is located in southern China. Following the outbreak of the Coronavirus our manufacturing facility was shut down for three months, which caused significant 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.
| 15 |
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, 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 depend on the strength of the Slinger® brand.
We expect to derive substantially all of our net sales from sales of Slinger branded products. The reputation and integrity of the Slinger brand are essential to the success of our business. We believe that our consumers value the status and reputation of the Slinger brand, and the superior quality, performance, functionality and durability that our brand represents. Building, maintaining and enhancing the status and reputation of the Slinger brand image is important to expanding our consumer base. Our continued success and growth depend on our ability to protect and promote the Slinger brand, which, in turn, depends on factors such as the quality, performance, functionality and durability of our products, 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 brand and to protect our brand’s 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 brand, the value of the Slinger brand 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 brand 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 brand 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.
| 16 |
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, although we enter into agreements with all of our employees pursuant to which they waive their right to special remuneration for service inventions created in the scope of their employment or engagement and agree that any such inventions are owned exclusively by us, we may face claims by employees demanding remuneration beyond their regular salary and benefits.
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, including GBP; | |
| ● | Economic or governmental instability in foreign markets in which we operate or in those countries from which we source our merchandise; | |
| ● | Unexpected changes in laws, regulatory requirements, taxes or trade laws; | |
| ● | Increases in the cost of transporting goods globally; | |
| ● | Acts of war, terrorist attacks, outbreaks of contagious disease and other events over which we have no control; and | |
| ● | 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. |
| 17 |
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. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010), 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.
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, if material 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.
Our results of operations are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our common stock.
Our quarterly results of operations may fluctuate significantly as a result of a variety of factors, including, but not limited to:
| ● | Changes in the number of our points of distribution; | |
| ● | Weather trends; | |
| ● | Changes in our merchandise mix; and | |
| ● | The timing of new product introductions. |
The growth of our business depends on the successful execution of our growth strategy, including our efforts to expand internationally by growing our e-commerce business.
Our current growth strategy depends on our ability to continue to expand geographically in a number of international regions including Asia, Europe, North America, China, Japan, South Korea, Middle East, India, South Africa and Australia. This growth strategy is contingent upon our ability to continually 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 expand our business internationally, our growth strategy and our financial results could be materially adversely affected.
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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 younger consumers, to the Slinger brand. If we are unable to attract new consumers, including younger consumers, our business and results of operations may be adversely affected as our core consumers’ age increases and levels of travel and purchasing frequency decrease. Initiatives and strategies intended to position our brand to appeal to new and younger 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 younger consumers while maintaining our brand’s premium image with our core consumers, then our net sales and our brand image may be adversely affected.
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.
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.
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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. If our business does not generate cash flow from operating activities sufficient to fund these 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, as a result of these long lead times, design decisions are required to be made several months or as early as a year and a half before the goods are delivered. 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 as well as retail-oriented businesses. 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 as we expand over the next few years, we may not be successful in implementing our growth strategy. In either instance, our profitability and financial performance could be adversely affected.
Under applicable employment laws, we may not be able to enforce covenants not to compete.
We generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work 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.
For example, some labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer, which have been recognized by the courts as justification for the enforcement of non-compete undertakings, such as the protection of a company’s trade secrets or other intellectual property.
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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 to promote new product introductions in a cost-effective manner and possibly from time to time the use of newspapers and magazines. 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.
Failure to protect confidential information of our consumers and our network against security breaches or failure to comply with privacy and security laws and regulations could damage our reputation, brand and business.
A significant challenge to e-commerce and communications, including the operation of our website, is the secure transmission of confidential information over public networks. Our failure to prevent security breaches could damage our reputation and brand 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.
For as long as we are an “emerging growth 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 emerging growth companies will make our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from reporting requirements applicable to other publicly reporting companies that are not emerging growth companies. These include: (i) 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, (ii) not being required to comply with any requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) not being required to comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, (iv) not being required to provide certain disclosure regarding executive compensation required of larger publicly reporting companies, and (v) not being required to hold a non-binding advisory vote on executive compensation or seek shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years from the end of our current fiscal year, although, if the market value of our common shares that is held by non-affiliates exceeds $700 million as of any October 31 before the end of that five-year period, we would cease to be an emerging growth company as of the following April 30. 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.
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Our product development company and chief marketing officer are 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.
We operate our Slinger business in Israel under Slinger Bag Ltd. We have also engaged an Israeli product development company to assist in the development of our current and future products and our chief marketing officer resides 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.
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 the 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 a material adverse effect on our financial condition, results of operations, and cash flows.
Our products face intense competition.
Slinger is a consumer products company and the relative popularity of tennis and various sports and fitness activities and changing design trends affect the demand for our products. The athletic equipment industry is highly competitive both in the U.S. and worldwide. We compete internationally with a significant number of athletic and sports equipment companies and large companies having diversified lines of athletic and sports equipment. 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.
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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 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.
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. As a result, our brands, net revenues, expenses and profitability could be harmed. Furthermore, if certain endorsers were to stop using our products contrary to their endorsement agreements, our business could be adversely affected. In addition, 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. In addition, 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.
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. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas, transportation disruptions and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to fluctuate. 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 customers.
We extend credit to our tennis wholesale and tennis specialist retail customers 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, retailers 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 merchandising and an appealing retail environment to attract consumers, which requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments or delay them, resulting in lower sales and orders for our products.
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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.
To meet anticipated demand for our products, we purchase products from manufacturers outside of our direct ship ordering program and in advance of customer orders, which we hold in inventory and resell to customers. 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.
We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.
In addition to our own sensitive and proprietary business information, we handle transactional and personal information about our customers and users of our digital experiences, which include online distribution channels and product engagement, adaptive products and personal fitness applications. Hackers and data thieves are increasingly sophisticated and operate social engineering, such as phishing, and large-scale, complex automated attacks that can evade detection for long periods of time. Any breach of our or our service providers’ network, or other vendor systems, may result in the loss of confidential business and financial data, misappropriation of our consumers’, users’ or employees’ personal information or a disruption of our business. Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach. In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere.
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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.
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. The administration has also targeted the specific practices of certain U.S. multinational corporations in public statements which, if directed at us, could harm our reputation or otherwise negatively impact our business.
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.
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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.
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) 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. Slinger 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.
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We rely significantly on information technology to operate our business, including our supply chain and retail operations, and any failure, inadequacy or interruption of that technology could harm our ability to effectively operate our 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, retail 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 have implemented Information Technology Systems in all of the geographical regions in which we operate. Our work to integrate, secure and enhance these systems and related processes in our global operations is ongoing and Slinger will continue to invest in these efforts. 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 significant capital investments 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.
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.
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.
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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, 2021 and 2020 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, 2021, used cash in operations for the fiscal year ended April 30, 2021 of $4,517,457 in 2021, 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, 2022 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 at April 30, 2021 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 2022 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.
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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.
We are subject to the periodic reporting requirements of Section 15(d) and 12(g) 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 an “emerging growth 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, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual nonbinding advisory vote on executive compensation and seeking nonbinding stockholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.”
We will remain an “emerging growth company” for up to five years, although we would cease to be an “emerging growth company” prior to such time if we have more than $1.07 billion in annual revenue, more than $700 million in market value of our common stock is held by non-affiliates or we issue more than $1 billion of non-convertible debt over a three-year period.
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.
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, 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 | |
| ● | 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 an “emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions available to us through the JOBS Act.
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 $100,000 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 exceed $700 million in market capitalization, or we decide to opt-out of the status as an “emerging growth company” as defined under the JOBS Act. This exemption is available to us under the JOBS Act or until we have been public for more than five years.
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.
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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.
Risks Related to Recent Acquisitions
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 fiscal year 2021 and the acquisitions of PlaySight and Gameface have recently closed. 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.
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 available on unfavorable terms or at no cost, based upon the type of open-source software we use.
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.
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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. For example, our PlaySight SmartCourt technology is based on algorithms that evaluate a number of factors and currently depend on sourcing 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 score through 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.
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The AI-based video 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 video 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 growth of this market. The utilization of our platforms by users is still relatively new, and users may not recognize the need for, or benefits of, our 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 platforms 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 platforms 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.
Our Gameface products and services may fail to keep pace with rapidly changing technology and evolving industry standards.
The market in which Gameface 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 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.
We rely on third parties to develop cognitive engines for our platform and in some cases to integrate them with our PlaySight platform.
A key element of our PlaySight platform is the ability to incorporate and integrate cognitive engines developed by multiple third-party vendors, and we plan to continue to increase the number of third-party cognitive engines incorporated into our platform in order to enhance the performance and power of our platform. As we become increasingly dependent on third-party developers for new cognitive engines, we may encounter difficulties in identifying additional high-quality cognitive engines, entering into agreements for their inclusion in our ecosystem on acceptable terms or at all and/or in coordinating and integrating their technologies into our system. We may incur additional costs to modify and adjust existing functionalities of our platform to accommodate multiple classes of third-party cognitive engines, without the assurance that such costs can be recouped by the additional revenues generated by the new capabilities. As our platform becomes more complex due to the inclusion of various third-party cognitive engines, we may not be able to integrate them in a seamless or timely manner due to a number of factors, including incompatible software applications, lack of cooperation from developers, insufficient internal technical resources, and the inability to secure the necessary licenses or legal authorizations required. In addition, we currently use third-party providers to integrate such third party cognitive engines onto our platform. In the future, we may require such third party developers to integrate their engines onto our platform, and we will be dependent in part upon their ability to do so effectively and quickly. We may not have full control over the quality and performance of third-party providers, and therefore, any unexpected deficiencies or problems arising from these third-party providers may cause significant interruptions of our platform. The failure of third party developers to integrate their cognitive engines seamlessly into our platform and/or provide reliable, scalable services may impact the reliability of our platform and harm our reputation and business, results of operations and financial conditions.
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.
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Customers may experience difficulty in integrating Foundation Sports with third-party applications, which would inhibit sales.
Foundation Sports may serve a customer base with a wide variety of constantly changing hardware, operating system software, packaged software applications and networking platforms. If Foundation Sports 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 Foundation Sports with multiple platforms and existing systems and to modify our product as new versions of packaged applications are introduced; | |
| ● | Access to application program interfaces for the third-party software products that are integrated with our products; | |
| ● | Our ability to anticipate and support new standards; and | |
| ● | Our management of software being developed by third parties for our customers or for use with Foundation Sports. |
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 Foundation Sports 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 Foundation Sports 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 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 common shares to be risky, and you should invest in our common shares 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; | |
| ● | Weather conditions, particularly during holiday shopping periods; | |
| ● | 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; | |
| ● | Fluctuations in the market valuations of companies perceived by investors to be comparable to us; | |
| ● | 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; | |
| ● | Speculation about our business in the press or the investment community; | |
| ● | Future sales of our shares; | |
| ● | Actions by our competitors; | |
| ● | Additions or departures of members of our senior management or other key personnel; and | |
| ● | The passage of legislation or other regulatory developments affecting us or our industry. |
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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.
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. 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 [ ] 2022, we have [ ] outstanding common shares. Of these shares, [ ] shares are in the public float or are eligible for re-sale under Rule 144. The remaining [ ] shares common stock outstanding are “restricted securities” within the meaning of Rule 144. On September 8, 2021, we filed a registration statement with the SEC to register an additional 11,674,077 shares of common stock, which was declared effective on January 28, 2022. Additional sales of our common shares in the public market after the date hereof, or the perception that these sales could occur, could cause the market price of our common shares to decline.
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 December 31, 2021, Yonah Kalfa beneficially owned approximately 48% 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 implement a reverse stock split in the future, it may not result in a proportional increase in the per share price of our common stock.
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. As such, there can be no assurance that the market price per post-split share will be sufficient to obtain listing on the Nasdaq Capital Market or remain in excess of the minimum closing bid price as required by the Nasdaq rules, or that the Company will or would otherwise meet the requirements of the Nasdaq for initial or continued inclusion for trading on the Nasdaq Capital Market.
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.
Persons who purchase shares of our common stock may lose their money without us ever being able to develop a market.
In the event that no market to purchase our common shares is ever created, it is likely that the entire investment of a purchaser in our common stock would be lost.
Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through issuance of additional shares.
We do not have any committed sources of financing. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized 300,000,000 shares that are not issued. In addition, if a trading market ever develops for our common stock, 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.
Investors in this offering will experience immediate and substantial dilution in net tangible book value.
The public offering price per share is substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors in this offering will incur immediate dilution of $ _____ per share, based on the assumed public offering price of $_____ per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.
There can be no assurances that our common stock, once listed on the Nasdaq, will not be subject to potential delisting if we do not continue to maintain the listing requirements of the Nasdaq.
We will apply to list the shares of our common stock on the Nasdaq, under the symbol “CNXA.” An approval of our listing application by the Nasdaq will be 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. 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.
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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.
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USE OF PROCEEDS
Based upon an assumed public offering price of $[*] per share, we estimate that we will receive net proceeds from this offering, after deducting the underwriting discounts and the estimated offering expenses payable by us, of approximately $[*] assuming the Underwriter does not exercise its over-allotment option.
We plan to use the net proceeds we receive from this offering for the following purposes:
Use of Net Proceeds | ||||
| [Working Capital] | $ | |||
| [Sales and Marketing] | $ | |||
| [Research and Development] | $ | |||
The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.
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DIVIDEND POLICY
We have not paid and do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. We currently expect to retain all future earnings for use in the operation and expansion of our business. The declaration and payment of any cash dividends in the future will be determined by our Board of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition and contractual restrictions, if any.
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MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Authorized Capital
Our authorized capital consists of 300,000,000 shares of common stock, par value $0.001 per share.
The holders of shares of our common stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends payable in cash, stock or otherwise. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the net assets of the Company shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interest. See “Description of Capital Stock”.
Approximate Number of Equity Security Holders
On [ ], 2022, there were [ ] holders of record of our common stock, as reported by our 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. A significant number of shares of our common stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the total number of beneficial owners of our stock.
Shares Outstanding
As of [ ], 2022, there were [41,869,622] shares of our common stock outstanding.
On [*], 2022, the Company effected a reverse stock split of its common stock, at a ratio of 1-for-[*] (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA and in the marketplace on [*], 2022 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis. As a result of the Reverse Stock Split, On the Effective Date, each [*] shares of the Company’s common stock outstanding has been exchanged for one share of the Company’s common stock. All references in this report to numbers of shares reflect the Company’s 1-for-[*] reverse split.
Dividend Policy
We have not paid and do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. We currently expect to retain all future earnings for use in the operation and expansion of our business. The declaration and payment of any cash dividends in the future will be determined by our Board of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition and contractual restrictions, if any.
Market for Shares of Common Stock
Shares of our common stock are quoted on the OTCQB of the OTC Markets Group Inc. under the symbol “SLBG”. On December 31, 2021, the closing price per share of our common stock as reported by OTC Markets Group Inc. was $1.70.
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CAPITALIZATION
Set forth below is our cash and capitalization as of [*], 2022:
| ● | On an actual basis; | |
| ● | on a pro forma basis to reflect: (i) the sale of [*] shares of common stock on [*], 2022 for a price per share of $[*] for total proceeds of $[*]; (ii) the exercise of [*] warrant shares on [*], 2022 for a price per share of $[*] for total proceeds of $[*] and (iii) as of [*], 2022, the issuance of [*] shares of common stock following the conversion of Notes. | |
| ● | on a pro forma as adjusted basis to reflect the issuance and sale of the shares by us in this offering at the public offering price of $[*] per share, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us. |
You should read the information in the below table together with our consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.
| As of [*], 2022 | ||||||||||||
Actual (unaudited) | Pro Forma (unaudited) | Pro Forma As Adjusted (unaudited) | ||||||||||
| Cash and restricted cash | $ | $ | $ | |||||||||
| Total debt at face value | ||||||||||||
| Total stockholders’ equity: | ||||||||||||
| Common stock, $0.001 par value, [*] shares authorized [*] issued and outstanding as of [*], 2022 | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated (deficit) | ||||||||||||
| Total stockholders’ equity | ||||||||||||
| Capitalization | $ | $ | $ | |||||||||
| (1) | A $0.50 increase or decrease in the assumed public offering price per share would increase or decrease our as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $[*] million assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts, commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $[*] million, assuming no change in the assumed public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
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DILUTION
If you invest in our Shares in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of Common Stock and the as adjusted net tangible book value per share of common stock immediately after this offering.
Our historical net tangible book value as of [*], 2022 was ($[*]), or $(0. [*]) per share of common stock. Our historical net tangible book value is the amount of our total tangible assets less our liabilities. Historical net tangible book value per share of common stock is our historical net tangible book value divided by the number of outstanding shares of common stock as of [*], 2022.
Our pro forma net tangible book value as of [*], 2022 was $[*] per share of Common Stock. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding common stock, after giving effect to the pro forma adjustments referenced under “Capitalization.”
After giving effect to this offering, at an assumed public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value on a pro forma as adjusted basis as of [*], 2022 would have been $ per share of common stock. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share of common stock to our existing shareholders and an immediate dilution of $ per share of common stock to new investors purchasing common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a common stock.
The following table illustrates this dilution:
| Assumed public offering price per share | $ | |||
| Net tangible book value per Common Stock as of [*], 2022 | $ | |||
| Pro forma net tangible book value per share as of [*], 2022 | $ | |||
| Increase in pro forma net tangible book value per share attributable to this offering | $ | |||
| Pro forma as adjusted net tangible book value per share, after this offering | $ | |||
| Dilution per share to new investors in this offering | $ |
A $0.50 increase (decrease) in the assumed public offering price of $ per share of common stock, would increase (decrease) the pro forma as adjusted net tangible book value per share by $ , and increase (decrease) dilution to new investors by $ per share, in each case assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding warrants or convertible notes having a per share exercise or conversion price less than the per share offering price to the public in this offering.
If the underwriters exercise in full their option to purchase additional common stock in this offering, the pro forma as adjusted net tangible book value after the offering would be $ per share, the increase in net tangible book value to existing shareholders would be $ per share, and the dilution to new investors would be $ per share, in each case assuming an public offering price of $ per share.
The number of shares of common stock that will be outstanding after this offering is based on [*] shares of common stock outstanding as of [*], 2022 and excludes the following as of that date:
| ● | [*] shares of Common Stock issuable upon exercise of outstanding stock options as of [*], 2022, with a weighted-average exercise price of $[*] per share; | |
| ● | [*] shares of Common Stock issuable upon exercise of outstanding warrants as of [*], 2022, with a weighted-average exercise price of $[*] per share; | |
| ● | [*] shares of Common Stock reserved for future issuance under our 2020 Global Share Incentive Plan (the “2020 Plan”) as of [*], 2022; | |
| ● | [*] shares of Common Stock issuable upon conversion of the convertible notes issued in August 2021 (the “Notes”); and | |
| ● | any securities issuable upon exercise of the Representative’s over-allotment option. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in “Risk Factors.”
Overview
The Company was incorporated under the laws of the State of Nevada on July 12, 2015 as “Lazex Inc.” (“Lazex”). 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 20,000,000 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 20,000,000 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 20,000,000 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. The owner of SBL contributed it to Slinger Bag Americas for no consideration.
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”).
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL, and Foundation Sports are collectively referred to as “we,” “our,” or the “Company.”
The Company operates in the sporting and athletic goods business. The Company is the owner of the Slinger Launcher, a highly portable and affordable ball launcher built into an easy to transport wheeled trolley bag. The Slinger Launcher allows anyone to simply and easily control the speed, frequency and elevation of balls that are launched for practice, training or fitness purposes.
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 stock.
Gameface Acquisition
On February 2, 2022, Slinger Bag Australia Pty Ltd., a wholly-owned subsidiary of Slinger Bag Americas Inc. (which, in turn, is a wholly-owned subsidiary of Slinger Bag Inc.) completed the acquisition of 100% of the issued and outstanding share capital of Flixsense Pty Ltd. d/b/a Gameface (“Gameface”) pursuant to share purchase agreements entered into with each of the shareholders of Gameface on February 2, 2022 in exchange for the issuance and delivery of 6,045,855 shares of the Company’s common stock and warrants to purchase an additional 478,225 shares of the Company’s common stock at $0.001 per share in each case, in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) thereof for transactions not involving a public offering and the safe harbors afforded by Rule 506 and Rule 902 thereunder, (collectively, the “Consideration Shares”) to the Gameface shareholders and the payment of $500,000 to Jalaluddin Shaik to be made by the end of March 2022 in lieu of the issuance of 142,587 shares of common stock that Mr. Shaik would otherwise have been entitled to receive. Gameface shareholders also were granted piggyback registration rights, which expire when any applicable Consideration Shares can be freely traded pursuant to Rule 144 under the Securities Act.
Out of the Consideration Shares, the Company has retained 666,667 shares as security for the obligations of Mr. Shaik and Divyaa Jalal, as trustees for the Jalaluddin Shaik Family Trust, in respect of any claim which may be made by or on behalf of the Company for breach of warranty or under an indemnity given under the terms of the Share Purchase Agreements by August 2, 2023. The retained shares will be issued promptly after August 2, 2023 to the extent that the Company has not made any such claims by that date.
Playsight Acquisition
On February 16, 2022, the Company, SB Merger Sub Ltd., a private company formed under the laws of the State of Israel and a wholly owned subsidiary of the Company, PlaySight and Rohit Krishnan, in his capacity as the Shareholders’ Representative (as defined in the Playsight Agreement) (the “Shareholder Representative”), entered into an Addendum to and Amendment to Agreement for the Merger (the “Amendment”). Pursuant to and in accordance with the terms of the Amendment, the Company agreed to purchase a certain number of shares of its common stock from certain of its shareholders for a maximum aggregate liability of $1.44 million and to issue a total of 1,428,571 options (the “Options”), exercisable to 1,428,571 shares of the Company’s common stock, to certain of the Company’s employees.
On [*], 2022, the Company filed a Certificate of Conversion and an Articles of Conversion, which effected a reverse stock split of its common stock, at a ratio of 1-for-[*] (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA (the Financial Industry Regulatory Authority) and in the marketplace on [*], 2022. All share and per share information contained in this report have been retroactively adjusted to reflect the impact of the Reverse Stock Split.
Critical Accounting Policies and Estimates
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 and SBL for the years ended April 30, 2021 and 2020. The contribution of the net assets of SBL is reflected as an equity contribution at historical cost on May 1, 2019, the beginning of the earliest period in which the entities were under common control. There was no historical activity in Slinger Bag Americas or Slinger Bag Canada prior to May 1, 2019. 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.
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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.
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.
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.
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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. 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. There was no impairment of long-lived assets identified during the year ended April 30, 2021 or 2020.
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
In December 2019, the FASB issued Accounting Standards Update (ASU), 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
Results of Operations for the Three Months Ended January 31, 2022 and 2021
The following are the results of our operations for the three months ended January 31, 2022 as compared to 2021:
| For the Three Months Ended | ||||||||||||
| January 31, | January 31, | |||||||||||
| 2022 | 2021 | Change | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Net sales | $ | 4,201,745 | $ | 4,123,648 | $ | 78,097 | ||||||
| Cost of sales | 3,234,430 | 3,245,493 | (11,063 | ) | ||||||||
| Gross income | 967,315 | 878,155 | 89,160 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | 920,161 | 351,845 | 568,316 | |||||||||
| General and administrative expenses | 2,942,501 | 1,385,626 | 1,556,875 | |||||||||
| Research and development costs | 275,908 | 137,156 | 138,752 | |||||||||
| Total operating expenses | 4,138,570 | 1,874,627 | 2,263,943 | |||||||||
| Loss from operations | (3,171,255 | ) | (996,472 | ) | (2,174,783 | ) | ||||||
| Other expense (income): | ||||||||||||
| Amortization of debt discounts | 2,750,000 | 39,175 | 2,710,825 | |||||||||
| Loss on extinguishment of debt | - | 95,760 | (95,760 | ) | ||||||||
| Induced conversion loss | - | - | - | |||||||||
| Gain on change in fair value of derivatives | (5,943,967 | ) | - | (5,943,967 | ) | |||||||
| Loss on issuance of convertible notes | 2,200,000 | - | 2,200,000 | |||||||||
| Interest expense - related party | 28,167 | 137,480 | (109,313 | ) | ||||||||
| Interest expense, net | 164,669 | 22,199 | 142,470 | |||||||||
| Total other expense (income) | (801,131 | ) | 294,614 | (1,095,745 | ) | |||||||
| Loss before income taxes | (2,370,124 | ) | (1,291,086 | ) | (1,079,038 | ) | ||||||
| Provision for income taxes | - | - | - | |||||||||
| Net loss | $ | (2,370,124 | ) | $ | (1,291,086 | ) | $ | (1,079,038 | ) | |||
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Net sales
Net sales increased $78,097, or 2%, during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021. The increase is due to an increase in the number of new orders placed on the Company’s website and from its international distributors and fulfilled during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021 when the product was still relatively new to the market. As of January 31, 2022, we had deferred revenue of $18,508 representing amounts received for units that have not been shipped to customers. We expect these orders to be fulfilled and the sales to be recognized in the Company’s next fiscal quarter.
Cost of sales and Gross income
Cost of sales decreased $11,063 during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021, which is primarily due to increased shipping costs in the prior year. Gross income increased $89,160, or 10%, during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021 due to the increased sales and lower cost of sales.
Selling and marketing expenses
Selling and marketing expenses increased $568,316, or 162%, during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021. This increase is largely driven by an increase in social media advertising, sponsorships, and other investments in our public relations presence in the current year in order to drive sales and build brand awareness.
General and administrative expenses
General and administrative expenses, which primarily consist of compensation (including share-based compensation) and other employee-related costs, as well as legal fees and fees for professional services, increased $1,556,875 during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021. This increase is primarily driven by a $504,093 increase in legal fees related to closing costs incurred as part of the acquisitions of PlaySight Interactive Ltd. and Flixsense Pty Ltd. d/b/a Gameface during the three months ended January 31, 2022 and filing fees related to our S-1 that was filed in January 2022 and other SEC filings. The remainder of the increase is largely due to an increase in compensation expense due to increased headcount to support the continued growth of the business as well as the acquisition of Foundation Sports in 2021.
Research and development costs
Research and development costs increased $138,752 during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021. This increase is primarily driven by our investment in a new platform and app that will integrate artificial intelligence (AI) technology to offer more value to our customers, as well as the continued development and testing of launchers for new ball sports that are expected to be brought to market in the future.
Other expense
Total other expense decreased $1,095,745 during the three months ended January 31, 2022 as compared to the three months ended January 31, 2021. The decrease in expense was primarily due to the increased gain on the change in fair value of derivatives as well as a decrease in the loss on extinguishment of debt and related party interest expense as a result of lower related party debt balances year over year. These decreases were partially offset by the loss on the issuance of the Convertible Notes as well as an increase in amortization of debt discounts and interest expense, net due to the issuance of the Convertible Notes during the current year.
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Results of Operations for the Nine Months Ended January 31, 2022 and 2021
The following are the results of our operations for the Nine months ended January 31, 2022 as compared to 2021:
| For the Nine Months Ended | ||||||||||||
| January 31, | January 31, | |||||||||||
| 2022 | 2021 | Change | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Net sales | $ | 12,139,860 | $ | 7,308,701 | $ | 4,831,159 | ||||||
| Cost of sales | 8,302,386 | 5,762,143 | 2,540,243 | |||||||||
| Gross income | 3,837,474 | 1,546,558 | 2,290,916 | |||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | 2,515,067 | 1,051,785 | 1,463,282 | |||||||||
| General and administrative expenses | 41,535,188 | 2,974,404 | 38,560,784 | |||||||||
| Research and development costs | 553,274 | 180,705 | 372,569 | |||||||||
| Total operating expenses | 44,603,529 | 4,206,894 | 40,396,635 | |||||||||
| Loss from operations | (40,766,055 | ) | (2,660,336 | ) | (38,105,719 | ) | ||||||
| Other expense (income): | ||||||||||||
| Amortization of debt discounts | 5,400,285 | 325,426 | 5,074,859 | |||||||||
| Loss on extinguishment of debt | 7,096,730 | 1,528,580 | 5,568,150 | |||||||||
| Induced conversion loss | - | 51,412 | (51,412 | ) | ||||||||
| Gain on change in fair value of derivatives | (15,074,880 | ) | - | (15,074,880 | ) | |||||||
| Loss on issuance of convertible notes | 5,889,369 | - | 5,889,369 | |||||||||
| Interest expense – related party | 106,895 | 454,029 | (347,134 | ) | ||||||||
| Interest expense, net | 446,339 | 169,455 | 276,884 | |||||||||
| Total other expense | 3,864,738 | 2,528,902 | 1,335,836 | |||||||||
| Loss before income taxes | (44,630,793 | ) | (5,189,238 | ) | (39,441,555 | ) | ||||||
| Provision for income taxes | - | - | - | |||||||||
| Net loss | $ | (44,630,793 | ) | $ | (5,189,238 | ) | $ | (39,441,555 | ) | |||
Net sales
Net sales increased $4,831,159, or 66%, during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021. The increase is due to an increase in the number of new orders placed on the Company’s website and from its international distributors and fulfilled during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021 when a large portion of the orders during the first three months of the year were related to the Kickstarter and Indiegogo crowdfunding campaigns initiated in fiscal year 2019.
Cost of sales and Gross income
Cost of sales increased $2,540,243, or 44%, during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021, which was primarily due to the increase in net sales. Gross income increased $2,290,916, or 148%, during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021.
The increase in gross margin is largely due to the first quarter of the prior year resulting in a gross loss on net sales due to (1) discounted pricing on the initial crowdfunding orders, (2) as fulfillment was later than initially scheduled we fulfilled orders with the “deluxe” version of launcher (including all features), as well as tennis balls, both of which increased cost of sales, and (3) due to sanctions by the U.S. against Chinese sourced products, the import duty was raised on all launchers brought into the U.S. increasing our cost of sales. As a result, our cost of sales exceeded initial sales values raised in our crowdfunding campaigns. As of the beginning of the third quarter in the prior year, substantially all of the initial crowdfunding orders had been fulfilled.
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Selling and marketing expenses
Selling and marketing expenses increased $1,463,282, or 139%, during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021. This increase is largely driven by an increase in social media advertising, sponsorships, and other investments in our public relations presence in the current year in order to drive sales and build brand awareness.
General and administrative expenses
General and administrative expenses, which primarily consist of compensation (including share-based compensation) and other employee-related costs, as well as legal fees and fees for professional services, increased $38,560,784 during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021. This increase is primarily driven by an increase of $32,569,112 of share-based compensation related to warrants granted to employees, a $1,264,590 increase in expense related to shares and warrants issued in connection with services the majority of which relate to the warrants issued to the lead placement agent as part of the issuance of the Convertible Notes and shares and warrants issued to brand ambassadors, and a $1,000,000 increase in legal fees related to closing costs incurred as part of the acquisitions of PlaySight Interactive Ltd. and Flixsense Pty Ltd. d/b/a Gameface during the nine months ended January 31, 2022. The remainder of the increase is largely due to an increase in compensation expense due to increased headcount to support the continued growth of the business as well as the acquisition of Foundation Sports in 2021.
Research and development costs
Research and development costs increased $372,569 during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021. This increase is primarily driven by our investment in a new platform and app that will integrate artificial intelligence (AI) technology to offer more value to our customers, which we began developing in December 2020, as well as the continued development and testing of launchers for new ball sports that are expected to be brought to market in the future.
Other expense
Total other expense increased $1,335,836 during the nine months ended January 31, 2022 as compared to the nine months ended January 31, 2021. The increase was primarily due to the loss on the issuance of the Convertible Notes, an increase in loss on extinguishment of debt as a result of the conversion of the notes payable – related party, and increases in amortization of debt discounts and interest expense, net due to the issuance of the Convertible Notes during the nine months ended January 31, 2022. These increases were partially offset by an increased gain on the change in fair value of derivatives as well as a decrease in induced conversion loss and related party interest expense as a result of lower related party debt balances year over year.
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Results of Operations for the Years Ended April 30, 2021 and 2020
The following are the results of our operations for the year ended April 30, 2021 as compared to April 30, 2020:
| For the Year Ended | ||||||||||||
| April 30, | April 30, | |||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net sales | $ | 10,804,214 | $ | 686,179 | $ | 10,118,035 | ||||||
| Cost of sales | 7,680,290 | 1,370,897 | 6,309,393 | |||||||||
| Gross income (loss) | 3,123,924 | (684,718 | ) | 3,808,642 | ||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | 1,761,154 | 563,003 | 1,198,151 | |||||||||
| General and administrative expenses | 4,749,922 | 5,291,075 | (541,153 | ) | ||||||||
| Research and development costs | 339,385 | 179,982 | 159,403 | |||||||||
| Transaction costs | - | 198,443 | (198,443 | ) | ||||||||
| Total operating expenses | 6,850,461 | 6,232,503 | 617,958 | |||||||||
| Loss from operations | (3,726,537 | ) | (6,917,221 | ) | 3,190,684 | |||||||
| Other expenses (income): | ||||||||||||
| Amortization of debt discount | 376,506 | 1,565,174 | (1,188,668 | ) | ||||||||
| Loss on extinguishment of debt | 3,030,495 | - | 3,030,495 | |||||||||
| Induced conversion loss | 51,412 | - | 51,412 | |||||||||
| Gain on change in fair value of derivatives | (1,939,639 | ) | - | (1,939,639 | ) | |||||||
| Interest expense - related party | 608,668 | 171,918 | 436,750 | |||||||||
| Interest expense | 12,740,781 | 573,431 | 12,167,350 | |||||||||
| Total other expense | 14,868,223 | 2,310,523 | 12,557,700 | |||||||||
| Loss before income taxes | (18,594,760 | ) | (9,227,744 | ) | (9,367,016 | ) | ||||||
| Provision for income taxes | - | - | - | |||||||||
| Net loss | $ | (18,594,760 | ) | $ | (9,227,744 | ) | $ | (9,367,016 | ) | |||
Net sales
Our net sales during the year ended April 30, 2021 were $10,804,214, which consisted partially of shipped orders related to our Kickstarter and Indiegogo crowdfunding campaigns initiated in fiscal year 2019, as well as new orders placed and fulfilled to consumers via our online marketplace and to our international distributors. Our net sales during the year ended April 30, 2020 were $686,179 and were entirely related to our crowdfunding campaigns. As of April 30, 2021 and April 30, 2020, we had deferred revenue of $99,531 and $179,366, respectively, representing units that have not been shipped at year end.
Cost of sales
Our cost of sales during the year ended April 30, 2021 were $7,680,290, which represents the costs of units shipped during the period, and resulted in a gross profit of $3,123,924, or 29%. During the first quarter of the current year, we experienced a gross loss as the bulk of our sales in that period related to the shipment of initial crowdfunding orders. The loss on these shipments was due to (1) discounted pricing on the initial crowdfunding orders, (2) as fulfillment was later than initially scheduled we fulfilled orders with the “deluxe” version of launcher (including all features), as well as tennis balls, both of which increased costs, and (3) due to sanctions by the U.S. against Chinese sourced products, the import duty was raised on all launchers brought into the U.S. increasing our cost of sales. As a result, our cost of sales exceeded initial sales values raised in our crowdfunding campaigns. As of the beginning of the third quarter, substantially all of the initial crowdfunding orders had been fulfilled. Sales generated during the last two fiscal quarters represented new orders placed and fulfilled during the current year by consumers and distributors, which resulted in a positive gross profit. Currently, our cost of sales is being negatively impacted by the large increase in container costs out of Asia. Our cost of sales during the year ended April 30, 2020 were $1,370,897, and resulted in a gross loss of $684,718 for the reasons stated above relating to our crowdfunding orders.
Selling and marketing expenses
During the year ended April 30, 2021, we incurred selling and marketing expenses of $1,761,154 compared with $563,003 during the year ended April 30, 2020. This increase is largely driven by an increase in social media advertising, sponsorships, and other investments in our public relations presence in order to drive sales and build brand awareness.
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, 2021, we incurred general and administrative expenses of $4,749,922 compared with $5,291,075 during the year ended April 30, 2020. The decrease in general and administrative expenses is largely due to a one-time warrant grant to key employees and officers of the Company in the prior year that resulted in an expense of $3,741,746, which was partially offset in the current year by an increase in compensation expense due to increased headcount as a result of the continued growth of the business.
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Research and development costs
During the year ended April 30, 2021, we incurred research and development costs of $339,385 compared with $179,982 during the year ended April 30, 2020. This increase is mainly driven by our investment in a new platform and app that will integrate artificial intelligence (AI) technology to offer more value to our customers.
Transaction costs
During the year ended April 30, 2020, we incurred transaction costs associated with completing the Stock Purchase Agreement with Slinger Bag Americas, as well as additional professional fees associated with being a publicly traded company.
Other expenses
During the years ended April 30, 2021 and April 30, 2020, we had other expenses totaling $14,868,223 and $2,310,523, respectively. The increase in other expenses for the year ended April 30, 2021 as compared to April 30, 2020 was primarily due to increases in loss on extinguishment of debt of $3,030,495 and induced conversion loss of $51,412 due to debt extinguishment transactions during the year, increases in related party interest expense due to the increase in related party note payable balances during the year, and the increase in interest expense due to the $12,501,178 charge related to the warrants and make-whole provision that were issued in conjunction with a note payable that was entered into during the year. These increases were partially offset by decreases in amortization of debt discount of $1,188,668 and the gain on the change in fair value of derivatives for the year ended April 30, 2021 of $1,939,639.
Liquidity and Capital Resources for the Nine Months Ended January 31, 2022 and 2021
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 $73,454,066 as of January 31, 2022, 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. In respect to additional financing, refer to Notes 5, 6, 7, and 12. 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. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all.
The following is a summary of our cash flows from operating, investing and financing activities for the nine months ended January 31, 2022 and 2021:
| For the Nine Months Ended | ||||||||
| January 31, | January 31, | |||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (7,783,098 | ) | $ | (3,139,286 | ) | ||
| Net cash used in investing activities | (2,250,000 | ) | (30,000 | ) | ||||
| Net cash provided by financing activities | 10,209,420 | 3,420,000 | ||||||
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We had cash and cash equivalents of $1,082,446 as of January 31, 2022, as compared to $928,796 as of April 30, 2021.
Net cash used in operating activities was $7,783,098 during the nine months ended January 31, 2022, as compared to $3,139,286 during the same period in 2021. Our net cash used in operating activities during the nine months ended January 31, 2022 was primarily the result of our net loss of $44,630,793 for the period as well as increases in inventory, prepaid expenses and other current assets, and accounts receivable as well as decreases in deferred revenue during the period, which was partially offset by net non-cash expenses of $37,815,432 and increases in accounts payable and accrued expenses, accrued payroll and bonuses and accrued interest – related party during the period. Our net cash used in operating activities during the nine months ended January 31, 2021 was primarily the result of our net loss of $5,189,238 for the period as well as increases in inventory and accounts receivable as well as decreases in deferred revenue during the period, which was partially offset by net non-cash expenses of $2,354,195, increases in accounts payable and accrued expenses, accrued payroll and bonuses, and accrued interest – related party as well as a decrease in prepaid expenses and other current assets during the period.
Net cash used in investing activities was $2,250,000 and $30,000 for the nine months ended January 31, 2022 and 2021, respectively. Our net cash used in investing activities during the nine months ended January 31, 2022 consisted of $2,250,000 in issuances related to a note receivable while our net cash used in investing activities during the nine months ended January 31, 2021 related to our purchase of the Slinger trademark
Net cash provided by financing activities was $10,209,420 for the nine months ended January 31, 2022, as compared to $3,420,000 for the same period in 2021. Cash provided by financing activities for the nine months ended January 31, 2022 primarily consisted of proceeds of $11,000,000 from convertible notes payable and proceeds of $3,000,000 from notes payable with a related party, which was partially offset by a $2,000,000 repayment of a note payable, a $1,000,000 repayment of related party notes payable and $800,251 in debt issuance costs related to the convertible notes payable. Cash provided by financing activities for the nine months ended January 31, 2021 consisted of proceeds of $2,300,000 from notes payable with a related party and proceeds of $1,120,000 from a note payable.
Liquidity and Capital Resources for the Years Ended April 30, 2021 and 2020
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 $28,823,273 as of April 30, 2021, 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, 2021 and 2020:
| For the Year Ended | ||||||||
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | $ | (4,517,457 | ) | $ | (4,208,274 | ) | ||
| Cash flows from investing activities | $ | (30,000 | ) | $ | 73,400 | |||
| Cash flows from financing activities | $ | 5,420,000 | $ | 4,217,761 | ||||
We had cash and cash equivalents of $928,796 as of April 30, 2021, as compared to $79,847 as of April 30, 2020.
Net cash used in operating activities was $4,517,457 during the year ended April 30, 2021, compared with $4,208,274 during the year ended April 30, 2020. Our cash used in operating activities during the year ended April 30, 2021 was primarily the result of our net loss of $18,594,760 for the year as well as increases in inventory and accounts receivable year over year, which was partially offset by non-cash expenses of $14,892,030 and increases in accounts payable and accrued expenses, accrued payroll and bonuses and accrued interest – related party as well as a decrease in prepaid expenses and other current assets year over year. Our net cash used in operating activities during year ended April 30, 2020 was primarily the result of our net loss of $9,227,744 during the year as well as increases in inventory and prepaid expenses and other current assets, which was partially offset by non-cash expenses of $5,666,425 as well as increases in accounts payable and accrued expenses, accrued payroll and bonuses and accrued interest – related party.
Net cash used in investing activities was $30,000 for the year ended April 30, 2021, compared with net cash provided by investing activities of $73,400 for the for year ended April 30, 2020. Investing activities for the year ended April 30, 2021 related to the purchase of the Slinger trademark, while investing activities for the year ended April 30, 2020 were the result of $73,400 in cash we acquired from the contribution of the net assets of Slinger Bag Limited.
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Net cash provided by financing activities was $5,420,000 for the year ended April 30, 2021, compared with $4,217,761 for the year ended April 30, 2020. Cash provided by financing activities for the year ended April 30, 2021 consisted of proceeds of $3,300,000 from notes payable with a related party, proceeds of $3,120,000 from notes payable, and a repayment of notes payable with a related party of $1,000,000. Cash provided by financing activities for the year ended April 30, 2020 consisted of proceeds of $2,100,000 from notes payable with a related party, $1,950,000 in proceeds from convertible notes payable, and proceeds of $500,000 from a note payable, which was partially offset by a distribution to the majority shareholder for $332,239.
Description of Indebtedness
Notes Payable – Related Party
On January 14, 2022, we entered into two loan agreements with Yonah Kalfa and Naftali Kalfa, each for $1,000,000, pursuant to which we 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. We are not permitted to make any distribution or pay any dividends unless or until the loans are repaid in full.
There were $2,000,000 in outstanding borrowings from the Company’s related parties as of January 31, 2022. Accrued interest due to these related parties as of January 31, 2022 amounted to $850,092.
Convertible Notes Payable
On August 6, 2021, the Company consummated the closing (the “Closing”) of a private placement offering (the “Offering”) pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of August 6, 2021 (the “Purchase Agreement”), between the Company and certain accredited investors (the “Purchasers”). At the Closing, the Company sold to the Purchasers (i) 8% Senior Convertible Notes (the “Convertible Notes”) in an aggregate principal amount of $11,000,000 and (ii) warrants to purchase up to 7,333,334 shares of common stock of the Company (the “Warrants” and together with the Convertible Notes, the “Securities”). The Company received an aggregate of $11,000,000 in gross proceeds from the Offering, before deducting offering expenses and commissions.
On December 31, 2021, the Purchase Agreement and Convertible Notes were amended in an Omnibus Amendment Agreement pursuant to which the holders of the Convertible Notes agreed to make certain changes to the terms of the Purchase Agreement and Convertible Notes in exchange for an increase in the principal amount of the Convertible Notes from $11,000,000 to $13,200,000 and such increased principal balance is reflected on the replacement note issued to each note holder. The full terms of the Omnibus Amendment Agreement were disclosed in our current report on Form 8-K dated January 5, 2022.
Total outstanding borrowings related to the Convertible Notes as of January 31, 2022 were $13,200,000. The outstanding amount is net of total discounts of $5,622,222 for a net book value of $7,577,778 as of January 31, 2022.
Note Payable
On April 15, 2021, the Company entered into a $2,000,000 note payable (the “Note”). The Note matures April 14, 2023 and bears interest at fifteen percent (15%) per year. The Company pays interest at maturity, at which time all principal and unpaid interest is due.
On August 6, 2021, the Company used the net proceeds from the issuance of the Convertible Notes to pay 100% of the outstanding principal and accrued interest of the Note.
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.
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BUSINESS
Overview
We are a connected sports company delivering products and technologies across the ‘Watch, Play, Learn’ commercial activities of sport. We are making sports more fun, accessible and connected through our ball launchers, AI technology, performance video, performance analytics, live streaming and club management software capabilities.
With a focus on tennis, fast-growing racket sports padel and pickleball, as well as cricket, baseball and softball, we are building a 360-degree platform to serve today’s sports consumer in a variety of ways. The Company also has a footprint in sports such as basketball, soccer and ice hockey.
| ● | WATCH: Automated production, live streaming of practices, matches, lessons, tournaments and sporting events, OTT (over the internet) capabilities and content for fan engagement, digital marketing and betting, data and media providers. Playsight Interactive Ltd. (“Playsight”), our new subsidiary, as a leader in global sports video production and live streaming will lead the Watch category for our Company. | |
| ● | PLAY: Reimagining sport with the Slinger range of launchers supported by pro-level performance analysis and recommendations specific to each sport. Powered by industry-leading equipment, AI and coaching insights from a respected global ambassador team; market leading facility software facilitating club revenue generation, court bookings and participation. Slinger with its disruptive, innovative and much sought-after ball launcher along with Foundation Sports’ market leading facility management software will drive the Play element of our platform. | |
| ● | LEARN: Content specifically curated to analyze, inform, motivate and provide improvement and enjoyment of sport across all technologies and products within our ecosystem. Gameface is at the heart of the Slinger connected platform and will power all Slinger brands insights and learning capabilities. Gameface is democratizing access to analytics data by building an automated AI platform to analyze and extract data from sport videos across tennis, cricket, baseball, and other leading sport verticals. Gameface’s core capabilities are delivered through any camera or camera phone, which allows the company to build consumer-friendly and scalable solutions for the sports market without relying on specific hardware or camera types. |
Across its portfolio of brands, including Slinger, PlaySight, Gameface and Foundation Sports, over $50 million has been invested into proprietary video technology and OTT capabilities, AI specific to individual sports, as well as products, services and software for athletes, coaches, teams, leagues, sports fans and betting and media companies.
With the disruptive Slinger tennis ball launcher, we have a direct relationship with core tennis players and enthusiasts and we are rolling out ball launchers in the core sport verticals later in 2022 for Pickleball and Padel and in 2023 for Baseball, Softball and Cricket. We believe this unique consumer connection with customers who own Slinger launchers will enable the Company to bring its technology and innovation right into people’s homes through its media productions and sport-specific apps and software because these customers are more likely to subscribe to the software that will help them play and learn.
Our connected sports platform already has 1.5 million users registered to it – the majority from the sport of tennis. With this largely untapped tennis and other sports audience, the Company has its own internal marketplace to further its development in the sport and create a blueprint of technology expertise to bring to the other core verticals.
Tennis is already experiencing rapid growth right now, with 22% year-over-year participation growth from 2020 to 2021. There are 87 million players worldwide, with 21 million of those considering themselves to be ‘avid.’ This enthusiast base is our key target in the sport.
The macro trends across sports and sports technology, AI, sports betting and youth sports growth clearly highlight the opportunity ahead. With infrastructure across courts, fields, pitches and rinks across the globe expected to become “Smart” over the next few years, the sports technology market, currently valued at $18 billion, is projected to grow to over $40 billion by 2028, with over 40% of that growth coming from North America. The proliferation of 5G and improved camera technology is leading to a widespread consumer adoption of AI technologies, with that market already worth in excess of $1 billion and expected to grow at a compound annual growth rate of over 28% over the next decade. Sports betting ($140 billion total addressable market) and youth sports (a $19 billion market today) are also large markets with tailwinds, and we are well-positioned to build products and services needed and desired by each.
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Our Products and Technology
Slinger Launcher
It is the avid tennis player market that we are focused on penetrating with our Slinger Launcher and associated tennis accessories. We intend to disrupt this traditional tennis market with our new ball machine category – called Slinger Launcher – and market portable and affordable Slinger Launchers directly to avid, regular tennis players. Constructed within a wheeled trolley tennis bag, a Slinger Launcher weighs around 15kgs / 34lbs when empty. If stored with 72 balls inside the weight increases to 19kgs / 42lbs. It can easily be stored in a car trunk, wheeled to the court and set up within minutes to use. The Slinger Launcher is powered by a 6.6Ah Lithium battery that can last up to 3.5 hours of play depending on the settings being used and on frequency of use. Slinger Launcher’s convenience as a tennis bag combined with its ease of operation and overall performance as a tennis ball launcher is the basis that we will target direct sales to these avid players.
While the initial brand focus is clearly on tennis, we are developing similar launchers to address other forms of tennis around the globe that are either rapidly gaining new participants or are already well-established sports in their own right. These include, but are not limited to, Pickleball (USA), Soft Tennis (Japan), and Padel Tennis (International markets) all of which are currently in either development or testing and planned for introduction in calendar 2022.
Foundation Tennis
From its inception, Foundation Tennis has been in the business of developing software for the Tennis industry, including the successor product (The Foundation) for the Tennis Industry Associations’ TennisConnect service offering until 2016). Foundation Tennis was privately held until June 18, 2021 when it was acquired by Slinger Bag Americas Inc.
Foundation Tennis’s products include:
| ● | A B2B Software as a Service facilities management system encompassing reservations, booking, event (camp and clinic) enrollment, group email marketing and integrated web site hosting/builder platform collectively calls The Foundation. | |
| ● | The App, an IOS and Android app platform for distributing white-label (customer branded) instances allowing racquet sports facilities to offer ‘their own’ (B2C) app in that provides consumer facing reservations, enrollments, contact management, and game arranging capabilities. The Company is an authorized app store developer for worldwide distribution with both Apple and Google. | |
| ● | TennisPOS, an integrated point of sale and payments system supporting court reservations and pricing, events & enrollment management, and member administration. TennisPOS is integrated with the Square payments eco-system. The company is a Square platform development partner. |
Foundation Tennis’s products help reduce operation costs increase player participation and new player growth tennis facilities managed in public parks, commercial clubs, private/member equity owned clubs (country clubs, swim and tennis clubs, homeowners’ associations), academies and schools & universities. The company has an established database of more than 16,000 such managed tennis facilities in the US and more than 1million subscribers to the App.
PlaySight
Founded in 2010, PlaySight has emerged as a leader in the sports technology marketplace over the past six years, bringing the most advanced and elite capabilities to all levels of sport, all over the world: automated production and live streaming, video replay (VAR), pro level coaching tools, and a live and an on-demand sports OTT channel.
Selected in both 2017 and 2018 by Fast Company as one of the 10 Most Innovative Companies in Sports, PlaySight has developed an autonomous, affordable, and scalable technology platform, accessible to any player and level. Powered by industry-leading camera technology, proprietary artificial intelligence (AI) and deep learning algorithms, PlaySight’s “SmartCourt” (field, gym, rink, pool, and more) platform connects the physical on-court activities and the digital world. PlaySight technology also serves as an important tool to encourage youth to engage in sports in a meaningful and active way, giving them the same tools, video, and training opportunities previously only accessible by the most elite athletes.
PlaySight’s platform is powering 36 sports (from basketball to soccer to swimming, tennis, wrestling and more), with thousands of installations. PlaySight operates in over 30 countries and works with hundreds of thousands of “users” (athletes and coaches, and increasingly parents and fans). It’s footprint also includes:
| ● | 18 NBA teams that use PlaySight for all performance video and training needs | |
| ● | 90 total professional teams across the NBA, WNBA, NHL, MLB and international leagues | |
| ● | 125 NCAA collegiate athletic programs in tennis, baseball and other sports | |
| ● | Over 100 sports clubs, facilities and academies including LakePoint Sports, IMG Academy and the USTA National Campus | |
| ● | Over 75 leading prep schools and high school programs in the US |
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Gameface AI
Gameface is democratizing access to analytics data by building an automated AI platform to analyze and extract data from sport videos across tennis, cricket, baseball, and other leading sport verticals. Gameface’s core capabilities are delivered through any camera or camera phone, which allows the company to build consumer-friendly and scalable solutions for the sports market without relying on specific hardware or camera types.
Gameface initially focused on the cricket and soccer markets, where it has built an automated platform to extract various data points from a live and archived match footage.
On August 11, 2017, Gameface was the winner of game changers start-up competition in the Inaugural Sports Tech World Series Conference held in Melbourne.
On November 1, 2017, the company signed its first contract with Cricket Australia to build a proof of concept to extract ball pitch data from videos.
Subsequently the platform was used in 2 domestic competitions in Australia to further validate the product.
The company has since expanded its platform capabilities which now includes technique analysis which allows athletes to get personalized insights on their playing technique within the aforementioned key sport verticals.
In August 2020, the company entered into an exclusive partnership with legendary Indian Cricketer Virender Sehwag to build and market a cricket technique analysis app in India.
For the regular cricket player, this Gameface powered app will analyze and compare players cricket stroke playing technique captured on a mobile phone and give a comprehensive break down and feedback on how to improve based certain bio mechanical data captured by the AI.
Cricket is the second most popular sport in the world, and India is the biggest market for Cricket. The global cricket market is regarded by industry experts, governing organizations and cricket-specific market research companies as having 300 million active players globally, with as many consumers again being avid fans of the sport. Of this 300 million cricket player market, 54 million players are in India. Gameface – Sehwag partnership is focused on penetrating this market in India.
On December 3, 2020, Gameface signed an exclusive agreement with Slinger for the development of a tennis specific artificial intelligence (AI) application. Slinger intends to introduce a market disrupting tennis app for players of all ages and abilities. This app will provide a wide range of analytics and other services and include practice and tennis fitness drills and activities, coaching tips and advice and a full suite of AI analytics. Slinger will offer some services free of charge and will build a tiered subscription model for others. The beta version of the app is slated for the second quarter of 2022 release with the full version likely in the third quarter. The company has benchmarked its AI accuracy within the app with VICON testing conducted at the Australian Catholic University (Sydney, Australia) – a first for any analysis app within the sport of tennis.
Gameface intends to build and license similar products for other sports. These include, but are not limited to, Baseball, Basketball, and Football, all of which are currently in either development or testing and planned for introduction in calendar 2022 and beyond.
In future years, the Company plans to build products for the fast-growing betting market based on athlete and match play data extracted from live broadcast videos.
History of Our Company
The Company was incorporated in the State of Nevada on July 12, 2015 as “Lazex Inc.” From its inception until September 13, 2019, the Company was in the business of providing travel consulting and tour guide services. On September 16, 2019, Slinger Bag Americas Inc. (“Slinger Bag Americas”) acquired 20,000,000 shares of the Company’s common stock from its then shareholders. On September 16, 2019, the Company acquired 100% of the outstanding shares of Slinger Bag Americas when the then owner of Slinger Bag Americas contributed her shares of Slinger Bag Americas to the Company in exchange for 20,000,000 shares of the Company. The result of the foregoing transactions is that Slinger Bag Americas became a wholly owned subsidiary of the Company. From September 16, 2019 and onward, the Company ceased its performance of travel consulting and tour guide services and has switched its focus to the development of the technologies and products owned by Slinger Bag Americas and its affiliates.
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On February 10, 2020, Slinger Bag Americas acquired a 100% ownership stake in Slinger Bag Ltd (“SBL”). SBL owns the intellectual property rights pertaining to the Slinger Launcher (described more fully below) and was responsible for the Kickstarter campaign described more fully below.
On February 25, 2020, the Company increased the number of authorized shares of Common Stock from 75,000,000 to 300,000,000 and effected a 4-1 forward split of its outstanding shares of common stock. Approval of the Company’s stockholders was not required to be obtained, as authorized by Nevada Revised Statute Section 78.207, et seq. The forward split became effective on February 25, 2020. As a result of the forward stock split, each share of the Company’s common stock outstanding has been split into four shares of the Company’s common stock. All references in this report to numbers of shares reflect the Company’s 4-1 forward split.
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 October 6, 2021, the Company entered into a merger agreement with, inter alia, PlaySight Interactive Ltd. (“PlaySight”) (the “PlaySight Agreement”) pursuant to which PlaySight will, subject to the satisfaction of the closing conditions described in the PlaySight Agreement, become a wholly owned subsidiary of the Company in exchange for the following consideration: (i) 28,333,333 shares of the Company’s common stock (subject to adjustment); (ii) payment of certain PlaySight transaction costs; and (iii) up to a maximum of 5,142,858 earn-out shares (subject to the fulfilment of certain milestones and reduction under certain circumstances). The transaction is expected to close during the Company’s quarter ended January 31, 2022.
On February 2, 2022, Slinger Bag Australia Pty Ltd., a wholly-owned subsidiary of Slinger Bag Americas (which, in turn, is a wholly-owned subsidiary of Slinger Bag Inc.) completed the acquisition of 100% of the issued and outstanding share capital of Flixsense Pty Ltd. d/b/a Gameface (“Gameface”) pursuant to share purchase agreements entered into with each of the shareholders of Gameface on February 2, 2022 in exchange for the issuance and delivery of 6,045,855 shares of the Company’s common stock and warrants to purchase an additional 478,225 shares of the Company’s common stock at $0.001 per share.
On February 16, 2022, the Company, SB Merger Sub Ltd., a private company formed under the laws of the State of Israel and a wholly owned subsidiary of the Company, PlaySight and Rohit Krishnan, in his capacity as the Shareholders’ Representative (as defined in the Playsight Agreement) (the “Shareholder Representative”), entered into an Addendum to and Amendment to Agreement for the Merger (the “Amendment”). Pursuant to and in accordance with the terms of the Amendment, the Company agreed to purchase a certain number of shares of its common stock from certain of its shareholders for a maximum aggregate liability of $1.44 million and to issue a total of 1,428,571 options (the “Options”), exercisable to 1,428,571 shares of the Company’s common stock, to certain of the Company’s employees.
Under the terms of the Playsight Agreement, the Company agreed, among other things, to issue 28,333,333 shares of the Company’s common stock (subject to adjustment) in exchange for the merger (the “Completion Merger Consideration”). As a result of the parties to the Agreement having agreed to such adjustment, the parties to the Amendment have agreed that the Completion Merger Consideration shall comprise the issue by the Company of 25,379,683 shares of the Company’s common stock and the Options in exchange for the merger, and a cash sum equal to the value of 1,524,899 shares of the Company’s common stock (which would otherwise have been issued in exchange for the merger) to be used to cover certain expenses.
On [*], 2022, the Company effected a reverse stock split of its common stock, at a ratio of 1-for-[*] (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA (the Financial Industry Regulatory Authority) and in the marketplace on [*], 2022 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis. As a result of the Reverse Stock Split, On the Effective Date, each [*] shares of the Company’s common stock outstanding has been exchanged for one share of the Company’s common stock. All references in this report to numbers of shares reflect the Company’s 1-for-[*] reverse split.
Through our ownership of Slinger Bag Americas and SBL, we are the owner of the Slinger Launcher and are focused on the ball sport market globally. We have developed and patented a highly portable and affordable ball launcher built into an easy to transport wheeled trolley bag (the “Slinger Launcher”). The Slinger Launcher allows anyone to simply and easily control the speed, frequency and elevation of balls that are launched for practice, training or fitness purposes.
We have initially focused all our energies on the tennis market worldwide, but we are in the early stages of developing ball launchers for other ball sports.
For the regular tennis player, the Slinger Launcher is much more than a tennis ball launcher. It also functions as a complete tennis bag with ample room for racquets, shoes, towels, water bottles and other accessories and can charge mobile phones and other devices.
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 very expensive – often well above U.S. $1,000. Up until today 99% of all tennis ball machines have sold to tennis facilities, with only a few being sold directly to tennis playing consumers.
Industry Overview
According to the Tennis Industry Association (www.tia.org) the single largest challenge facing tennis participation is the fact that 34% of lapsed players cited a “lack of a playing partner” as the reason for them stopping playing tennis. The Slinger Launcher goes a long way to solving this issue.
The global tennis market is regarded by industry experts, governing organizations, Tennis brands and tennis-specific market research companies as having 100 million active players globally, with as many consumers again being avid fans of the sport. Of this 100 million tennis player market, 20 million players are regarded as frequent or avid players – players who play regularly - at least 1 time per month. These avid players drive the total tennis industry and account for 80% of all tennis revenues worldwide.
In the next five years, we believe that most commercial stadiums, schools, academies, pro teams or colleges will become “Smart” with connected, AI-based video technology becoming the standard. PlaySight is one of the leading companies driving this trend in sport – and it is becoming an expectation for athletes and fans at all levels – access to pro-level tools and live streaming for their sport and team.
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Manufacturing and Distribution
Our manufacturing capacity was initially approximately 2,000 units per month, but with improvements and efficiencies in the manufacturing processes across all vendor partners, the monthly production capacity rose to over 3,000 units in the last fiscal quarter and current capacity is now over 5,000 units per month, which will support Slinger’s future sales targets.
We deliver Slinger Launchers directly from the final assembly facility in Xiamen, China to customers either by direct shipment from the port in China, or to third party logistics facilities in Columbia SC (USA) to support our US business, Belleville, Ontario, Canada, Rotterdam, The Netherlands to support smaller distributors in Canada, Europe, Middle East, Africa, and lastly to Israel.
Additionally, we ship full containers of our Slinger-Dunlop co-branded tennis balls from Dunlop (our supplier) to the United States for onward distribution.
We have contracted with exclusive distributors globally. These include Japan, UK, Ireland, Switzerland, Scandinavian markets (covering Denmark, Sweden, Norway, Finland) Australia, New Zealand, Bulgaria, Czech Republic, Singapore, Morocco, Slovenia, Slovak Republic, Hungary, Croatia, Germany, Austria, France, Italy, Spain, Portugal, Netherlands, Belgium and Luxembourg, Russia, Middle East GCC markets, markets (including Egypt, Bangladesh and Pakistan), Malaysia, Greece, Panama, South Africa, Hong Kong, Macau, Poland, Indonesia, Philippines, Ecuador, Israel and we are in various stages of negotiation with other potential market distribution companies across the globe. Manufacturing production remains at full capacity – currently 5,000 units per month and Slinger has products leaving our production facility in Xiamen, China on a weekly basis en-route to our distribution centers in the United States and Europe and to our key distributor partners.
Our principal executive office is located at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244, and our telephone number is (443) 407-7564.
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Strategy
Slinger Launcher
We have an opportunity to disrupt the traditional tennis market globally. We expect to drive 80% of our global ball launcher revenues through its direct-to-consumer go-to-market strategy, whether that be through our on-line e-commerce platform at www.slingerbag.com or through associated e-commerce platforms established and managed by its distribution network. The balance of revenues will be driven through partnerships with leading wholesalers, federations and teaching professional organizations and other transactions across various markets. We will operate a third-party distributor structure in all markets with the exception of the United States, the largest tennis market globally and Canada. Distributor partners will have exclusive territories and will have a recognized background within the tennis industry for their market as well as having the financial capacity and service infrastructure to aggressively grow the Slinger brand. Uniquely in the sports industry, all consumer orders received into Slingerbag.com from markets outside the United States will be routed back to our local distribution partners to fulfill and to service their local customers. All distributor partners will purchase with advanced orders, either based on a vendor-direct free-on-board (FOB) Asia direct ship or through one of our three global third-party distribution facilities on a duty paid basis and at premium cost price. Currently, we have signed a number of exclusive distribution agreements in key markets and have on-going discussions with other key potential distributor partners in other markets around the globe and is looking to close these distribution arrangements in the coming months.
The United States market will remain a direct-to-consumer market for Slinger. As the largest tennis market in the world with 17.4 million players of which 10.5 million are regular / avid players, the United States is a key market both to establish the Slinger brand and to drive demonstrable growth. Recently the industry reported a significant increase in US tennis participation and overall number of tennis play occasions, something that has been replicated in other key tennis markets around the globe. Direct-to-consumer sales will be supplemented by one or more leading tennis wholesalers who manage large databases of coach, player, college, high school and club clients. This market will be serviced out of a third-party logistics facility in West Columbia, SC and operated by one of Slinger’s preferred global logistics partners, DSV, one of the world’s leading suppliers of freight-forwarding, logistics and warehousing.
Foundation Sports
Our vision is to help our B2B customers grow their business with software capabilities that allow them to attract, engage, and connect with their customers more profitably. The Company has created the first ever integrated system for customers in the racquet sports business where it is no longer necessary to utilize disparate / disconnected systems to manage their marketing, operations, customer self-service, and internal accounting needs using one platform across the mobile web, social, and app platforms. The business benefits of this inherent design reduce costs and the duplication of data and create seamless processing of the business activities from new customer acquisition through the customer and accounting life cycle.
PlaySight
AI-based video technology is becoming the standard in every sports facility. There is growing need for autonomous technology to make technology accessible to all levels, especially where it does not exist today. The need is in automatic production without a camera operator, player performance and video assisting referee tools (VAR). The pandemic crisis accelerated the demand for automated systems, for remote training, decreased spectator opportunities, and enhanced digital connection between teams, athletes, coaches and fans. PlaySight has a well-positioned product in the market that meets the needs of today’s sports market, especially in key verticals.
In order to fulfill its vision of democratizing advanced sports technologies and bringing them to every field, sport and level, with different and challenging environmental conditions and high variability among customers, PlaySight developed advanced and automated technology, with no need for a dedicated operator, that is also low-cost and easy to install (at all ranges) and maintain. The product is software-based and uses single cameras and a computer installed in a sports court/field. The system tracks, in real time, the ball and the players, analyzes movement and activity and uploads all the data and video to the cloud.
PlaySight’s future innovation is fueled by its real–time AI and deep learning technology edge to add advanced analytics to its main sports (across both its fixed and mobile solutions). Adding analytics relevant to each sport and its consumer set gives the platform an edge to serve the full spectrum of technological needs for most sporting organizations and its coaches, athletes and fans, from the professional level down to the grassroots.
PlaySight is also focused on strategic collaborations and technology integrations with partners that will accelerate its market penetration: Betting companies, media companies, telecom companies, artificial turf companies, college conferences, federations and leagues.
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Gameface
The Company has an opportunity to disrupt the traditional sports analytics market globally. The Company expects to drive 70% of its global revenues through its business-to-business go-to-market strategy. The balance of revenues will be driven through strategic partnerships with federations and sporting organizations. The company also intends to license its technology to validated global partners for direct-to-consumer applications.
In addition, according to a report by Allied Market Research, the proliferation of 5G technology will enable pro-level AI analysis to be conducted from remote locations through most smartphone devices, which is playing a large role in the 28.4% projected growth rate of the current $1.4bn Artificial Intelligence in Sports market (2020).
Brand Marketing
As a direct-to-consumer e-commerce brand, all marketing activity and advertising media will be centered around pushing consumers to www.slingerbag.com and converting them to purchases. We have engaged a number of leading agencies to support our global marketing efforts:
| ● | Brand Nation is a world class influencer marketing agency based in London. Brand Nation will lead all influencer programming globally. Slinger has seeded about 50% of its planned 1,000 global influencers to date. Influencers targeted are wide ranging and include leading sports, tennis, film, TV, music and blogger celebrities all known for the fact that they play tennis regularly and have a fan base in excess of 10,000 followers. All influencer activity is rolled back up to the Slinger social media platforms as a means of generating significant brand awareness and product interest. | |
| ● | Ad Venture Media Group is a New York based leading PPC (pay-per-click) agency whose work is grounded in sophisticated scientific analysis of consumer data and consumer trends and they are recognized globally as leaders in paid search and paid social media campaigns. Ad Venture Media will lead all Slinger PPC activity on a performance-based fee structure and is briefed to drive consumer engagement, through bespoke advertising campaigns that are aligned to our product profitability objectives. | |
| ● | In the United States market, we have partnered with an organization called Team HQS who will manage an affiliate marketing program across US based teaching professionals, players, juniors and events. These affiliates will be provided with unique affiliate marketing codes to share with their social media followers and other such communities that they are connected to and each will receive an affiliate marketing fee based on revenues generated by consumers purchasing Slinger products attributable to their unique code. |
We continue to evaluate each support agency on a monthly basis and at the same time are continually exploring new avenues to expand our reach to our core customers.
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Each of our distributor partners around the world are establishing their Slinger distribution business as Slinger itself would do if it was establishing a Slinger subsidiary in each market. As such, each distributor will also adopt all forms of Slinger brand marketing programs as well as initiating new local concepts of their own – all aimed at reaching the avid/regular tennis player directly and ensuring that the Slinger brand message is consistent around the globe. We have agreed a local marketing budget structure with each distributor as part of its distribution agreement. This marketing budget will be primarily funded by the distributor partner with an additional contribution coming from Slinger, linked to the distributors purchase objectives. Each distributor will execute local grassroots programs including demonstration days, local teaching pro partnerships, specialist tennis network communications, seeding of Slinger product locally as necessary to local key market tennis influencers to further increase the intensity of the influencer effort. Marketing dollars will also be allocated to Google, Facebook, YouTube and other social media advertising spend and, where appropriate, approved and overseen by Ad Venture Media Group.
PlaySight primarily operates in the B2B space within sport, reaching consumers indirectly through its live stream broadcasts and partnerships. PlaySight has established itself as a leader and pioneer in sports technology since coming to the US in 2014 and has been a staple at industry shows and across publications. PlaySight was recognized twice by Fast Company as a leading company in sport, and primarily built its brand as a high-technology company that provides the connected camera and AI infrastructure to power performance video and live streaming needs across sport. The PlaySight brand has direct consumer interaction through its mobile application and OTT streaming for fans on the PlaySight Sports Network (PSSN).
Distribution Agreements
Slinger Bag Americas has entered into exclusive distribution agreements for Slinger’s line of products, including, but not limited to, tennis ball launcher devices, tennis ball launcher accessories, sports bags, tennis balls, tennis court accessories and other tennis related products in the following markets and with the following distributors:
| Territory | Distributor | Minimum Purchase Requirement of Slinger Bag Tennis Ball Launchers | ||
| Japan | Globeride Inc. | 32,500 through the end of January 2025 | ||
| United Kingdom and Ireland | Framework Sports & Marketing Ltd | 9,000 through the end of May 2025 | ||
| Switzerland | Ace Distribution | 3,000 through the end of May 2025 | ||
| Denmark, Finland, Norway and Sweden | Frihavnskompagniet ApS | 6,500 through the end of December 2025 | ||
| Morocco | Planet Sport Sarl | 1,000 through the end of December 2025 | ||
| Australia | Sportsman Warehouse t/a Tennis Only | 2,500 through the end of 2025 | ||
| New Zealand | Sporting Goods Specialists | 100 through the end of 2025 | ||
| Bulgaria | Ark Dream EOOD | 950 through the end of 2025 | ||
| Chile | Sporting Brands Ltda | 165 through the end of 2025 | ||
| Croatia, Hungary and Slovenia | Go 4 d.o.o. | 380 through the end of 2025 | ||
| Austria, Belgium, France, Germany, Italy, Luxembourg, Portugal, Spain and The Netherlands | Dunlop International Europe Ltd | 120,000 through the end of 2025 | ||
| Singapore | Tennis Bot Pte Ltd | 950 through the end of 2025 | ||
| India | Racquets4U | 10,000 through the end of 2025 | ||
| Israel | Eran Shine | 2,050 through the end of 2025 | ||
| Bahrain, Bangladesh, Egypt, Kuwait, Maldives, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Tunisia and United Arab Emirates | Color Sports Inc | 3,000 through the end of 2025 | ||
| Greece | Elsol | 380 through the end of 2025 | ||
| Panama | Orange Pro | 50 through the end of 2021 | ||
| Russia | Neva Sport | 1,900 through the end of 2025 | ||
| Malaysia | Tennis Bot | 500 through the end of 2025 | ||
| Czech and Slovak Republics | RaketSport s.r.o | 3,000 through the end of 2025 | ||
| South Africa | Golf Racket Pty Ltd | 5,000 through the end of 2025 | ||
| Hong Kong and Macau | Tennis Bot | 750 through the end of 2025 | ||
| Indonesia and Philippines | Tennis Bot | 650 through the end of 2026 | ||
| China | Xiamen Powerway Sports Co. Ltd | 17,500 through the end of 2026 | ||
| Poland | Frameworks Sports Poland | 1,850 through the end of 2026 | ||
| Ecuador | Brandsinc SA / Siati Express | 240 through the end of 2026 | ||
| Total | 223,915 |
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Brand Endorsements
We have reached agreement with several globally recognized tennis players and coaches to become brand ambassadors.
Tommy Haas (former ATP #2 Player) has been appointed the Slinger Bag Chief Ambassador. In this role Tommy will support Slinger in building out its global ambassador team focused on identifying ambassadors in our key global business markets of Japan, Europe, Australia, China, Brazil and India. Tommy will also be very active supporting and promoting Slinger across the globe with personal appearances at Slinger events and via online training and drill videos.
Mike & Bob Bryan (aka the Bryan Brothers – the foremost doubles team in the tennis world) have extended their ambassador agreements and will continue to feature prominently in our marketing activities and messaging. Additionally, we have brand endorsements with the following athletes and coaches:
| ● | Eugenie Bouchard | |
| ● | Luke and Murphy Jensen (aka the Jensen Brothers) | |
| ● | Darren Cahill | |
| ● | Patrick Mouratoglou | |
| ● | Dustin Brown | |
| ● | Nick Bolletierri |
Each of the foregoing athletes and coaches is or was either a world-ranked singles or doubles tennis player or, in the case of Patrick Mouratoglou, the coach of a number of world-ranked tennis players, has a large following of fans and supporters and is active across many aspects of tennis today.
The Professional Tennis Registry (PTR) – a United States-based teaching association with approximately 40,000 members will become a non-exclusive strategic partner for Slinger with all their members able to access an affiliate member part of our website.
Peter Burwash International (PBI) – a United States-based, highly respected, global tennis services company set up by Peter Burwash some 35 years ago. PBI provides tennis programs and other tennis services to as many as 56 of the globes leading hotels and resorts. Slinger Launchers will be available to use at each resort and the PBI team will be actively promoting Slinger as part of our affiliate marketing activity.
PTCA Central Europe – a European Coach organization of leading touring pro coaches and they, like others, will undertake an affiliate marketing approach.
Tie Break 10s – a global organization that owns and operates Tie Break 10 events both independently and in partnership with major global tour events, e.g., Indian Wells. These events involve top players playing ‘tie-break’ matches with the event fully completed in one evening and with a significant cash prize for the winner. Slinger will be promoted at each of these events and will be available for fans to test out as well as the Slinger brand name being prominently used on Tie Break 10s social media.
Tennis One App – a United States-based company that has developed and successfully marketed an all-inclusive tennis app for players across the globe. Slinger has engaged with Tennis One to support its coaches corner segment – a weekly podcast series and in doing so benefits from the brand exposure available through the reach of the consumers using the app on a regular basis.
Functional Tennis – an Ireland based social media tennis blog site with an excess of 250,000 followers. Slinger is engaged with Functional Tennis in a variety of ways and is the presenting sponsor of its weekly Tennis Podcast.
We are currently in discussions with other organizations, events, prominent coaches and players and have to date seeded Slinger products to 12 of the top 20 ATP male players, 5 of the top 20 WTA women players, plus numerous other top-class touring and teaching professionals.
Throughout 2020 and 2021, we sponsored several prominent tennis events, e.g., Battle of the Brits and Tie Break 10s (all shown live across the globe) and are on course to continue sponsoring similar events in 2022.
In addition, PlaySight built its tennis brand with a strong ambassador team, including legendary coaches Darren Cahill and Paul Annacone, as well as icons Ana Ivanovic and Tommy Haas. PlaySight activated on these ambassadors in its early years, running a multi-platform campaign across Tennis.com and Tennis Magazine from 2015-18. PlaySight also created premium coaching and video content with these tennis icons and coaching ambassadors.
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Strategic Brand Partnerships
We are actively working on securing a number of highly visible ground-breaking strategic partnerships across tennis. These partnerships will provide us with co-branded products to supplement the core Slinger product offering and, at the same time, are expected to drive mutually beneficial marketing campaigns aimed at reaching avid tennis players globally. Details of such partners announced and active today include:
| ● | Dunlop: Slinger has entered a strategic partnership with one of the most iconic tennis brands in the world, Dunlop, for the supply of co-branded tennis balls across the globe. | |
| ● | Professional Tennis Registry (PTR): The PTR is the world’s most prestigious teaching professional organization with more than 40,000 members. Slinger has partnered with PTR for the supply of Ball Launchers to their membership. | |
| ● | Peter Burwash International (PBI): A high profile organization providing coaching and tennis services to high-level, high-quality hotels, resorts and tennis facilities across the globe. Slinger is the official supplier of Ball Launchers to PBI, which will be used at each location and PBI will offer an affiliate marketing program promoting sales to its list of global clients. | |
| ● | DSV Logistics USA and OSL Logistics: DSV is one of the world’s leading suppliers of warehousing, freight forwarding and logistics. Slinger will use DSV warehousing services in the US to optimize logistical activities. OSL are currently providing all freight forwarding for the US markets and Europe as well as 3rd party warehousing logistics in Rotterdam for Europe. |
PlaySight has meaningful partnerships with leading sports federations, governing bodies, and facilities, including:
| ● | The Intercollegiate Tennis Association: PlaySight has served as the primary technology and live streaming provider for college tennis since 2015, and launched PlayFair, the first-of-its-kind replay initiative for college tennis, along with the ITA in 2016. | |
| ● | LakePoint Sports: One of the world’s largest multi-sport travel complexes, PlaySight made LakePoint the first ‘SmartCampus’ with its connected camera technology across all of its baseball fields, sports fields and indoor basketball and volleyball courts. PlaySight technology powers LakePoint’s media and content arm. | |
| ● | The United States Tennis Association’s National Campus: PlaySight first partnered with the USTA in 2016, bringing its fixed PRO connected camera technology to its National Campus in Lake Nona, Florida. This facility serves as a home base for PlaySight in the state and is the standard for technology in tennis across all national federations and governing bodies |
Competition
There are currently no competitors with products that are similar to the Slinger Launcher, based on its portability, affordability and tennis bag functionality. There are, however, other companies that make tennis ball machines, including the following:
| ● | Spinshot | |
| ● | Lobster Sports | |
| ● | Spinfire Pro 2 | |
| ● | Match Mate Rookie | |
| ● | Sports Tutor | |
| ● | Silent Partner |
There are currently no competitors with products that are similar to the Foundation Systems suite of B2B products with industry specific depth in the industries we serve. There are, however, other companies that make generic software for the facility/club marketplace, including Club Essential, Jonas Software, Members First, and MindBody, companies who make “point solutions” to address a subset of the business functions required to run a tennis business, including Club Automation (operations, court sheets, and accounting and payroll) and RacquetDesk (operations, court sheets, and accounting and payroll), and companies that provides third party shared services through their own portal and their own brand: Court Reserve, Kourts, Playtomic, Reserve My Court, TennisBookings, and Your Courts.
There are currently no competitors for our cricket and tennis analytics product that are similar to the Cricket technique analysis app (CRICURU) or the Slinger app, 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), Swingvision (Tennis), Home Court (basketball), and Golf Boost Ai (Golf).
The competitors for PlaySight products are:
| ● | Pixellot | |
| ● | Synergy Sports | |
| ● | Hudl | |
| ● | Spiideo | |
| ● | SoccerWatch | |
| ● | TrackTennis | |
| ● | Wingfield | |
| ● | Baseline Vision | |
| ● | SwingVision | |
| ● | TennisAI. |
Raw Materials
All materials used in the Slinger Launcher are available off-the-shelf. The trolley bag is manufactured with 600D Polyester and has the CA65 certification for the US market. The launcher housing, Oscillator and Ball Collector tube parts are produced using an injection mold using poly propylene mixed with 30% glass fibers. The electronic motors, PCB boards and remote-control parts are all standard off-the-shelf items.
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Intellectual Property
We have applied for international design and utility patent protection for its main three products: Slinger Launcher, Slinger Oscillator and Slinger Telescopic Ball Tube. Patents have been applied for in all key markets including the US, China, Taiwan, India, Israel and EU markets and granted in China and Israel. Trademarks have been applied for in all major markets around the globe Trademark protection has been applied for and/or received in the following countries:
| ● | US | |
| ● | Chile | |
| ● | Taiwan | |
| ● | Mexico | |
| ● | EU | |
| ● | Russia | |
| ● | Poland | |
| ● | Czech Republic | |
| ● | Australia | |
| ● | New Zealand | |
| ● | China | |
| ● | South Korea | |
| ● | Vietnam | |
| ● | Singapore | |
| ● | India | |
| ● | Canada | |
| ● | United Arab Emirates* | |
| ● | South Africa* | |
| ● | Columbia* | |
| ● | Israel* | |
| ● | Japan* | |
| ● | Switzerland* | |
| ● | Indonesia* | |
| ● | Malaysia* | |
| ● | Thailand* | |
| ● | Turkey* | |
| ● | Argentina | |
| ● | Brazil |
*Protection is pending.
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.
Slinger Bag Inc. owns the rights to its Slingerbag.com domain.
Seasonal Business
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.
Costs and Effects of Complying with Environmental Regulations
Set forth below is a detailed chart of all Product Certifications held by Slinger for key global markets covering battery, remote control (radio wave), and power charger. In addition, within the United States, Slinger complies with the required California 65 regulations in respect to the materials used in the construction of its trolley bag.
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Research and Development
We are involved in additional research and development of (i) transportable, affordable and player-enhancing ball launching machines and associated game improvement products for all ball sports, (ii) building new novel methods to extract data reliably and more accurately from videos, including identifying and associating extracted data points to athlete performance.
Following a successful launch of its tennis ball launcher, Slinger is currently field testing its new pickleball, paddle and soft tennis launchers, which are expected to be introduced to the market in calendar 2022. Slinger plans to introduce similar transportable, versatile and affordable ball launchers for baseball, softball, cricket and other high participation ball sports over the course of the next 3 years. In this connection, on September 10, 2020, Slinger entered into an agreement with Igloo Design, which is the same company that designed the Slinger Launcher for tennis, for a Slinger ball launcher for baseball and softball. This development commenced during the three months ended October 31, 2020 and initial design ideas and further direction have been provided.
Gameface is currently field testing its new data visualization techniques to represent data in tennis, cricket and football, which are expected to be introduced to the market this year.
The Foundation software is developed using industry standards and tier-one hosting and management services, including Microsoft Azure and Amazon Web Services.
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We retain outside consultants to provide research and product design services and each consultant has a specific expertise (e.g., molding technology, electronics, product design, bag design, data visualization techniques, App UX, product design as examples). We also are working with a select group of highly qualified and resourceful third-party suppliers in Asia, high performance sport scientist, and University researchers. We are continually striving to identify product enhancements, new concepts and improvements to the production process, new data points related to performance improvement, getting more accurate data, reducing latency, and new concepts to represent data in a easy to understand and implement on an on-going daily basis. In respect of any new project, management provides detailed briefs, market data, product cost targets, competitive analysis, timelines and project cost goals to either the product consultants or vendors and manages them to agreed key performance indicators (“KPIs”). These KPI’s include but are not limited to (i) manufacturing to target costs; (ii) agreed development timelines; (iii) established quality criteria; and (iv) defined performance criteria.
We also retain specialist trademark and patent attorneys and work with these attorneys on the projects, as needed.
Gameface is involved in additional research and development of building new novel methods to extract data reliably and more accurately from videos. A large part of our research also includes identifying and associating extracted data points to athlete performance.
Government Regulation
Both Slinger Launcher and Slinger Oscillator meet all the United States government requirements for electrical, radio wave and battery standards as well as having all necessary and required certification to facilitate global marketing and sales of these products.
Quality Control
Quality control is a critical function within our company. As a new brand, our business enterprise success will be solely dependent on the quality and consistency of our products. To ensure the highest levels of quality control, Slinger has engaged a QC/Vendor Management partner located in Taiwan with offices in Southern China. The QC partner, Stride-Innovation, has over 30 years of experience working with ball sport companies such as ours and is steeped in knowledge, resources and experience in working with Chinese vendors of sports equipment.
In partnership, together, we have created and documented Slinger 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 valid QC 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. This limited warranty can be further extended by the purchaser registering his/her unique product serial number at www.slingerbag.com/warranty.
Vendors
We work only with and through highly reputable third-party suppliers. We are in the process of finalizing vendor agreements with each of our key vendor partners and with our vendor management partner. Our management and our vendor management partner, Stride-Innovation, regularly visit the 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. We ensure that our vendor partners are providing quality workplace conditions, workplace health and safety, employee care and support programs that meet or exceed all statutory requirements.
Employees
We have eight people providing us services on a full-time basis – our chief executive officer, chief financial officer, controller, chief marketing officer and chief operating officer together with two people in global customer service and a global marketing coordinator. Our chief business integration officer, chief innovation officer and general counsel are also employed pursuant to service agreements, but they are not providing us services on a full-time basis. As such, our total number of employees is eleven, which consists of eight full-time and three part-time employees.
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Advisory Board
In October 2020, we appointed our first three representatives to join the newly formed Slinger Advisory Board. George Mackin joined the advisory board as a Media and Smart technology expert having previously owned the Indian Wells Tennis event and Tennis.com media and is currently Chairman of PlaySight Interactive Ltd. (PlaySight) having led PlaySight to a high level of success within the global tennis industry, Rodney Rapson joined our Advisory Board as an experienced smart technology expert and Jeff Angus joined to add support and experience to our marketing team.
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.
Section 16(a) Beneficial Ownership Reporting Compliance
Our common stock is not registered pursuant to Section 12 of the Exchange Act. Accordingly, our officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.
Going Concern
The 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 of $71,083,942 as of October 31, 2021 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. 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.
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.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth information about our directors and executive officers. We intend to appoint [*] independent directors upon the consummation of this offering.
| Name | Age | Positions and Offices | ||
| Mike Ballardie | 61 | President, Chief Executive Officer, Treasurer and Director | ||
| Jason Seifert | 38 | Chief Financial Officer | ||
| Tom Dye | 69 | Chief Operating Officer | ||
| Paul McKeown | 67 | Chief Business Integration Officer | ||
| Juda Honickman | 35 | Chief Marketing Officer | ||
| Mark Radom | 53 | General Counsel | ||
| Yonah Kalfa | 39 | Chief Innovation Officer |
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 director for the past five years.
Professional History of Mike Ballardie
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 EMEA 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).
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 Jason Seifert
Mr. Seifert joined the Company as Chief Financial Officer on July 5, 2021 from Ernst & Young where he has served as Senior Manager since 2016. Prior to joining Ernst & Young, Mr. Seifert served as the Director, Financial Reporting at The Finish Line, Inc. from 2014 to 2016 as well as the Controller of The Finish Line’s JackRabbit running division from 2015 to 2016. He holds Bachelor of Science degrees in accounting and finance from the University of Southern Indiana and is a certified public accountant.
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Professional History of Tom Dye
Mr. Dye 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, Tom served as Chief Operating Officer at Prince Global Sports. From 2015 to 2017, Tom served as Chief Operating Officer of HazTek, Inc.
Professional History of Paul McKeown
Holding a Chartered Professional Accountant designation (CPA-CMA) in Canada, Paul has 40+ years’ experience in senior management focused on finance, operations and IT functions in large multinational companies (37 years in sporting goods).
Paul started his sporting goods business career in the early 1980s at Wilson Sporting Goods Canadian subsidiary, where he led the finance, IT and operations functions. Recognizing strong processes and performance of the Canadian unit, Paul was appointed to a small team of executives to provide on-going functional support to new entities being established in Latin America and Asia.
In 1989, Wilson was acquired by Amer Sports which through further acquisitions (Atomic, Suunto, Precor and Salomon) became the largest sports “hard goods” equipment supplier in the world. Those acquisitions required leadership to integrate into Amer’s processes, and Paul led the finance and operations integration teams for Canada, Latin America, and Asia.
As a result, Paul was appointed Director of Process Integration & Development for North America. A key initiative under his leadership was transition of financial transactional processing for all Amer North American business units to the Global Financial Shared Service organization in Poland.
Following that, he was appointed Vice President Finance for Amer’s Precor Fitness brand – headquartered in Seattle Washington. In that role, he re-organized the finance team, and introduced new tools and processes which lead to significant improvements in financial performance and business control.
In Spring 2018, he retired from active service and began a consulting career with focus on financial/IT processes. He joined Slinger Bag in the summer of 2019 as a consultant and in April 2020 was appointed Chief Financial Officer of Slinger Bag. On July 5, 2021, Paul was appointed as Chief Business Integration Officer with Jason Seifert being appointed as our Chief Financial Officer.
Professional History of Juda Honickman
Juda Honickman is Chief Marketing Officer for Slinger Bag Inc. Juda joined Slinger Bag 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.
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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 U.S. $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 US 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.
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.
Family Relationships
There are no family relationships among our directors or officers, or persons nominated or chosen to be a director or officer. Other than as described above, we are not aware of any other conflicts of interest with any of our executive officers or directors.
Director Independence
As of the closing of this offering, the Board will have reviewed the independence of our directors based on the listing standards of the Nasdaq. In connection with such listing, we will appoint independent directors, establish an audit committee, compensation committee and a nominating and governance committee. At such time as we identify and appoint independent directors, we will apply the independence standards of the Nasdaq. Our board of directors is currently composed of one member, who does not qualify as an independent director in accordance with the published listing requirements of the Nasdaq Capital Market. The Nasdaq independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to each director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the Nasdaq rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.
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Significant Employees
Other than our officers and director, we currently have five other persons who we consider to be a significant employee:
| ● | Charles Ruddy, who is President of Foundation Sports Systems, LLC (“Foundation Sports”) | |
| ● | Chen Shachar and Evgeny Kazanov of Playsight who are the President and Chief Technology Officer of Playsight | |
| ● | Jalaluddin Shaik and James Melvin of Gameface who are the President and Chief Technology Officer of Gameface |
Charles Ruddy has been the President and Founder of Foundation Sports since August 2017. Prior to establishing Foundation Sports, Mr. Ruddy was a consultant to Tennis Connect / Tennis Industry Association from 2004-2017 where he designed and managed the tennis industry’s first software as a service platform in 2004.
Chen Shachar is a senior executive with over 15 years of extensive experience in management, development and delivery of state-of-the-art multidisciplinary training, after action review and command and control systems to the military and homeland security markets. Before establishing PlaySight Interactive, Che n was the CTO at Rontal Applications, a startup in the homeland security market, head of Training & Simulation at Ness A.T. (www.ness.com) and R&D manager at Simtech Advanced Training & Simulation. Chen holds an ME in System Engineering and a B.Sc. in Electrical Engineering both from the Technion - Israel Institute of Technology in Haifa and is a retired Major from the Israeli Armed Forces and an elite technology unit of the IDF (Academic Reserve).
Evgeny Kazanov has over 24 years’ experience in 3D simulation, visualization training systems and 3D geographically-based C41 systems and is a co-founder of Playsight and has been its chief technology officer since 2010. Before establishing PlaySight Interactive, Evgeny was the R&D Director and head of advance technology and research group at Rontal Applications, a startup in the homeland security market, Team Leader at Ness A.T. (www.ness.com) and software engineer and Team Leader at Simtech Advanced Training & Simulation. Evgeny holds an MBA from Ha’Universita Ha’Petuha and a BSC in computer science and statistics from Bar-Ilan Universit).
Jalaluddin Shaik founded and became the chief executive officer of GAMEFACE.AI in 2017. Prior to founding Gameface, 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. Shaik is a graduate of Visvesvaraya Technological University with a bachelors in Computer Science Major in machine learning.
James Melvin has been the chief technical officer and co-founder of Gameface.ai since 2018. Prior to becoming involved at Gameface, James was a technical leader at ST-Ericsson from 2007 – 2010 and a staff engineer at CRS (acquired by Qualcomm) from 2010 to 2018. James started his career in 2004 with stints at ISRO (Indian Space Research Organisation), Oracle (iflex-solutions) and Digibee Microsystems till 2007.
Board Committees
As of the closing of the offering, our Board will have established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or nominating committee. Each of our independent directors, [*], [*] and [*], will serve on each committee. Our Board will adopt written charters for each of these committees. Upon completion of this offering, copies of the charters will be available on our website. Our Board may establish other committees as it deems necessary or appropriate from time to time.
Audit Committee
The audit committee will be responsible for, among other matters:
| ● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; | |
| ● | discussing with our independent registered public accounting firm the independence of its members from its management; | |
| ● | reviewing with our independent registered public accounting firm the scope and results of their audit; | |
| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; | |
| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; | |
| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; | |
| ● | coordinating the oversight by our Board of our code of business conduct and our disclosure controls and procedures | |
| ● | establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and | |
| ● | reviewing and approving related-person transactions. |
[*] will serve as chairman of our audit committee. As of the closing of this offering, the Board will have reviewed the independence of our directors based on the listing standards of the Nasdaq. Based on this review, the Board shall have determined that that each of [*] meet the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and the Nasdaq rules. Our board of directors will determine that [*] qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.
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Compensation Committee
The compensation committee will be responsible for, among other matters:
| ● | reviewing key employee compensation goals, policies, plans and programs; | |
| ● | reviewing and approving the compensation of our directors and executive officers; | |
| ● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and | |
| ● | appointing and overseeing any compensation consultants or advisors. | |
| [*] will serve as chairman of our compensation committee. | ||
Nominating Committee
The purpose of the nominating committee is to assist the board in identifying qualified individuals to become board members, in determining the composition of the board and in monitoring the process to assess board effectiveness. [*] will serve as chairman of our nominating committee.
Board Leadership Structure
Currently, Mr. Ballardie is our principal executive officer and [*] is chairman of the board.
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
Our Board adopted a code of business conduct and ethics on [*] that applies to our directors, officers and employees (the “Code of Business Conduct and Ethics”). Upon completion of this offering, a copy of this code will be available on our website. We intend to disclose on our 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 our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes all compensation awarded to, earned by, or paid to, our named executive 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 ($) | Share Awards ($) | Non-Equity Incentive Plan Compensation ($) | All other compensation ($) (7) | Total ($) | ||||||||||||||||||||
| Mike Ballardie (1) | 2021 | 360,109 | 635,000 | - | - | 119,714 | 1,114,823 | ||||||||||||||||||||
| 2020 | 226,750 | 112,500 | 1,496,698 | - | 82,212 | 1,918,160 | |||||||||||||||||||||
| Judah Honickman (2) | 2021 | 96,000 | 51,000 | - | - | - | 147,000 | ||||||||||||||||||||
| 2020 | 107,915 | 51,000 | 748,349 | - | - | 907,264 | |||||||||||||||||||||
| Paul McKeown (3) | 2021 | 298,589 | 90,000 | 23,756 | - | - | 412,345 | ||||||||||||||||||||
| 2020 | 101,525 | - | 374,174 | - | - | 475,699 | |||||||||||||||||||||
| Tom Dye (4) | 2021 | 120,000 | 30,000 | 15,747 | - | - | 165,747 | ||||||||||||||||||||
| 2020 | 90,292 | - | 374,174 | - | - | 464,466 | |||||||||||||||||||||
| Mark Radom (5) | 2021 | 84,000 | 21,000 | 15,747 | - | - | 120,747 | ||||||||||||||||||||
| 2020 | 34,000 | - | 374,174 | - | - | 408,174 | |||||||||||||||||||||
| Yonah Kalfa (6) | 2021 | 120,000 | 30,000 | - | - | - | 150,000 | ||||||||||||||||||||
| (1) | 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. |
| (2) | 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 has served as the Company’s Chief Financial Officer since April 30, 2020 and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
| (4) | Tom Dye has served as the Company’s Chief Operating Officer since April 30, 2020 and has 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) | Represents health and related benefits. |
Jason Seifert, our Chief Financial Officer, was hired following the end of our most recent fiscal year ended April 30, 2021, on July 5, 2021. Mr. Seifert is eligible to participate in our incentive plan at a 30% of base salary eligibility level based upon Company and individual performance targets, with a guaranteed minimum performance bonus of 15% of his base salary for the year ending April 30, 2022. Mr. Seifert’s base salary is $215,000 per year and he is eligible to participate in our employee benefit plan. Mr. Seifert is also eligible for other one-time warrant grants after 12 months of service with the Company and has an address at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244.
Share-Based Compensation Grants
The share-based awards in the above compensation table represent the grant date fair value of warrant awards issued to officers and executives and was determined in accordance with ASC Topic 718.
Service Agreements
We are party to service agreements with each of our executive officers.
Director Compensation
Mr. Ballardie is currently the sole member of the board of directors of the Company and receives no additional compensation for his service as a director.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have not entered into any transactions in which any of our directors, executive officers, or affiliates, including any member of an immediate family, had or are to have a direct or indirect material interest except for the entry into the exclusive distribution agreement with Framework Sports and Marketing Ltd. dated May 20, 2020 for the United Kingdom and Ireland, which is owned by the brother of our chief executive officer.
Transactions with Related Persons
There have been no transactions, or currently proposed transactions, except for that mentioned above, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
| ● | any director or executive officer of our company; | |
| ● | any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; | |
| ● | any promoters and control persons; and | |
| ● | any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons. |
Our CEO, CFO and general counsel are responsible for reviewing and assessing the relevance of proposed relationships and transactions with related parties and ratify agreements for execution on our behalf.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information 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.
The number of shares of common stock beneficially owned by each person is determined under the rules of the Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty (60) days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
The following table lists, as of [ ], 2022, unless otherwise indicated by footnote, the number of shares of our common stock 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 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 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 (1) | % of Class (1) | ||||||
| Yonah Kalfa (2) | 24,994,700 | 20.8 | % | |||||
| 2672237 Ontario Ltd. | 12,524,702 | 10.4 | % | |||||
| Mike Ballardie (2) | 10,000,000 | 8.3 | % | |||||
| Judah Honickman (2) | 2,600,000 | 2.2 | % | |||||
| Paul McKeown (2) | 2,750,000 | 2.3 | % | |||||
| Tom Dye (2) | 2,750,000 | 2.3 | % | |||||
| Mark Radom (2) | 2,776,025 | 2.3 | % | |||||
| All current officers and directors as a group (6 persons) (2) | 45,870,725 | 38.1 | % | |||||
| (1) | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, convertible debt or convertible preferred shares currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total number of shares of common stock outstanding on December 31, 2021, which was 41,869,622, and the shares issuable upon exercise of warrants and convertible debt. The number of shares of common stock used in computing this percentage is 120,377,201. | |
| (2) | The above officers and directors were granted an aggregate total of 11,250,000, 4,500,000 and 10,100,000 warrants on April 30, 2020, February 9, 2021 and September 3, 2021, respectively, as compensation and bonuses. The April 30, 2020 and September 3, 2021 warrants have an exercise price of $0.001 per share and the February 9, 2021 warrants have an exercise price of $0.001 per share for non-U.S. employees and $3.94 for U.S. employees. All of the warrants have a contractual life of 10 years from the date of issuance and are vested immediately upon grant. Additionally, Yonah Kalfa and Mark Radom own 19,994,700 and 26,025 shares of common stock of the Company, respectively. |
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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, our Board of Directors approved the Slinger Bag Inc. Global Share Incentive Plan (2020), or the 2020 Plan, which was approved by stockholders holding in the aggregate 19,994,700 shares of our common stock, or approximately 75.4% of our 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).
We reserved a total of 15,000,000 shares for issuance under awards to be made under the 2020 Plan of which 4,900,000 remain in reserve as at the date hereof, all of which may, but need not, be issued in connection with ISOs. 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 on 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.
| 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 | - | - | 4,900,000 | |||||||||
| Equity compensation plans not approved by security holders | 24,503,107 | $ | 1.01 | - | ||||||||
| Total | 24,503,107 | $ | 1.01 | 4,900,000 | ||||||||
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DESCRIPTION OF CAPITAL STOCK
The following discussion is a summary of selected provisions of our articles of incorporation, bylaws and Chapters 78 and 92A of the Nevada Revised Statutes as in effect on the date of this prospectus relating to us and our capital stock. This summary does not purport to be complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our articles of incorporation, our bylaws and the provisions of Nevada law. You should read the provisions of our articles of incorporation and our bylaws as currently in effect for provisions that may be important to you.
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock, par value $0.001 per share. As of [ ], 2022, there were [41,869,622] shares of common stock outstanding. All of the outstanding shares of our common stock are fully paid and non-assessable.
On [*], 2022, the Company effected a reverse stock split of its common stock, at a ratio of 1-for-[*] (the “Reverse Stock Split”). The Reverse Stock Split became effective with FINRA and in the marketplace on [*], 2022 (the “Effective Date”), whereupon the shares of common stock began trading on a split adjusted basis. As a result of the Reverse Stock Split, On the Effective Date, each [*] shares of the Company’s common stock outstanding has been exchanged for one share of the Company’s common stock. All references in this report to numbers of shares reflect the Company’s 1-for-[*] reverse split.
Each share of our common stock entitles its holder to one vote on all matters to be voted or consented upon by the stockholders. Holders of shares of our common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of our common stock voting for the election of directors collectively hold the voting power to elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as dissolution, merger or an amendment to our articles of incorporation. At all meetings of the stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. Our bylaws may be amended or repealed and new bylaws adopted by our board of directors; however, a two-thirds vote is required for stockholders to alter or repeal any bylaws or adopt new bylaws.
Holders of shares of our common stock are entitled to receive dividends, in equal amounts per share, when and as declared by our board of directors from legally available sources, subject to any restrictions in our articles of incorporation or prior rights of holders of any shares of preferred stock we may issue in the future.
In the event of our liquidation, dissolution or winding up, each outstanding share of our common stock is entitled to share ratably in all assets available for distribution after the payment and satisfaction of all of our debts and other liabilities, subject to the prior rights of holders of any shares of preferred stock. The holders of shares of our common stock have no subscription, redemption or conversion privileges. Holders of shares of our common stock do not have pre-emptive rights. The rights, preferences and privileges of the holders of our common stock are subject to the rights of the holders of shares of any series of preferred stock or any other class of series of stock which has preference over our common stock which we may issue in the future.
Authorized Capital
Our authorized capital consists of 300,000,000 shares of common stock, par value $0.001 per share.
The holders of shares of our common stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available therefor, dividends payable in cash, stock or otherwise. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the net assets of the Company shall be distributed pro rata to the holders of the common stock in accordance with their respective rights and interest.
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Approximate Number of Equity Security Holders
On [ ], 2022, there were [ ] holders of record of our common stock, as reported by our 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. A significant number of shares of our common stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the total number of beneficial owners of our stock.
Shares Outstanding
As of [ ], 2022, there were [ ] shares of our common stock outstanding.
Dividend Policy
We have not paid and do not expect to declare or pay any cash dividends on our common stock in the foreseeable future. We currently expect to retain all future earnings for use in the operation and expansion of our business. The declaration and payment of any cash dividends in the future will be determined by our Board of Directors, in its discretion, and will depend on a number of factors, including our earnings, capital requirements, overall financial condition and contractual restrictions, if any.
Market for Shares of Common Stock
Shares of our common stock are quoted on the OTCQB of the OTC Markets Group Inc. under the symbol “SLBG”. On [ ], 2022, the closing price per share of our common stock as reported by OTC Markets Group Inc. was $[1.70].
Listing
We have applied to have our common stock listed on the Nasdaq Capital Market under the symbol “CNXA.” We will not proceed with this offering in the event our common stock is not approved for listing on the Nasdaq.
Transfer Agent
The transfer agent and registrar for our common stock is Worldwide Stock Transfer, LLC.
Preferred Stock
We do not have any authorized shares of preferred stock and no shares of our preferred stock or other series of capital stock is outstanding. We have no other securities outstanding that may be converted into, exchanged for, shares preferred stock or other series of capital stock.
Anti-Takeover Law, Business Combinations and Certain Stockholder Rights
The provisions of Nevada law and our bylaws may have the effect of delaying, deferring or preventing another party from acquiring control of the company. These provisions may discourage and prevent coercive takeover practices and inadequate takeover bids.
Acquisitions of Controlling Interests
Nevada law contains provisions governing the acquisition of a controlling interest, commonly referred to as the “Control Share Act”. This law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights in whole or in part. The Control Share Act provides that a person or entity acquires a “controlling interest” when such person or entity it acquires outstanding voting shares that, but for the operation of the Control Share Act, enables the acquiring person or entity, 20 to 33-1/3%; 33-1/3 to 50%; or more than 50% of all the voting power of the corporation in the election of directors.
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An “acquisition” is generally defined as the direct or indirect acquisition of a “controlling interest”. The articles of incorporation or the bylaws of a Nevada corporation may provide that the Control Share Act does not apply to the corporation or to the acquisition of a controlling interest. Our articles of incorporation and bylaws do not exempt our common stock from the Control Share Act.
The Control Share Act is applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An “Issuing Corporation” is a Nevada corporation that as of any date (i) has 200 or more stockholders of record, at least 100 of whom have had addresses in Nevada appearing on the stock ledger of the corporation at all times during the 90 days immediately preceding such date, and (ii) does business in Nevada directly or through an affiliated corporation.
At this time, we do not believe we have 100 shareholders of record who have addresses in Nevada and we do not conduct business in Nevada directly or through an affiliated corporation. Therefore, the provisions of the Control Share Act are believed not to apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the Control Share Act may discourage companies or persons interested in acquiring a significant interest in or control of us, regardless of whether such acquisition may be in the interest of our shareholders.
Certain Business Combinations
The Nevada Business Combination Act may also have an effect of delaying or making it more difficult to effect a change in control of our company. This statute prevents an “interested stockholder” and a resident domestic Nevada corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination” to include, among other things, any merger or consolidation with an “interested stockholder,” or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an “interested stockholder” having (i) an aggregate market value equal to more than 5% of the aggregate market value of the assets of the corporation, (ii) an aggregate market value equal to more than 5% of the aggregate market value of all outstanding shares of the corporation, or (iii) representing more than 10% of the earning power or net income of the corporation.
An “interested stockholder” means the beneficial owner directly or indirectly of 10% or more of the voting power of the outstanding voting shares of a “resident domestic corporation”, or an affiliate or associate of the resident domestic corporation and at any time within two years immediately before the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding shares of the resident domestic corporation. A “resident domestic corporation” is defined as a Nevada corporation that has 200 or more stockholders of record.
A corporation subject to the Business Combination Act may not engage in a “combination” with any interested stockholder within two years after such person became an interested stockholder unless the combination or purchase meets the requirements, if any, in the corporation’s articles of incorporation, and the combination or the transaction by which such person became an interested stockholder is approved by the board of directors before the person became an interested stockholder or the combination is approved by the board of directors and is approved at an annual or special meeting of stockholders by the affirmative vote of holders of at least 60% of the outstanding voting power not owned by the interested stockholder or its associates or affiliates. If such approval is not obtained, then after the expiration of the two-year period, the business combination may be consummated with the approval of the board of directors or a majority of the outstanding voting power not held by the interested stockholder or its associates or affiliates, or if the combination otherwise satisfies the requirements set forth in the Business Combination Act.
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Right of Shareholders on Mergers, Conversions, Exchanges
Chapter 92A of the Nevada Revised Statutes governing, among other things, mergers, conversions and exchanges, sets forth certain rights of shareholders in connection with such transactions, including, without limitation, the right to dissent from certain corporate actions and to obtain payment for shares, subject to the limitations provided therein on the right of dissent.
Articles of Incorporation and Bylaws
Nevada corporate law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our articles of incorporation provide otherwise. Our articles of incorporation do not provide for cumulative voting in the election of directors. Accordingly, the holders of a majority of our outstanding shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election. Other than as described above, our articles of incorporation and bylaws do not contain any explicit provisions that would have an effect of delaying, deferring or preventing a change in control of our company.
Limitation of Liability and Indemnification
Our directors and officers are subject to the indemnification provisions provided by the Nevada Revised Statures (NRS) and our by-laws. We have also agreed to indemnify each of our directors and officers against certain liabilities, including liabilities under the Securities Act.
Neither our articles of incorporation nor by-laws prevent us from indemnifying our officers, directors and agents to the extent permitted under the NRS. Our bylaws provide that directors and officers shall be indemnified and held harmless to the fullest extent permitted by law. Our articles of incorporation do not contain any provision that expands the individual liability of our directors and officers beyond that prescribed by NRS Section 78.138 (relating to fiduciary duties of directors and officers).
NRS Section 78.7502 generally provides that a corporation may indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding as set forth in Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.
NRS Section 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of any appeals taken therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
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SHARES ELIGIBLE FOR FUTURE SALE
As of [ ], 2022, we had [41,869,622] shares of common stock outstanding. Of those shares, the [16,400,001] shares (including [7,600,001] shares to be issued on the exercise of warrants and [8,800,000] shares to be issued on the conversion of the Notes) covered by a certain prospectus upon sale will be freely transferrable without restrictions unless purchased by persons deemed to be our affiliates as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 under the Securities Act. Of our shares of common stock that are outstanding, [35,288,871] are “restricted,” which means they were originally sold in an offering not registered under the Securities Act. Restricted shares may be sold through registration under the Securities Act or under an applicable exemption from registration, such as provided by Rule 144, which is summarized below.
Rule 144
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate, who beneficially owns “restricted securities” (i.e., securities that are not registered by an effective registration statement) of a “reporting company” may not sell these securities until the person has beneficially owned them for at least six months. Thereafter, affiliates may not sell within any three-month period a number of shares in excess of the greater of: (i) 1% of the then outstanding shares of Common Stock as shown by the most recent report or statement published by the issuer; and (ii) the average weekly reported trading volume in such securities during the four preceding calendar weeks.
Sales under Rule 144 by our affiliates will also be subject to restrictions relating to manner of sale, notice and the availability of current public information about us and may be affected only through unsolicited brokers’ transactions.
Persons not deemed to be affiliates who have beneficially owned “restricted securities” for at least six months but for less than one year may sell these securities, provided that current public information about the Company is “available,” which means that, on the date of sale, we have been subject to the reporting requirements of the Exchange Act for at least 90 days and are current in our Exchange Act filings. After beneficially owning “restricted securities” for one year, our non-affiliates may engage in unlimited re-sales of such securities.
Shares received by our affiliates in this offering or upon exercise of stock options or upon vesting of other equity-linked awards may be “control securities” rather than “restricted securities.” “Control securities” are subject to the same volume limitations as “restricted securities” but are not subject to holding period requirements.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our Common Stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of the Company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of the Company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701 and until expiration of the lock-up period described below.
Lock-Up Agreements
The Company, each of our directors and executive officers, and our 5% and greater stockholders, have agreed not to, subject to certain limited exceptions, offer, pledge, sell, contract to sell, grant any option to purchase, or otherwise dispose of our common stock or any securities convertible into or exchangeable or exercisable for common stock, or to enter into any hedge or other arrangement or any transaction that transfers, directly or indirectly, the economic consequence of ownership of the shares of our common stock, in the case of the Company for a period of 365 days after the date of this prospectus, and in the case of our directors and executive officers and our 5% and greater stockholders for a period of [*] days after the date of this prospectus, without the prior written consent of the underwriter. See “Underwriting—Lock-up Agreements.”
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Common Stock purchased in this offering, which we refer to collectively as our securities, but is for general information purposes only and does not purport to be a complete analysis of all the potential tax considerations. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed Treasury regulations promulgated thereunder, administrative rulings and pronouncements and judicial decisions, all as of the date hereof. These authorities may change, possibly retroactively, resulting in U.S. federal income and estate tax consequences different from those set forth below. There can be no assurance that the Internal Revenue Service (the “IRS”) will not challenge one or more of the tax consequences described herein, and we have not obtained, and do not intend to obtain, an opinion of counsel or ruling from the IRS with respect to the U.S. federal income tax considerations relating to the purchase, ownership or disposition of our securities.
This summary does not address any alternative minimum tax considerations, any considerations regarding the Medicare tax, any considerations regarding the tax on net investment income, or the tax considerations arising under the laws of any state, local or non-U.S. jurisdiction, or under any non-income tax laws, including U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this summary does not address all of the tax consequences that may be relevant to investors, nor does it address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
| ● | banks, insurance companies or other financial institutions; | |
| ● | tax-exempt entities or governmental organizations, including agencies or instrumentalities thereof; | |
| ● | regulated investment companies and real estate investment trusts; | |
| ● | controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; | |
| ● | brokers or dealers in securities or currencies; | |
| ● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; | |
| ● | persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below); | |
| ● | tax-qualified retirement plans; | |
| ● | certain former citizens or long-term residents of the United States; | |
| ● | partnerships or entities or arrangements classified as partnerships for U.S. federal income tax purposes and other pass-through entities including S corporations and trusts (and any investors therein); | |
| ● | persons who hold our securities as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated investment; | |
| ● | persons who do not hold our securities as a capital asset within the meaning of Section 1221 of the Code; or | |
| ● | persons deemed to sell our securities under the constructive sale provisions of the Code, or persons holding the securities as part of a “straddle,” hedge, conversion transaction, integrated transaction or other similar transaction. |
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In addition, if a partnership (or entity or arrangement classified as a partnership for U.S. federal income tax purposes) holds our securities, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our securities, and partners in such partnerships, should consult their tax advisors.
You are urged to consult your own tax advisors with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our securities arising under the U.S. federal estate or gift tax laws or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Consequences to U.S. Holders
The following is a summary of the U.S. federal income tax consequences that will apply to a U.S. holder of our securities. For purposes of this discussion, you are a U.S. holder if, for U.S. federal income tax purposes, you are a beneficial owner of our securities, other than a partnership, that is:
| ● | an individual citizen or resident of the United States; | |
| ● | a corporation, or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia; | |
| ● | an estate trust whose income is subject to U.S. federal income tax regardless of its source; or | |
| ● | a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a “United States person.” |
Distributions
We have never declared or paid cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in the foreseeable future. However, if we do make distributions in cash or other property on our Common Stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent our distributions exceed both our current and our accumulated earnings and profits, the excess will constitute a return of capital that will first reduce your basis in our Common Stock, but not below zero, and then will be treated as gain from the sale or other disposition of stock as described below under “—Sale, Exchange or Other Taxable Disposition of Common Stock.”
Dividend income may be taxed to an individual U.S. holder at rates applicable to long-term capital gains, provided that a minimum holding period and other limitations and requirements are satisfied with certain exemptions. Any dividends that we pay to a U.S. holder that is a corporation will qualify for the dividends received deduction if the requisite holding period is satisfied, subject to certain limitations. U.S. holders should consult their own tax advisors regarding the holding period and other requirements that must be satisfied in order to qualify for the reduced tax rate on dividends or the dividends-received deduction.
Sale, Exchange or Other Taxable Disposition of Common Stock
A U.S. holder will generally recognize capital gain or loss on the sale, exchange or other taxable disposition of our Common Stock. The amount of gain or loss will equal the difference between the amount realized on the sale and such U.S. holder’s adjusted tax basis in such Common Stock. The amount realized will include the amount of any cash and the fair market value of any other property received in exchange for such Common Stock. A U.S. holder’s adjusted tax basis in its Common Stock will generally equal the U.S. holder’s acquisition cost or purchase price, less any prior distributions treated as a return of capital. Gain or loss will be long-term capital gain or loss if the U.S. holder has held the Common Stock for more than one year. Long-term capital gains of non-corporate U.S. holders are generally taxed at preferential rates. The deductibility of capital losses is subject to certain limitations.
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Information Reporting and Backup Withholding
In general, information reporting requirements may apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our Common Stock, unless the U.S. holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Unearned Income Medicare Tax
A 3.8% Medicare contribution tax will generally apply to all or some portion of the net investment income of a U.S. holder that is an individual with adjusted gross income that exceeds a threshold amount ($200,000, or $250,000 if married filing jointly).
Consequences to Non-U.S. Holders
The following is a summary of the U.S. federal income tax consequences that will apply to a non-U.S. holder of our securities. A “non-U.S. holder” is a beneficial owner of our securities (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not a U.S. holder. The term “non-U.S. holder” includes:
| ● | a non-resident alien individual (other than certain former citizens and residents of the U.S. subject to U.S. tax as expatriates); | |
| ● | a foreign corporation; | |
| ● | an estate or trust that is not a U.S. holder; and | |
| ● | any other Person that is not a U.S. holder. |
Distributions
Distributions paid to a non-U.S. holder, generally will constitute a dividend for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) and, provided such dividends are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the U.S., will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E or other applicable IRS Form W-8 properly certifying qualification for the reduced rate. These forms must be provided prior to the payment of dividends and must be updated periodically. A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty should consult with its individual tax advisor to determine if you may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If a non-U.S. holder holds our securities through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then may be required to provide certification to us or our paying agent, either directly or through other intermediaries.
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Dividends received by a non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business are generally exempt from such withholding tax if the non-U.S. holder satisfies certain certification and disclosure requirements. In order to obtain this exemption, the non-U.S. holder must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated U.S. federal income tax rates applicable to U.S. holders, net of certain deductions and credits, subject to an applicable income tax treaty that provides otherwise. In addition, dividends received by a corporate non-U.S. holder that are effectively connected with its conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their own tax advisors regarding any applicable tax treaties that may provide for different rules.
Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s adjusted tax basis in its Common Stock and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of the Common Stock, which will be treated as described under “Non-U.S. Holders — Gain on Sale, Exchange or Other Taxable Disposition of Common Stock” below.
Gain on Sale, Exchange or Other Taxable Disposition of Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be required to pay U.S. federal income tax on any gain realized upon the sale, exchange or other taxable disposition of our Common Stock unless:
| ● | the gain is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States); | |
| ● | the non-U.S. holder is a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or | |
| ● | shares of our Common Stock constitute U.S. real property interests by reason of our status as a “United States real property holding corporation” (a USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non- U.S. holder’s holding period for, our Common Stock (provided that an exception does not apply), and, in the case where shares of our Common Stock are regularly traded on an established securities market, the Non-U.S. holder has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such Non-U.S. holder’s holding period for the shares of our Common Stock. |
We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our Common Stock is regularly traded on an established securities market, such Common Stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively hold more than five percent of such regularly traded Common Stock at any time during the shorter of the five-year period preceding the non-U.S. holder’s disposition of, or the non-U.S. holder’s holding period for, our Common Stock.
If the non-U.S. holder is described in the first bullet above, it will be required to pay tax on the net gain derived from the sale, exchange or other taxable disposition under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a rate of 30%, or (in each case) such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet above will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, exchange or other taxable disposition, which gain may be offset by U.S. source capital losses for the year. Non-U.S. holders should consult their own tax advisors regarding any applicable income tax or other treaties that may apply.
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Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
A Non-U.S. holder may have to comply with certification procedures to establish that it is not a United States person in order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate of withholding under a treaty generally will satisfy the certification requirements necessary to avoid the backup withholding as well for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E or other applicable IRS Form W-8.Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes withholding tax at a rate of 30% on dividends on our securities paid to a “foreign financial institution” (as specially defined under these rules), unless any such institution (1) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (2) if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our securities are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of our securities held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (1) certifies to us or the applicable withholding agent that such entity does not have any “substantial United States owners” or (2) provides certain information regarding the entity’s “substantial United States owners,” which will in turn be provided to the U.S. Department of Treasury. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in our securities.
Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, owning and disposing of our securities, including the consequences of any proposed changes in applicable laws.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement between us and the underwriters named below, for which Spartan Capital Securities, LLC and are acting as the representatives (the “Representatives”), we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, the number of shares of our common stock listed next to its name in the following table:
| Underwriters | Number of Shares | |||
| Spartan Capital Securities, LLC | ||||
| Total | ||||
Under the terms of the underwriting agreement, the underwriters are committed to purchase all of the shares offered by this prospectus (other than the shares subject to the underwriters’ option to purchase additional shares), if the underwriters buy any of such shares. The underwriters’ obligation to purchase the shares is subject to satisfaction of certain conditions, including, among others, the continued accuracy of representations and warranties made by us in the underwriting agreement, delivery of legal opinions and the absence of any material changes in our assets, business or prospects after the date of this prospectus.
The underwriters initially propose to offer our common stock directly to the public at the public offering price set forth on the front cover page of this prospectus and to certain dealers at such offering price less a concession not to exceed $ per share. After the initial public offering of the shares of our common stock, the offering price and other selling terms may be changed by the underwriters. Sales of shares of our common stock made outside the United States may be made by affiliates of certain of the underwriters.
Over-Allotment Option
We have granted to the underwriters an option to purchase up to additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. The underwriters may exercise this option in whole or in part at any time within 45 days after the closing of this offering. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares proportionate to that underwriters’ initial commitment as indicated in the table at the beginning of this section plus, in the event that any underwriter defaults in its obligation to purchase shares under the underwriting agreement, certain additional shares.
Discounts and Commissions
The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.
| Total | ||||||||||||
| Per Share | No Exercise | Full Exercise | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discount to be paid by us (1) | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
(1) The underwriters will receive an underwriting discount equal to 8.0% on all shares sold in this offering.
We have also agreed to reimburse the Representatives for accountable expenses incurred by the Representatives in connection with the offering, which we expect to be approximately $ . We have paid an expense deposit of $10,000 to the Representatives, which will be applied against the actual accountable expenses that will be payable by us to the Representatives in connection with this offering.
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $ .
Underwriter Warrants
We have agreed to issue to the Representatives, collectively, warrants to purchase up to an aggregate of 4.0% of the shares of common stock sold in this offering (the “Underwriter Warrants”). The Underwriter Warrants are exercisable 180 days after the effective date of the registration statement of which this prospectus forms a part at $ per share (110% of the public offering price), but may not be transferred at any time prior to the date which is 180 days beginning on the date of commencement of sales of securities in connection with this offering and expiring on a date which is no more than five (5) years from the commencement of sales of the public offering in compliance with FINRA Rule 5110(e)(1)(A). The Underwriter Warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to FINRA Rule 5110(e). The Representatives (or its respective permitted assignees under Rule 5110(e)(2)(B)) will not sell, transfer, assign, pledge, or hypothecate the Underwriter Warrants or the securities underlying such warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such warrants or the underlying securities for a period of 180 days following the date of commencement of sales pursuant to the offering. In addition, the Underwriter Warrants provide for “piggy-back” registration rights with respect to the shares underlying such warrants, exercisable in certain cases for a period of no more than seven (7) years from the effective date of the offering in compliance with FINRA Rule 5110(g)(8)(D). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the Underwriter Warrants other than underwriting commissions incurred and payable by the holders thereof. The exercise price and number of shares issuable upon exercise of the Underwriter Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the exercise price of the Underwriter Warrants or the underlying shares of such warrants will not be adjusted for issuances of shares of common stock at a price below such warrants’ exercise price.
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Right of First Refusal
We have granted the representatives the following right (the “Right of First Refusal”), subject to FINRA Rule 5110(g)(5), if until , 2023, the Company or any of its subsidiaries decides to raise funds by means of a public or private offering of securities, or any other capital-raising financing of equity, equity-linked, or debt securities using an underwriter or placement agent, whether on its own behalf or on the behalf of its shareholders, the Representatives (or any affiliate designated by a Representative) shall have the right to act as co-lead placement agents or co-lead bookrunners, as applicable. In the event the Representatives, or either of them individually, choose to exercise the Right of First Refusal, they shall be engaged on terms no less favorable to the Company than those of the underwriting agreement for this offering. Under the Right of First Refusal, in the event of a public offering for which the Representative, or either of them, accept the engagement for, the Representatives shall have the right to act as joint-bookrunners with respect to 50% of the total offering amount.
Tail Fee
We have also agreed to pay the Representatives a tail fee equal to the compensation payable to the Representatives in this offering, if any investor the Representatives had directly contacted during our term of engagement with the Representatives related to this offering provides financing or capital to us through any public or private offering or other financing or capital-raising transaction of any kind during our term of engagement with the Representatives, or the fifteen-month period thereafter. The Representatives will provide us with a list of investors within ten days of (i) the termination of our engagement with the Representatives or (ii) abandonment of the offering.
Stabilization
In accordance with Regulation M under the Exchange Act, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including short sales and purchases to cover positions created by short positions, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making.
| ● | Short positions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares or purchasing shares in the open market. | |
| ● | Stabilizing transactions permit bids to purchase the underlying security as long as the stabilizing bids do not exceed a specific maximum price. | |
| ● | Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. If the underwriters sell more shares than could be covered by the underwriters’ option to purchase additional shares, thereby creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| ● | Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. | |
| ● | In passive market making, market makers in our common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchase shares of our common stock until the time, if any, at which a stabilizing bid is made. |
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These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the Representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Indemnification
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of such liabilities.
Discretionary Accounts
The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of our common stock being offered in this offering.
IPO Pricing
The initial public offering price has been negotiated between us and the Representatives. Among the factors considered in these negotiations are: (i) the capitalization of our company at the time of the offering, (ii) market and general economic conditions and changes in the prospects and/or forecasts of our company, (iii) the Representatives’ review of our company’s audited financial statements for the fiscal year ended April 30, 2021 and subsequently filed unaudited financial statements and (iv) the Representatives’ determination of our company’s pre-money valuation (based upon the information provided to the Representatives by us).
Clear Market; Lock-Up Agreements
We have agreed that for a period of 180 days after the closing of this offering, we and any of our successors will not:
| ● | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company except pursuant to and in accordance with its global incentive plan and bona fide ambassador, consulting, employment and service agreements entered into with third parties; | |
| ● | file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company, provided that, notwithstanding the foregoing, the Company shall be permitted to file, re-file, and/or declare or have declared effective any registration statement that was filed with the SEC prior to March 8, 2022, including, for the avoidance of doubt, any amendments to or corrected or revised registration statements relating to a registration statement that was filed prior to March 8, 2022; | |
| ● | enter into any swap or other arrangement that transfers to another entity, in whole or in part, any of the economic consequences of ownership of any of our common stock or such other securities; |
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whether any such transaction described above is to be settled by delivery of shares of our capital stock or such other securities, in cash or otherwise. The prior sentence will not apply to (i) the issuance of the warrants to the Representatives and the shares of our common stock issuable upon the exercise of such warrants; (ii) the issuance of shares of common stock or securities convertible into or exercisable for shares of our common stock pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options (including net exercise) or the settlement of RSUs (including net settlement), in each case outstanding on the date of the underwriting agreement and described in this prospectus; (iii) grants of stock options, stock awards, restricted stock, RSUs, or other equity awards and the issuance of shares of our common stock or securities convertible into or exercisable or exchangeable for shares of our common stock (whether upon the exercise of stock options or otherwise) to our employees, officers, directors, advisors, brand ambassadors or consultants pursuant to the terms of an equity compensation plan in effect as of the closing of this offering and described in this prospectus, provided that such recipients enter into a lock-up agreement with the Representatives; (iv) our filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to any plan in effect on the date of the underwriting agreement and described in this prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction; or (v) the issuance of shares of our common stock or such other securities in connection with joint ventures, commercial relationships or other strategic transactions approved by a majority of the disinterested directors of the company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith within 90 days after the date of the underwriting agreement, and provided that any such issuance shall only be to a person (or to the equity holders of a person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the company and shall provide to the company additional benefits in addition to the investment of funds, but shall not include a transaction in which the company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
Each of our directors, executive officers and substantially all holders of more than 5% of our outstanding common stock as of the effective date of this registration statement, has entered into lock-up agreements with the Representatives prior to the commencement of this offering pursuant to which each of these persons or entities has agreed that, for a period ending 180 days after the date of this prospectus (subject to leak-out provisions, as applicable), none of them will, without the prior written consent of the Representatives (which may be withheld or delayed in the Representatives’ sole discretion):
| ● | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, in each case whether now owned or hereafter acquired by the locked-up party or with respect to which the locked-up party has or hereafter acquires the power of disposition (including without limitation, common stock or such other securities which may be deemed to be beneficially owned by the locked-up party in accordance with the rules and regulations of the SEC and securities that may be issued upon exercise of a stock option or warrant) (collectively, the “Lock-Up Securities”); | |
| ● | enter into any hedging, swap or other arrangement or transaction that transfers to another entity, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, make any demand for, or exercise any right with respect to, the registration of any Lock-Up Securities, or publicly disclose the intention to do any of the foregoing; or | |
| ● | otherwise enter into any hedging or other transactions or arrangements (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) designed or intended, or which could reasonably be expected to lead to or result in, a sale or disposition or transfer (whether by the locked-up party or any other person) of any economic consequences of ownership, in whole or in part, directly or indirectly, of any Lock-Up Securities, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Lock-Up Securities, in cash or otherwise. |
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The restrictions described in the immediately preceding paragraph and contained in the lock-up agreements do not apply, subject in certain cases to various conditions, to certain transactions, including (a) transfers or dispositions of Lock-Up Securities (i) as bona fide gifts, or for bona fide estate planning purposes, (ii) by will, other testamentary document or intestacy, (iii) to any trust for the direct or indirect benefit of the locked-up party or any immediate family member thereof, (iv) to a corporation, partnership, limited liability company, trust or other entity of which the locked-up party and/or one or more members of its immediate family members are the legal and beneficial owner of all of the outstanding equity securities or similar interests, (v) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (iv), (vi) in the case of a corporation, partnership, limited liability company, trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate of the locked-up party, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the locked-up party or its affiliates or (B) as part of a distribution or other transfer to general or limited partners, members or stockholders of, or other holders of equity in, the locked-up party, (vii) by operation of law, (viii) to us from an employee or other service provider upon death, disability or termination of employment or service relationship of such employee or service provider, (ix) to us in connection with the vesting, settlement or exercise of restricted stock units, options, warrants or other rights to purchase shares of our common stock (including “net” or “cashless” exercise), including for the payment of exercise price and tax and remittance payments, or (x) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction approved by our board of directors and made to all stockholders involving a change in control, provided that if such transaction is not completed, all such Lock-Up Securities would remain subject to the restrictions in the immediately preceding paragraph; (b) exercise of outstanding options, settlement of RSUs or other equity awards granted pursuant to plans or other equity compensation arrangements or exercise warrants, in each case described in this prospectus, provided that any Lock-Up Securities received upon such exercise, vesting or settlement would be subject to restrictions similar to those in the immediately preceding paragraph; (c) the conversion of outstanding preferred stock, warrants to acquire preferred stock or convertible securities or warrants to acquire shares of our common stock into shares of our common stock, provided that any common stock or warrants received upon such conversion would be subject to restrictions similar to those in the immediately preceding paragraph; and (d) the establishment by locked-up parties of one or more trading plans under Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for the transfer or disposition of Lock-Up Securities during the 180 days following the date of this prospectus and no filing by any party under the Exchange Act or other public announcement would be required or made voluntarily in connection with such trading plan.
Notwithstanding the foregoing, nothing will prevent our directors or executive officers from, or restrict their ability to, (i) purchase our securities in a public or private transaction, or (ii) exercise or convert any options, warrants or other convertible securities issued to or held by such director or executive officer, including those granted under our 2020 Global Incentive Share Plan.
Other Relationships
The Representatives and their affiliates may provide various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they may receive customary fees and commissions. Spartan has acted as our placement agent in connection with a private placement in August 2021.
The Representatives may in the future provide us and our affiliates with investment banking and financial advisory services for which it may in the future receive customary fees. The Representative may release, or authorize us to release, as the case may be, the Lock-Up Securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in the offering. The Representatives may allocate a number of shares to the underwriters and selling group members, if any, for sale to their online brokerage account holders. Any such allocations for online distributions will be made by the representative on the same basis as other allocations.
Listing
We have applied to list shares of our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CNXA”.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Worldwide Stock Transfer, LLC.
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Selling Restrictions
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Regulation, or each, a Relevant Member State, an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Regulation, if they have been implemented in that Relevant Member State:
| (i) | to any legal entity which is a qualified investor as defined in the Prospectus Regulation; | |
| (ii) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or | |
| (iii) | in any other circumstances falling within Article 1(4) of the Prospectus Regulation, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Regulation. |
For the purposes of this provision, the expression an “offer to the public” in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
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United Kingdom
Each underwriter has represented and agreed that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and | |
| (b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. |
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon for us by Lucosky Brookman LLP. [*]. Certain legal matters will be passed upon for the underwriters by Haynes and Boone, LLP.
EXPERTS
Our consolidated balance sheets as of April 30, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, shareholders’ deficit, and cash flows for the fiscal years ended April 30, 2021 and 2020 included elsewhere in this prospectus, have been audited by Mac Accounting Group, LLP, an independent registered public accounting firm, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of PlaySight at December 31, 2020 and 2019, and for each of the two years in the period ended December 31, 2020 appearing in this prospectus and Registration Statement have been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, an independent auditor, as set forth in its report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about PlaySight’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements) appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
CHANGES IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On February 17, 2022, the Board of Directors of the Company approved the engagement of WithumSmith + Brown, PC (“Withum”) as the Company’s independent registered public accounting firm for the fiscal year ending April 30, 2022, effective immediately, and dismissed Mac Accounting Group, LLP (“Mac”) as the Company’s independent registered public accounting firm.
The reports of Mac on the Company’s consolidated financial statements for the fiscal years ended April 30, 2021 and 2020 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the Company’s consolidated financial statements for the fiscal years ended April 30, 2021 and 2020, and in the subsequent interim period through the date hereof, 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 report. There were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K) during the two fiscal years ended April 30, 2021 and 2020, or in the subsequent period through the date hereof.
The Company provided a copy of the foregoing disclosures to Mac and requested that Mac furnish it with a letter addressed to the Securities and Exchange Commission stating whether Mac agrees with the above statements. A copy of Mac’s letter, dated February 17, 2022, is filed as Exhibit 16.1 to the Form 8-K filed on February 17, 2022.
During the two most recent fiscal years and in the subsequent interim period through the date hereof, the Company has not consulted with Withum with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that would have been rendered on the Company’s consolidated financial statements, or any other matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports, and other information with the Securities and Exchange Commission. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street N.E., Washington, D.C. 20549. You can request copies of such documents by writing to the SEC and paying a fee for the copying cost. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to the public from the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
This prospectus is part of a registration statement on Form S-1 that we filed with the SEC to register the securities offered hereby under the Securities Act. This prospectus does not contain all of the information included in the registration statement, including certain exhibits and schedules. For further information with respect to our company and the securities offered by this prospectus, as well as the exhibits and schedules to the registration statement, we refer you to the registration statement, those exhibits and schedules, and to the information incorporated by reference in this Prospectus. You may obtain the registration statement and exhibits to the registration statement from the SEC at the address listed above or from the SEC’s website.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Slinger Bag Inc. – Unaudited Pro Forma Condensed Combined Financial Statements | |
| Unaudited Pro Forma Condensed Combined Balance Sheet as of January 31, 2022 | F-3 |
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended January 31, 2022 | F-4 |
| Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended April 30, 2021 | F-5 |
| Notes to Unaudited Pro Forma Condensed Combined Financial Statements | F-6 |
| Slinger Bag Inc. – Consolidated Financial Statements for the Years Ended April 30, 2021 and 2020 | |
| 2021 Audited Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-8 |
| Consolidated Balance Sheets as of April 30, 2021 and 2020 | F-9 |
| Consolidated Statements of Operations and Comprehensive Loss for the years ended April 30, 2021 and 2020 | F-10 |
| Consolidated Statements of Changes in Shareholders’ Deficit for the years ended April 30, 2021 and 2020 | F-11 |
| Consolidated Statements of Cash Flows for the years ended April 30, 2021 and 2020 | F-12 |
| Notes to Consolidated Financial Statements | F-13 |
| Slinger Bag Inc. – Condensed Consolidated Financial Statements for the Nine Months Ended January 31, 2022 | |
| Condensed Consolidated Balance Sheets | F-26 |
| Condensed Consolidated Statements of Operations and Comprehensive Loss | F-27 |
| Condensed Consolidated Statements of Changes in Shareholders’ Deficit | F-28 |
| Condensed Consolidated Statements of Cash Flows | F-29 |
| Notes to Condensed Consolidated Financial Statements | F-30 |
| PlaySight Interactive Ltd. - Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019 | |
| Report of Independent Auditors | F-43 |
| Consolidated Balance Sheets as of December 31, 2020 and 2019 | F-44 |
| Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 | F-46 |
| Consolidated Statements of Convertible Preferred Shares and Shareholders’ Deficit for the years ended December 31, 2020 and 2019 | F-47 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 | F-48 |
| Notes to Consolidated Financial Statements | F-49 |
| PlaySight Interactive Ltd. - Condensed Consolidated Financial Statements for the Nine Months Ended September 30, 2021 | |
| Condensed Consolidated Balance Sheets | F-75 |
| Condensed Consolidated Statements of Operations | F-77 |
| Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ Deficit | F-78 |
| Condensed Consolidated Statements of Cash Flows | F-79 |
| Notes to Condensed Consolidated Financial Statements | F-80 |
| F-1 |
SLINGER BAG INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction
The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and the historical consolidated financial statements of PlaySight and Gameface as adjusted to give effect to the Company’s acquisition of PlaySight and Gameface (the “Acquisitions”). For more information on these acquisitions, see “Prospectus Summary—PlaySight Acquisition” and “Prospectus Summary—Gameface Acquisition.”
PlaySight’s business involves sports video technology, data capture, high performance analytics and automated video production. PlaySight will also bring a growing, recurring revenue stream of sports clients and content subscribers to the Company.
Gameface has developed the AI capabilities for the forthcoming Slinger app, including instant analysis of groundstrokes and biomechanics as well as event recognition from match play situations, all captured through a phone’s camera. Gameface’s platform is designed to deliver both technical (biomechanics) and tactical (strategy) insights through its camera agnostic AI video platform.
The acquisitions of PlaySight and Gameface closed in February 2022, at which time the Company formally launched its Watch, Play, Learn strategy pursuant to which it will endeavor to build a connected sports technology business based on (i) ball launchers across a range of sports, (ii) content, streaming and data (through PlaySight technology), (iii) performance, artificial intelligence, data and content (through Gameface technology) and SaaS applications (through Foundation Sports technology).
The unaudited pro forma condensed combined statements of operations for the nine months ended January 31, 2022 and the 12 months ended April 30, 2021 give effect to these transactions as if they had occurred on May 1, 2020. The unaudited pro forma condensed combined balance sheet as of January 31, 2022 gives effect to these transactions as if they had occurred on January 31, 2022. The unaudited pro forma condensed combined financial statements were derived from the following historical information:
| ● | The Company’s unaudited balance sheet and unaudited statement of operations as of and for the nine months ended January 31, 2022 and its audited statement of operations for the fiscal year ended April 30, 2021; | |
| ● | PlaySight’s unaudited balance sheet and unaudited statement of operations as of and for the nine months ended December 31, 2021 and its unaudited statement of operations for the twelve months ended March 31, 2021 (these PlaySight financials were derived from the PlaySight audited year end financials of the company as of December 31, 2020 and adjusted to reflect unaudited quarterly financial information in order to more closely align PlaySight’s year end with the Company’s April 30, 2021 year end); and | |
| ● | Gameface’s unaudited balance sheet and unaudited statement of operations as of and for the nine months ended December 31, 2021 and its unaudited statement of operations for the twelve months ended March 31, 2021 (these Gameface financials were derived from the Gameface audited year end financials of the company as of June 30, 2021 and adjusted to reflect unaudited quarterly financial information in order to more closely align Gameface’s year end with the Company’s April 30, 2021 year end). |
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, and PlaySight’s historical financial information included elsewhere in this prospectus.
| F-2 |
Unaudited Pro Forma Condensed Combined Balance Sheet
As of January 31, 2022
(in thousands)
| Slinger | PlaySight | Gameface | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||||||
| Assets | ||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,082 | $ | 709 | $ | 85 | $ | - | $ | 1,876 | ||||||||||||
| Accounts receivable, net | 1,209 | 212 | - | - | 1,421 | |||||||||||||||||
| Inventories, net | 8,670 | 499 | - | - | 9,169 | |||||||||||||||||
| Prepaid inventory | 1,778 | - | - | - | 1,778 | |||||||||||||||||
| Loan and interest receivable | 2,355 | - | - | (2,355 | ) | (a) | - | |||||||||||||||
| Prepaid expenses and other current assets | 101 | 603 | 40 | - | 744 | |||||||||||||||||
| Total current assets | 15,195 | 2,023 | 125 | (2,355 | ) | 14,988 | ||||||||||||||||
| Goodwill | 1,240 | - | - | 44,057 | (b) | 45,297 | ||||||||||||||||
| Other intangible assets, net | 2,200 | - | - | 19,350 | (c) | 21,550 | ||||||||||||||||
| Finished products used in operations, net | - | 4,657 | - | - | 4,657 | |||||||||||||||||
| Other non-current assets | - | 669 | 125 | - | 794 | |||||||||||||||||
| Total assets | $ | 18,635 | $ | 7,349 | $ | 250 | $ | 61,052 | $ | 87,286 | ||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 7,943 | $ | 1,466 | $ | 254 | $ | - | $ | 9,663 | ||||||||||||
| Accrued payroll and bonuses | 1,613 | 1,411 | - | - | 3,024 | |||||||||||||||||
| Deferred revenue | 18 | 2,299 | - | 180 | (d) | 2,497 | ||||||||||||||||
| Accrued interest - related party | 850 | - | - | - | 850 | |||||||||||||||||
| Notes payable - related party | 2,000 | - | - | - | 2,000 | |||||||||||||||||
| Convertible notes payable, net | 7,578 | - | - | - | 7,578 | |||||||||||||||||
| Derivative liabilities | 8,926 | - | - | - | 8,926 | |||||||||||||||||
| Contingent consideration | - | - | - | 8,285 | (e) | 8,285 | ||||||||||||||||
| Other current liabilities | - | 645 | 145 | (328 | ) | (f) | 462 | |||||||||||||||
| Total current liabilities | 28,928 | 5,821 | 399 | 8,137 | 43,285 | |||||||||||||||||
| Long-term liabilities | ||||||||||||||||||||||
| Convertible loans | - | 12,407 | - | (12,407 | ) | (f) | - | |||||||||||||||
| Long-term deferred revenue | - | 1,309 | - | - | 1,309 | |||||||||||||||||
| Other long-term liabilities | - | 802 | - | (802 | ) | (f) | - | |||||||||||||||
| Total liabilities | 28,928 | 20,339 | 399 | (5,072 | ) | 44,594 | ||||||||||||||||
| Convertible preferred shares | - | 30,761 | - | (30,761 | ) | (f) | - | |||||||||||||||
| Total shareholders’ equity | (10,293 | ) | (43,751 | ) | (149 | ) | 96,885 | (g) | 42,692 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 18,635 | $ | 7,349 | $ | 250 | $ | 61,052 | $ | 87,286 | ||||||||||||
| F-3 |
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended January 31, 2022
(in thousands, except per share information)
| Slinger | Playsight | Gameface | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||||||
| Net sales | $ | 12,140 | $ | 4,389 | $ | 58 | $ | (42 | ) | (h) | $ | 16,545 | ||||||||||
| Cost of sales | 8,303 | 3,647 | - | - | 11,950 | |||||||||||||||||
| Gross income | 3,837 | 742 | 58 | (42 | ) | 4,595 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Selling and marketing expenses | 2,515 | 1,559 | 203 | - | 4,277 | |||||||||||||||||
| General and administrative expenses | 41,535 | 1,343 | 125 | - | 43,003 | |||||||||||||||||
| Research and development costs | 553 | 2,371 | 571 | - | 3,495 | |||||||||||||||||
| Total operating expenses | 44,603 | 5,273 | 899 | - | 50,775 | |||||||||||||||||
| Loss from operations | (40,766 | ) | (4,531 | ) | (841 | ) | (42 | ) | (46,180 | ) | ||||||||||||
| Other expense (income): | ||||||||||||||||||||||
| Amortization of debt discounts | 5,400 | - | - | - | 5,400 | |||||||||||||||||
| Loss on extinguishment of debt | 7,097 | - | - | - | 7,097 | |||||||||||||||||
| Gain on change in fair value of derivatives | (15,075 | ) | - | - | - | (15,075 | ) | |||||||||||||||
| Loss on issuance of convertible notes | 5,889 | - | - | - | 5,889 | |||||||||||||||||
| Interest expense - related party | 107 | - | - | - | 107 | |||||||||||||||||
| Interest expense (income), net | 447 | (11,197 | ) | - | - | (10,750 | ) | |||||||||||||||
| Total other expense (income) | 3,865 | (11,197 | ) | - | - | (7,332 | ) | |||||||||||||||
| (Loss) Gain before income taxes | (44,631 | ) | 6,666 | (841 | ) | (42 | ) | (38,848 | ) | |||||||||||||
| Benefit for income taxes | - | - | 10 | - | 10 | |||||||||||||||||
| Net loss (income) | (44,631 | ) | 6,666 | (831 | ) | (42 | ) | (38,838 | ) | |||||||||||||
| Other comprehensive gain (loss), net of tax | ||||||||||||||||||||||
| Foreign currency translation adjustments | (27 | ) | - | - | - | (27 | ) | |||||||||||||||
| Total other comprehensive gain (loss), net of tax | (27 | ) | - | - | - | (27 | ) | |||||||||||||||
| Comprehensive loss (income) | $ | (44,658 | ) | $ | 6,666 | $ | (831 | ) | $ | (42 | ) | $ | (38,865 | ) | ||||||||
| Net loss per share, basic and diluted | $ | (1.19 | ) | $ | (0.57 | ) | ||||||||||||||||
| Weighted average number of common shares outstanding, basic and diluted | 37,360,953 | 30,758,871 | (i) | 68,119,824 | ||||||||||||||||||
| F-4 |
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended April 30, 2021
(in thousands, except per share information)
| Slinger | PlaySight | Gameface | Pro Forma Adjustments | Notes | Pro Forma Combined | |||||||||||||||||
| Net sales | $ | 10,804 | $ | 5,563 | $ | 182 | (125 | ) | (h) | $ | 16,424 | |||||||||||
| Cost of sales | 7,680 | 3,602 | - | - | 11,282 | |||||||||||||||||
| Gross income | 3,124 | 1,961 | 182 | (125 | ) | 5,142 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Selling and marketing expenses | 1,761 | 2,187 | 238 | - | 4,186 | |||||||||||||||||
| General and administrative expenses | 4,750 | 1,175 | 353 | - | 6,278 | |||||||||||||||||
| Research and development costs | 339 | 2,254 | 394 | - | 2,987 | |||||||||||||||||
| Total operating expenses | 6,850 | 5,616 | 985 | - | 13,451 | |||||||||||||||||
| Loss from operations | (3,726 | ) | (3,655 | ) | (803 | ) | (125 | ) | (8,309 | ) | ||||||||||||
| Other expense (income): | ||||||||||||||||||||||
| Amortization of debt discounts | 377 | - | - | - | 377 | |||||||||||||||||
| Loss (gain) on extinguishment of debt | 3,030 | - | - | - | 3,030 | |||||||||||||||||
| Induced conversion loss | 51 | - | - | - | 51 | |||||||||||||||||
| Gain on change in fair value of derivatives | (1,940 | ) | - | - | - | (1,940 | ) | |||||||||||||||
| Interest expense - related party | 609 | - | - | - | 609 | |||||||||||||||||
| Interest expense, net | 12,741 | 5,156 | - | - | 17,897 | |||||||||||||||||
| Total other expense | 14,868 | 5,156 | - | - | 20,024 | |||||||||||||||||
| Loss before income taxes | (18,594 | ) | (8,811 | ) | (803 | ) | (125 | ) | (28,333 | ) | ||||||||||||
| Benefit for income taxes | - | - | (41 | ) | - | (41 | ) | |||||||||||||||
| Net loss | (18,594 | ) | (8,811 | ) | (762 | ) | (125 | ) | (28,292 | ) | ||||||||||||
| Other comprehensive gain (loss), net of tax | ||||||||||||||||||||||
| Foreign currency translation adjustments | (15 | ) | - | - | - | (15 | ) | |||||||||||||||
| Total other comprehensive gain (loss), net of tax | (15 | ) | - | - | - | (15 | ) | |||||||||||||||
| Comprehensive loss | $ | (18,609 | ) | $ | (8,811 | ) | $ | (762 | ) | $ | (125 | ) | $ | (28,307 | ) | |||||||
| Net loss per share, basic and diluted | $ | (0.70 | ) | $ | (0.49 | ) | ||||||||||||||||
| Weighted average number of common shares outstanding, basic and diluted | 26,723,038 | 30,758,871 | (i) | 57,481,909 | ||||||||||||||||||
| F-5 |
Note 1 — Basis of presentation
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combinations, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combinations will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of the Acquisitions’ assets acquired and liabilities assumed and will conform the accounting policies of the Acquisitions to its own accounting policies.
The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The combined pro forma financial information does not reflect the realization of any expected cost savings or other synergies from the Acquisitions as a result of restructuring activities and other planned cost savings initiatives following the completion of the business combinations.
Note 2 — Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair market value of the Acquisitions’ assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the assumed acquisition date (in thousands):
| PlaySight | Gameface | Total | ||||||||||
| Cash and cash equivalents | $ | 709 | $ | 85 | $ | 794 | ||||||
| Accounts receivable, net | 212 | - | 212 | |||||||||
| Inventories, net | 499 | - | 499 | |||||||||
| Prepaid expenses and other current assets | 603 | 40 | 643 | |||||||||
| Goodwill | 35,024 | 9,033 | 44,057 | |||||||||
| Other intangible assets | 16,490 | 2,860 | 19,350 | |||||||||
| Finished products used in operations, net | 4,657 | - | 4,657 | |||||||||
| Other non-current assets | 669 | 125 | 794 | |||||||||
| Accounts payable and accrued expenses | (1,466 | ) | (254 | ) | (1,720 | ) | ||||||
| Accrued payroll and bonuses | (1,411 | ) | - | (1,411 | ) | |||||||
| Deferred revenue | (2,479 | ) | - | (2,479 | ) | |||||||
| Contingent consideration | (6,951 | ) | (1,334 | ) | (8,285 | ) | ||||||
| Other current liabilities | (317 | ) | (145 | ) | (462 | ) | ||||||
| Long-term deferred revenue | (1,309 | ) | - | (1,309 | ) | |||||||
| Total consideration | $ | 44,930 | $ | 10,410 | $ | 55,340 | ||||||
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in allocations to intangible assets such as trade names, internally developed software and customer relationships as well as goodwill and (2) other changes to assets and liabilities.
| F-6 |
Note 3 — Pro forma adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements:
| (a) | Represents the loan amount from the Company to PlaySight that will reduce the number of shares issued as part of the purchase price. | |
| (b) | Reflects adjustment to record goodwill associated with the Acquisitions as shown in Note 2. | |
| (c) | Reflects adjustment to record intangible assets associated with the Acquisitions as shown in Note 2. As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, internally developed software and customer relationships. |
The following table summarizes the estimated fair values of the Acquisitions’ identifiable intangible assets (in thousands) and their estimated useful lives:
| Estimated useful life (in years) | PlaySight | Gameface | Total | |||||||||||||
| Trade name | 12 | $ | 5,230 | $ | 380 | $ | 5,610 | |||||||||
| Internally developed software | 4 | 7,680 | 870 | 8,550 | ||||||||||||
| Customer relationships | 10 - 13 | 3,580 | 1,610 | 5,190 | ||||||||||||
| Total | $ | 16,490 | $ | 2,860 | $ | 19,350 | ||||||||||
| (d) | Represents the estimated adjustment to increase the assumed deferred revenue obligations to fair value. The calculation of fair value is preliminary and subject to change. The fair value was determined based on the estimated costs to fulfill the remaining extended contract obligations plus a normal profit margin. | |
| (e) | Represents the fair value of the earn out shares related to the consummation of the Acquisitions. | |
| (f) | Represents the loans and convertible preferred shares of PlaySight that will be converted to equity upon the completion of the acquisition. | |
| (g) | Represents the elimination of the historical equity of the Acquisitions and the issuance of common shares to finance the Acquisitions. | |
| (h) | Represents the elimination of intercompany sales from Gameface to the Company as part of the development of a tennis specific artificial intelligence application. | |
| (i) | Represents the increase in weighted average shares in connection with the issuance of common shares of the Company as part of the Acquisitions. |
| F-7 |
SLINGER BAG INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 2021 AND 2020
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Slinger Bag Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Slinger Bag Inc. as of April 30, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, shareholders’ deficit, and cash flows for each of the two years in the period ended April 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Slinger Bag Inc. as of April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The 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 entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 Slinger Bag Inc. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Slinger Bag Inc. 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 entity’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
The critical audit matters communicated below 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. The 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 below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory
The Company developed, and now sells, a tennis ball launcher that is built into a bag (the “Slinger Launcher”). The Company utilizes manufacturing companies who deliver its Slinger Launchers to third party warehouses around the world to enable the Company to distribute its product internationally. As discussed in Note 3 of the consolidated financial statements the Company values their inventory at the lower of cost (determined principally on a first-in first-out basis) or net realizable value. Due to the numerous warehouse locations, inventory in transit, and the multiple components that go into the Slinger Launcher auditing the inventory balance was challenging and required complex auditor judgment.
In order to audit the Company’s inventory balance, we sent confirmations to third party warehouses after they completed their internal inventory counts, reconciled and verified all inventory in transit amounts by reviewing third party support and shipping records, and we ensured all values assigned to components and completed Slinger Launchers was accurate by reviewing source documents and invoices from third party manufacturers.
Complex Debt and Equity Transactions
During the year under audit the Company entered into multiple debt and/or equity transactions and agreements that contained terms and provisions that were uncommon in practice. Due to the unusual nature of the agreements, ensuring the accounting for the transactions were challenging, subjective, and required complex auditor judgment, including detailed analysis and interpretation of accounting standards.
In order to audit these significant unusual transactions, we reviewed Company analysis and had to perform a significant amount of research in order to gain comfort in the accounting for each.
/s/ Mac Accounting Group, LLP
We have served as the Company’s auditor since 2019.
Midvale, Utah
August 6, 2021
| F-8 |
Slinger Bag Inc.
Consolidated Balance Sheets
| April 30, 2021 | April 30, 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | - | |||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Intangible asset, net | - | |||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and bonuses | ||||||||
| Deferred revenue | ||||||||
| Accrued interest - related party | ||||||||
| Notes payable - related party, net | ||||||||
| Convertible notes payable, net | - | |||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Long-term portion of convertible notes payable, net | - | |||||||
| Notes payable, net | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Shareholders’ deficit | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of April 30, 2021 and 2020, respectively; and shares issuable as of April 30, 2021 and 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying notes to consolidated financial statements
| F-9 |
Slinger Bag Inc.
Consolidated Statements of Operations and Comprehensive Loss
| For the Year Ended | ||||||||
| April 30, 2021 | April 30, 2020 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross income (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| Selling and marketing expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development costs | ||||||||
| Transaction costs | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses (income): | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of debt | ||||||||
| Induced conversion loss | ||||||||
| Gain on change in fair value of derivatives | ( | ) | ||||||
| Interest expense - related party | ||||||||
| Interest expense | ||||||||
| Total other expense | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss, net of tax | ||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Total other comprehensive loss, net of tax | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
See accompanying notes to consolidated financial statements
| F-10 |
Slinger Bag Inc.
Consolidated Statements of Shareholders’ Deficit
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||
| Balance, April 30, 2019 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
| Contribution of Slinger Bag Limited | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||
| Shares issuable related to note payable | - | - | - | - | ||||||||||||||||||||
| Distribution to shareholder | - | - | ( |
) | - | - | ( |
) | ||||||||||||||||
| Forgiveness of net liabilities owed to former majority shareholder | - | - | - | - | ||||||||||||||||||||
| Shares issued for conversion of convertible debt | - | - | ||||||||||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||||||||
| Warrants issued with note payable | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, April 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued related to note payable | ( | ) | - | - | - | |||||||||||||||||||
| Warrants issued related to notes payable - related party | - | - | - | - | ||||||||||||||||||||
| Shares issued in connection with conversion of notes payable | - | - | ||||||||||||||||||||||
| Shares issued for conversion of convertible debt | - | - | ||||||||||||||||||||||
| Shares issued in connection with purchase of trademark | - | - | ||||||||||||||||||||||
| Warrants issued in connection with purchase of trademark | - | - | - | - | ||||||||||||||||||||
| Shares issued in connection with services | - | - | ||||||||||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
See accompanying notes to consolidated financial statements
| F-11 |
Slinger Bag Inc.
Consolidated Statements of Cash Flows
| For the Year Ended | ||||||||
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Gain on change in fair value of derivatives | ( |
) | ||||||
| Shares issued in connection with services | ||||||||
| Share-based compensation | ||||||||
| Loss on extinguishment of debt | ||||||||
| Induced conversion loss | ||||||||
| Non-cash interest expense | ||||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( |
) | ||||||
| Inventories, net | ( |
) | ( |
) | ||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll and bonuses | ||||||||
| Deferred revenue | ( |
) | ( |
) | ||||
| Accrued interest - related party | ||||||||
| Net cash used in operating activities | ( |
( |
) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of intangible assets | ( |
) | ||||||
| Proceeds from contribution of net assets of Slinger Bag Limited | ||||||||
| Net cash (used in) provided by investing activities | ( |
) | ||||||
| Cash flows from financing activities: | ||||||||
| Distribution to shareholder | ( |
) | ||||||
Proceeds from notes payable - related party |
||||||||
| Proceeds from note payable | ||||||||
Repayments of notes payable - related party |
( |
) | ||||||
| Proceeds from convertible note payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate fluctuations on cash and cash equivalents | ( |
) | ( |
) | ||||
| Increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Forgiveness of net liabilities owed to former majority shareholder | $ | $ | ||||||
| Shares issuable related to convertible note payable agreement | ||||||||
| Debt discount due to derivative liability | ||||||||
| Conversion of note payable and accrued interest into common stock | ||||||||
| Warrants issued with note payable | ||||||||
| Net assets contributed from Slinger Bag Limited | ( |
) | ||||||
| Transfer of convertible note payable to note payable | ||||||||
| Transfer of notes payable to notes payable - related party | ||||||||
| Shares and warrants issued in connection with purchase of trademark | ||||||||
| Conversion of notes payable and accrued interest into common stock | ||||||||
| Warrants and shares issued with note payable | ||||||||
See accompanying notes to consolidated financial statements
| F-12 |
SLINGER BAG INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
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 shares of common stock of Lazex for $
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
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK and SBL are collectively referred to as the “Company.”
The Company operates in the sporting and athletic goods business. The Company is the owner of the Slinger Launcher, which is a portable tennis ball launcher, as well as other associated tennis accessories.
Effective
February 25, 2020, the Company increased the number of authorized shares of common stock from to via a
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 and SBL for the years ended April 30, 2021 and 2020. The contribution of the net assets of SBL is reflected as an equity contribution at historical cost on May 1, 2019, the beginning of the earliest period in which the entities were under common control. There was no historical activity in Slinger Bag Americas or Slinger Bag Canada prior to May 1, 2019. All intercompany accounts and transactions have been eliminated in consolidation.
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 $
| F-13 |
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.
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 have been reclassified in these consolidated financial statements to conform to current year presentation.
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 had
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, 2021 consisted of $
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.
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.
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.
| F-14 |
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 on the issuance date via a Black-Scholes option pricing model whose assumptions are in line with the assumptions noted below in the warrant section.
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 Asset
Intangible
asset relates to the “Slinger” technology trademark, which the Company purchased on November 10, 2020. The trademark is amortized
over its expected life 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. 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
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 7: Note Payable and Note 9: Shareholders’ Deficit.
| F-15 |
The warrants granted during the year ended April 30, 2021 and 2020 were valued using a Black-Scholes option pricing model on the date of grant using the following assumptions:
| 2021 | 2020 | |||
| Expected life in years | ||||
| Stock price volatility | |
|||
| Risk free interest rate | ||||
| Expected dividends | |
Foreign Currency Translation
A portion of SBL’s operations are conducted in Israel and its functional currency is the Israeli Shekel, the Company’s operations of Slinger Bag Canada are conducted in its functional currency of Canadian Dollars, and the Company’s Slinger Bag UK operations are conducted in its functional currency of the British pound (GBP). The accounts of SBL, Slinger Bag Canada, and Slinger Bag UK have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable exchange rates at period-end. Shareholders’ equity is translated using historical exchange rates. Revenue and expenses are translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation adjustments on the consolidated statements of operations and comprehensive loss.
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.
The Company had and common shares issuable as of April 30, 2021 and 2020, respectively, (see Note 5 and 6) which were not included in the calculation of diluted earnings per share as the effect is antidilutive. The Company also had outstanding notes payable convertible into and shares of common stock as of April 30, 2021 and 2020, respectively, (see Note 6), outstanding warrants exercisable into and shares of common stock as of April 30, 2021 and 2020, respectively, and and shares related to make-whole provisions as of April 30, 2021 and 2020, respectively, (see Note 7), which 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.
Recent Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update (ASU), 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
| F-16 |
NOTE 4: INTANGIBLE ASSET
On
November 10, 2020, the Company entered into a Trademark Assignment Agreement to acquire the “Slinger” trademark for $
The
common stock was valued at the closing stock price on November 10, 2020 and the warrants were valued using a Black-Scholes option pricing
model, for a fair value of $
The
purchase price of the trademark was determined to be $
NOTE 5: NOTE PAYABLE - RELATED PARTY
On
October 1, 2019, the Company entered into a loan agreement with a related party entity controlled by the former shareholder of Slinger
Bag Canada for borrowings of $bearing interest at %
per annum. All principal and accrued interest were due on demand under the original agreement. On December 13, 2019, the Company entered
into an Amended and Restated Loan Agreement making all principal and accrued interest due on
On
December 3, 2019, the Company entered into a loan agreement with the same related party for borrowings of $bearing interest at %
per annum. All principal and accrued interest were due on demand under the original agreement. On December 13, 2019, the Company entered
into an Amended and Restated Loan Agreement increasing the interest rate earned from
On December 11, 2019, the Company entered into a loan agreement with the same related party for borrowings of $bearing interest at % per annum. All principal and accrued interest were due on . On July 8, 2020, the terms of the debt were amended to extend the due date to , which was later amended to extend the due date to .
On January 6, 2020, the Company entered into a loan agreement with the same related party for borrowings of $bearing interest at % per annum. All principal and accrued interest were due on , which was later amended to extend the due date to .
On February 28, 2020, the Company entered into a loan agreement with the same related party for borrowings of $bearing interest at % per annum. All principal and accrued interest were due on , which was later amended to extend the due date to .
On May 12, 2020 and July 3, 2020, the Company entered into loan agreements with the same related party for borrowings of $and $, respectively, bearing interest at % per annum. All principal and accrued interest were due on and , respectively, which was later amended to extend the due date to .
On
July 8, 2020, the Company entered into a Purchase Order Financing Agreement (“PO Financing Agreement”) whereby $
On
August 10, 2020, the Company entered into a loan agreement with the same related party for borrowings of $
On
September 7, 2020, the outstanding debt from the existing related party lender was amended to reduce the interest rate to
| F-17 |
On September 8, 2020, the related party lender agreed to extend the due date of all outstanding loans to September 1, 2021.
On
September 15, 2020, the Company entered into a loan agreement with the same related party for borrowings of $
On
November 24, 2020, the Company entered into a loan agreement with the same related party for borrowings of $
On
December 3, 2020, Mont-Saic Investments LLC (“Mont-Saic”) entered into an Assignment and Conveyance Agreement with 2490585
Ontario Inc., the Company’s existing related party lender. In connection with the agreement, Mont-Saic sold its full right, title
and interest in its outstanding notes payable amounting to $
Total
outstanding borrowings from this related party as of April 30, 2021 and 2020 amounted to $
Interest
expense related to this related party for the year ended April 30, 2021 and 2020 amounted to $
On
March 25, 2021, the Company entered into a loan agreement with a different related party for borrowings of $
NOTE 6: CONVERTIBLE NOTES PAYABLE
On
June 1, 2019, the Company entered into a convertible note payable agreement with Mont-Saic Investments LLC (“Mont-Saic”)
which provided for borrowings of $
The
convertible note payable agreement, as amended on September 11, 2019, also provided Mont-Saic with a warrant giving them the right to
acquire
| F-18 |
On June 1, 2020, the Company and Mont-Saic entered into an amendment to the convertible note payable agreement to eliminate the conversion right contained in the original agreement and extend the maturity date to June 1, 2021.
The
Company evaluated the conversion option under the guidance in ASC 815-10, Derivatives and Hedging, and determined it to have characteristics
of a derivative liability. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash
gain or loss recorded in the period as a gain or loss on derivatives. The value of the conversion option derivative amounted to $
The
combined discount relating to the warrant and conversion option were amortized over the term of the agreement. Amortization of debt discounts
during the year ended April 30, 2020 amounted to $
On
December 3, 2020, Mont-Saic entered into an Assignment and Conveyance Agreement with the Company’s exiting related party lender
wherein Mont-Saic sold its full right, title and interest in its outstanding notes payable amounting to $
On
November 20, 2019, the Company entered into a convertible note payable agreement for borrowings of $
The
Company evaluated the conversion option under the guidance in ASC 815-10, Derivatives and Hedging, and determined it to have characteristics
of a derivative liability. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash
gain or loss recorded in the period as a gain or loss on derivatives. The value of the conversion option derivative amounted to $
On
February 11, 2020, the Company entered into a convertible note payable agreement for borrowings of $
The
Company evaluated the conversion option under the guidance in ASC 815-10, Derivatives and Hedging, and determined it to have characteristics
of a derivative liability. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash
gain or loss recorded in the period as a gain or loss on derivatives. The value of the conversion option amounted to $
On
September 4, 2020, the Company and the convertible debt holder entered into an agreement to convert the outstanding convertible note
payable balance of $
At
the time of the conversion, the remaining debt discount was fully amortized and the derivative liability amount of $
| F-19 |
Total
outstanding principal of convertible notes payable at April 30, 2021 and 2020 amounted to
NOTE 7: NOTE PAYABLE
On
March 16, 2020, the Company entered into a promissory note payable whereby the Company borrowed $
In
connection with the promissory note payable on March 16, 2020, the Company issued warrants to purchase
On
December 15, 2020, the debt holder agreed to convert the outstanding note payable of $
On
June 30, 2020, the Company entered into a loan agreement with Mont-Saic to borrow $
On
December 24, 2020, the Company entered into a promissory note with a third-party to borrow $
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 $
The
fair value of the derivative liability was $
| F-20 |
On
April 15, 2021, the Company entered into a $
The Note is collateralized by all business assets, including patents, trademarks and other intellectual property. It is also collateralized by the ownership of Slinger Bag Americas, Inc., Slinger Bag Canada, Inc., Slinger Bag Limited, and Slinger Bag International (UK) Limited.
In
connection with the Note, the Company issued
The Company evaluated the warrants and the profit guarantee under the guidance in ASC 815-40, Derivatives and Hedging, and determined they represent a derivative liability given the profit guarantee represents a make-whole provision that is not separated from the host instrument. The derivative liability 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.
The
fair value of the derivative liability on the date of the execution of the Note was valued using
a Black-Scholes option pricing model at $
Amortization
of debt discounts during the year ended April 30, 2021 was $
The
fair value of the derivative liability was $
NOTE 8: 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.
As
of April 30, 2021 and 2020, amounts due to related parties were $
The
Company has outstanding notes payable of $
The
Company recognized net sales of $
| F-21 |
NOTE 9: SHAREHOLDERS’ DEFICIT
Common Stock
The Company has shares of common stock authorized with a par value of $per share. As of April 30, 2021 and 2020, the Company had and shares of common stock issued and outstanding, respectively.
Equity Transactions During Year Ended April 30, 2020
On
March 2, 2020, the Company issued shares of common stock for the conversion of
an outstanding convertible note payable of $
The
purchase price of $
In connection with the Stock Purchase Agreement (see Note 1), net liabilities of $were forgiven by the previous majority shareholder of the Company, which was recorded as an increase to additional paid-in capital.
On March 16, 2020, the Company issued warrants valued at $in connection with a note payable (see Note 7), which increased additional paid-in capital.
Equity Transactions During Year Ended April 30, 2021
On May 6, 2020, the Company issued shares of its common stock to Mont-Saic as partial satisfaction of the shares issuable under a convertible note payable agreement.
On
May 15, 2020, the Company issued shares of its common stock to a vendor as compensation
for business advisory services performed, which resulted in $
On
September 4, 2020, the Company issued shares of its common stock for the conversion
of a convertible note payable (see Note 6). The fair value of the common stock was $
On
October 8, 2020, the Company issued shares of its common stock to a vendor as compensation
for business advisory services performed, which resulted in $
On
October 28, 2020, the Company granted warrants to a service provider for advertising
services over the next year. The warrants have an exercise price of $
On
October 29, 2020, the Company and the three members of its advisory board entered into agreements whereby each member will receive an
aggregate number of warrants each quarter equal to $divided by the average closing price of the Company’s
stock for the five days prior to the Company’s most recently completed fiscal quarter. The warrants vest quarterly, have an exercise
price of $
On
November 24, 2020 and on January 11, 2021, the Company issued and shares of its common stock, respectively, to
two vendors as compensation for marketing and other advisory services. The Company also issued shares of its common stock on November 24, 2020
to a third-party vendor as full settlement of payables of $
On
November 10, 2020, the Company issued shares of common stock as partial payment for
the purchase of the Slinger trademark. The common stock had a fair value of $
On
December 15, 2020, the Company issued shares of common stock as full payment of its
$
On
April 11, 2021, the Company issued shares of its common stock for the conversion
of a note payable (see Note 7). The fair value of the shares issued was $
On
April 11, 2021 and on April 13, 2021, the Company issued and shares of its common stock to two vendors as
compensation for marketing and advisory services, which resulted in an operating expense of $
During
the three months ended April 30, 2021, the Company granted an aggregate total of
| F-22 |
Common Stock Issuable
As
discussed in Note 6, on September 16, 2019, the Company entered into a warrant assignment and conveyance agreement with Mont-Saic, pursuant
to which the Company allows Mont-Saic to acquire
There were shares of common stock that were issuable under this agreement and as of April 30, 2020 none of the shares had been issued. As of April 30, 2021, shares have been issued and the remaining continue to be issuable to a related party.
Warrants Issued for Compensation
On
April 30, 2020, the Company granted an aggregate total of
On
February 9, 2021, the Company issued
NOTE 10: COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases office space under short-term leases with terms under a year. Total rent expense for the year ended April 30, 2021 and
2020 amounted to $
Contingencies
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.
| F-23 |
NOTE 11: 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 and the UK were immaterial for the years ended April 30, 2021 and 2020.
Net deferred tax assets from operations in the US, using an effective tax rate of 21%, consisted of the following:
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Loss carryforwards | $ | $ | ||||||
| Accrued payroll | ||||||||
| Related party accruals | ||||||||
| Start-up costs | ||||||||
| Other | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| 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, 2021 and 2020:
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Income tax benefit based on book loss at US statutory rate | $ | ( | ) | $ | ( | ) | ||
| Share-based compensation and shares for services | ||||||||
| Debt discount amortization | ||||||||
| Related party accruals | ||||||||
| Start-up costs | ||||||||
| Interest expense | ||||||||
| Meals and entertainment | ||||||||
| Loss on extinguishment of debt | ||||||||
| Accrued payroll | ||||||||
| Gain on change in fair value of derivatives | ( | |||||||
| Other | ||||||||
| Valuation allowance | ||||||||
| Total income tax provision | $ | $ | ||||||
The
Company had net operating loss carryforwards of $
Net deferred tax assets from operations in Israel, using an effective tax rate of 23%, consisted of the following:
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Loss carryforwards | $ | $ | ||||||
| Accrued expenses | ||||||||
| Start-up costs | ||||||||
| Research and development costs | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
| F-24 |
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, 2021 and 2020:
| April 30, | April 30, | |||||||
| 2021 | 2020 | |||||||
| Income tax provision (benefit) based on book income (loss) at Israeli statutory rate | $ | $ | ( | ) | ||||
| Debt discount amortization | ||||||||
| Related party accruals | ||||||||
| Travel expenses | ||||||||
| Research and development costs | ||||||||
| Other non-deductible items | ||||||||
| Start-up costs | ||||||||
| Valuation allowance | ||||||||
| Loss carryforward | ( | ) | ||||||
| Total income tax provision | $ | $ | ||||||
The
Company had net operating loss carryforwards of approximately $
The
Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. There were
NOTE 12: SUBSEQUENT EVENTS
On
May 26, 2021, the Company and the related party lender entered into a note conversion agreement whereby the related party lender agreed
to convert its total outstanding borrowings as of that date of $
On
June 21, 2021,
On
July 21, 2021, the Company entered into a Convertible Loan Agreement with PlaySight Interactive Ltd (the Borrower) wherein the Company
granted the Borrower a $
On
July 23, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $
On
August 2, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $
During the three months ended July 31, 2021, the Company issued shares of its common stock to one vendor and two employees as compensation for marketing and other services rendered.
During the three months ended July 31, 2021, the Company granted an aggregate total of shares of its common stock to six brand ambassadors as compensation for services.
| F-25 |
SLINGER BAG INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
JANUARY 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
| January 31, 2022 | April 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid inventory | ||||||||
| Loan and interest receivable | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Goodwill | - | |||||||
| Other intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and bonuses | ||||||||
| Deferred revenue | ||||||||
| Accrued interest - related party | ||||||||
| Notes payable - related party, net | ||||||||
| Convertible notes payable, net | - | |||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Note payable, net | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Shareholders’ deficit | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding as of January 31, 2022 (unaudited) and April 30, 2021, respectively; and shares issuable as of January 31, 2022 (unaudited) and April 30, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-26 |
SLINGER BAG INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| January 31, | January 31, | January 31, | January 31, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross income | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other expense (income): | ||||||||||||||||
| Amortization of debt discounts | ||||||||||||||||
| Loss on extinguishment of debt | - | |||||||||||||||
| Induced conversion loss | - | - | - | |||||||||||||
| Gain on change in fair value of derivatives | ( |
) | - | ( |
) | - | ||||||||||
| Loss on issuance of convertible notes | - | - | ||||||||||||||
| Interest expense - related party | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Total other expense (income) | ( |
) | ||||||||||||||
| Loss before income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other comprehensive gain (loss), net of tax | ||||||||||||||||
| Foreign currency translation adjustments | ( |
) | ( |
) | ( |
) | ||||||||||
| Total other comprehensive gain (loss), net of tax | ( |
) | ( |
) | ( |
) | ||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share, basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-27 |
SLINGER BAG INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-in | Comprehensive | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||
| Balance, April 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued related to note payable | ( |
) | - | - | - | |||||||||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, July 31, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued for conversion of convertible debt | - | - | ||||||||||||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Warrants issued related to notes payable – related party | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, October 31, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued in connection with purchase of trademark | - | - | ||||||||||||||||||||||
| Shares issued in connection with conversion of notes payable | - | - | ||||||||||||||||||||||
| Warrants issued related to notes payable – related party | - | - | - | - | ||||||||||||||||||||
| Warrants issued in connection with purchase of trademark | - | - | - | - | ||||||||||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, January 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued for conversion of notes payable – related party | - | - | ||||||||||||||||||||||
| Shares issued in connection with acquisition | - | - | ||||||||||||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, July 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares issued for conversion of warrants | ( |
) | - | - | ||||||||||||||||||||
| Shares issued for conversion of common shares issuable | - | - | - | |||||||||||||||||||||
| Elimination of related party derivative liabilities | - | - | - | - | ||||||||||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Share-based compensation | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, October 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Shares and warrants issued in connection with services | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| Balance, January 31, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-28 |
SLINGER BAG INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended | ||||||||
| January 31, | January 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization expense | ||||||||
| Gain on change in fair value of derivatives | ( |
) | ||||||
| Shares and warrants issued with services | ||||||||
| Share-based compensation | - | |||||||
| Loss on extinguishment of debt | ||||||||
| Induced conversion loss | ||||||||
| Amortization of debt discounts | ||||||||
| Loss on issuance of convertible notes | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( |
) | ( |
) | ||||
| Inventories, net | ( |
) | ( |
) | ||||
| Prepaid expenses and other current assets | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll and bonuses | ||||||||
| Deferred revenue | ( |
) | ( |
) | ||||
| Accrued interest - related party | ||||||||
| Net cash from operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of trademark | ( |
) | ||||||
| Note receivable issuance | ( |
) | ||||||
| Net cash from investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from convertible notes | - | |||||||
| Debt issuance costs from convertible notes | ( |
) | ||||||
| Proceeds from notes - related party | ||||||||
| Repayments of notes - related party | ( |
) | - | |||||
| Repayment of note payable | ( |
) | ||||||
| Proceeds from note payable | ||||||||
| Other financing activities | ||||||||
| Net cash from financing activities | ||||||||
| Effect of exchange rate | ( |
) | ( |
) | ||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beg of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Transfer of notes payable to notes payable - related party | ||||||||
| Transfer of convertible note payable to notes payable | ||||||||
| Shares issued for conversion of notes payable – related party | ||||||||
| Shares issued in connection with acquisition | ||||||||
| Shares and warrants issued in connection with purchase of trademark | ||||||||
| Elimination of related party derivative liabilities | ||||||||
| Derivative liabilities recorded as debt discounts of convertible notes | ||||||||
| Conversion of notes payable and accrued interest into common stock | ||||||||
| Warrants and shares issued with note payable | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| F-29 |
SLINGER BAG INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
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
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 at that time.
On
February 10, 2020, Slinger Bag Americas became the
On
June 21, 2021, Slinger Bag Americas entered into a membership interest purchase agreement with Charles Ruddy to acquire a
The operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Foundation Sports are collectively referred to as the “Company.”
The Company operates in the sporting and athletic goods business. The Company is the owner of the Slinger Launcher, which is a portable tennis ball launcher, as well as other associated tennis accessories.
Basis of Presentation
The accompanying unaudited condensed 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 Foundation Sports for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation.
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 $
| F-30 |
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 respect to additional financing, refer to Notes 5, 6, 7, and 12. 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. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods. For a more complete discussion of significant accounting policies and certain other information, you should refer to the financial statements included in Slinger Bag Inc.’s Annual Report on Form 10-K for the year ended April 30, 2021. These financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year.
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 have been reclassified in these consolidated financial statements to conform to current year presentation.
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 had a $
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 January 31, 2022 consisted of $
| F-31 |
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.
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.
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 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 three and nine months ended January 31, 2022:
| Note derivative is related to | January 31, 2022 ending balance | Gain (loss) for three months ended January 31, 2022 | Gain (loss) for nine months ended January 31, 2022 | |||||||||
| 4/11/21 conversion of 12/24/20 note payable | $ | $ | $ | ( | ) | |||||||
| 4/15/21 note payable | ( | ) | ||||||||||
| 5/26/21 conversion of notes payable – related party | ( | ) | ||||||||||
| 8/6/21 convertible notes | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | |||||
The Black-Scholes option pricing model assumptions for the derivative liabilities during the nine months ended January 31, 2022 and 2021 consisted of the following:
| 2022 | 2021 | |||||||
| Expected life in years | N/A | |||||||
| Stock price volatility | % | N/A | ||||||
| Risk free interest rate | % | N/A | ||||||
| Expected dividends | % | N/A | ||||||
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.
| F-32 |
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 goodwill impairment test is a two-step test. In the first 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 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 is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the goodwill impairment test in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. The activities in the second step include valuing the tangible and intangible assets and liabilities. If the implied fair value of goodwill is less than the carrying value, an impairment loss is recognized for the difference.
There
was
Intangible Assets
Intangible
assets relate to the “Slinger” technology trademark, which the Company purchased on November 10, 2020, as well as the intangible
assets related to the purchase of Foundation Sports on June 21, 2021 (see Note 4). The Slinger trademark is amortized over its expected
life 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. 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
The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Under the fair value recognition provisions of this topic, share-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 6: Convertible Notes Payable, Note 7: Note Payable and Note 10: Shareholders’ Equity.
The warrants granted during the nine months ended January 31, 2022 and 2021 were valued using a Black-Scholes option pricing model on the date of grant using the following assumptions:
| 2022 | 2021 | |||||||
| Expected life in years | ||||||||
| Stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividends | % | % | ||||||
Foreign Currency Translation
A portion of SBL’s operations are conducted in Israel and its functional currency is the Israeli Shekel, the Company’s operations of Slinger Bag Canada are conducted in its functional currency of Canadian Dollars, and the Company’s Slinger Bag UK operations are conducted in its functional currency of the British pound (“GBP”). The accounts of SBL, Slinger Bag Canada, and Slinger Bag UK have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable exchange rates at period-end. Shareholders’ equity is translated using historical exchange rates. Revenue and expenses are translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation adjustments on the consolidated statements of operations and comprehensive loss.
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.
The Company had and common shares issuable as of January 31, 2022 and 2021, which were not included in the calculation of diluted earnings per share as the effect is antidilutive. The Company also had outstanding convertible notes payable that were convertible into and shares of common stock as of January 31, 2022 and 2021, respectively, outstanding warrants exercisable into and shares of common stock as of January 31, 2022 and 2021, respectively, and and shares related to make-whole provisions as of January 31, 2022 and 2021, respectively, which 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.
| F-33 |
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes (“ASC 740”). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
Other recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
NOTE 4: ACQUISITIONS
The Company allocated the aggregate purchase price for the acquisition based upon the tangible and intangible assets acquired, net of liabilities. The allocation of the purchase price is detailed below:
| Allocation
of purchase price |
||||
| Trade name | $ | |||
| Internally developed software | ||||
| Customer relationships | ||||
| Goodwill | ||||
| Total purchase price | $ | |||
The
trade name, internally developed software, and customer relationships will be amortized over their expected lives of
NOTE 5: NOTES PAYABLE – RELATED PARTY
Beginning
in October 2019, the Company entered into several loan agreements with a related party entity controlled by the former shareholder of
Slinger Bag Canada. Total outstanding borrowings from this related party as of April 30, 2021 amounted to $,
which was gross of total discounts of $
| Note date | Maturity date | Interest rate | April 30, 2021 | |||||||
| % | $ | |||||||||
| % | ||||||||||
| % | ||||||||||
| % | ||||||||||
| % | ||||||||||
| Total notes payable | $ | |||||||||
On
May 26, 2021, the Company and the related party lender entered into a note conversion agreement (the “Note Conversion Agreement”)
whereby the related party lender agreed to convert its total outstanding borrowings as of that date of $
The Company evaluated the conversion option of the notes payable to shares under the guidance in ASC 815, Derivatives and Hedging (“ASC 815”), and determined the conversion option qualified for equity classification. The Company also evaluated the profit guarantee under ASC 815 and determined it to be a make-whole provision, which is an embedded derivative within the host instrument. As the economic characteristics of the make-whole provision 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 $
| F-34 |
Per
the terms of the Note Conversion Agreement the accrued interest related to the notes payable was not converted into shares and is still
due to the related party. The Company and the related party agreed that interest will continue to accrue on the outstanding accrued interest
at a rate of
On
July 23, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $
On
August 4, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $
On
August 11, 2021, the Company repaid the outstanding principal and interest to its related party lender for the July 23, 2021 loan of
$
On
August 31, 2021, the Company’s related party lender cancelled the guarantee in the Note Conversion Agreement that the aggregate
gross sales of its converted shares will be no less than $
On
January 14, 2022, the Company entered into two loan agreements with Yonah Kalfa and Naftali Kalfa, each for $
There
was $
NOTE 6: CONVERTIBLE NOTES PAYABLE
On
August 6, 2021, the Company consummated the closing (the “Closing”) of a private placement offering (the “Offering”)
pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of August 6, 2021 (the “Purchase Agreement”),
between the Company and certain accredited investors (the “Purchasers”). At the Closing, the Company sold to the Purchasers
(i)
| F-35 |
The
Convertible Notes mature on
The
Warrants are exercisable for
The Company evaluated the Warrants and the conversion options under the guidance in ASC 815 and determined they represent derivative liabilities given the variability in the exercise and conversion prices upon the event of an up list to the NASDAQ. The Company also evaluated the other embedded features in the agreement and determined the interest make-whole provision and the subsequent financing redemption represent put features that are also accounted for as derivative liabilities. The derivative liabilities are 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 (see Note 3).
The
Warrants were valued at $
As
part of the issuance of the Convertible Notes, the Company incurred and capitalized debt issuance costs of $
The Purchase Agreement was amended to, among other things, (i) delete Exhibit A and replace it in its entirety with the 8% Senior Convertible Note (the “Replacement Note”) filed as Exhibit 10.2 to the Company’s current report on Form 8-K dated January 5, 2021, (ii) add a new definition of “Inventory Financing”, (iii) amend Section 4.18 to add at the end of Section 4.18 before the final period “, it being agreed that the provisions of this Section 4.18 shall not apply to the Qualified Subsequent Financing expected to occur after the date hereof”, (iv) delete Section 4.20 and replace it in its entirety with substantially the same text, including the following after the period, replacing the period with a semicolon: “; provided that the provisions of this Section 4.20 shall not apply to (i) in respect of any Holder to the extent that such Holder is an investor or a purchaser of the securities offered pursuant such Subsequent Financing, and (ii) with respect to an Inventory Financing.”, and (v) add a new Section 4.21. Most-Favored Nation provision.
The Registration Rights Agreement was amended to, among other things, (i) delete the definition “Effectiveness Date” in Section 1 and replace it in its entirety with substantially the same text but revise the definition of “Effectiveness Date” causing the Initial Registration Statement required to be filed by January 31, 2022, and (ii) delete Section 2(d) and replace it in its entirety with substantially the same text but revised to delete the following “(2) no liquidated damages shall accrue or be payable hereunder with respect to any day on which the high price of the Common Stock on the Trading Market on which the Common Stock is then listed or traded is less than the then-applicable Conversion Price,” resulting in renumbering the text that follows as (2) instead of (3).
As
consideration for entering into the Omnibus Agreement, the outstanding principal balance of the Existing Note held by each Purchaser
was increased by twenty percent (
The
fair value of the derivative liability related to the Convertible Notes was $
Total
outstanding borrowings related to the Convertible Notes as of January 31, 2022 were $
| F-36 |
NOTE 7: NOTE PAYABLE
On
April 15, 2021, the Company entered into a $
The Note is collateralized by all business assets, including patents, trademarks and other intellectual property. It is also collateralized by the ownership of Slinger Bag Americas, Slinger Bag Canada, SBL, and Slinger Bag UK.
In
connection with the Note, the Company issued
The Company evaluated the warrants and the profit guarantee under the guidance in ASC 815 and determined they represent a derivative liability given the profit guarantee represents a make-whole provision that is not separated from the host instrument. The derivative liability 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 (see Note 3).
On August 6, 2021, the Company used the net proceeds from the issuance of the Convertible Notes (see Note 6) to pay 100% of the outstanding principal and accrued interest of the Note.
Amortization
of the debt discount related to the Note during the three and nine months ended January 31, 2022 was $
On
August 6, 2021, the Note payable holder exercised its right to convert its
There
were
NOTE 8: NOTE RECEIVABLE
On
July 21, 2021, the Company entered into a Convertible Loan Agreement with PlaySight Interactive Ltd (the “Borrower”) wherein
the Company granted the Borrower a line of credit with a six-month maturity date. Any borrowings under the line of credit bear interest
at a rate of
On
July 26, 2021, the Company issued $
As
of January 31, 2022, the total note receivable balance was $
| F-37 |
NOTE 9: 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.
Amounts
due to related parties were $
The
Company had outstanding notes payable of $
The
Company recognized net sales of $
NOTE 10: SHAREHOLDERS’ EQUITY
Common Stock Transactions During the Nine Months Ended January 31, 2022
On
May 26, 2021, the Company issued shares of its common stock for the conversion of related party notes payable (see Note 5).
The fair value of the common stock was $
On
June 23, 2021, the Company issued shares of its common stock as partial consideration for the acquisition of Foundation Sports
(see Note 4). The fair value of the total shares of common stock to be issued related to the acquisition was $
On July 6, 2021, the Company issued shares of its common stock to two employees as compensation for services rendered in lieu of cash, which resulted in $ in share-based compensation expense during the three months ended July 31, 2021.
On July 11, 2021, the Company issued shares of its common stock to a vendor as compensation for marketing and other services rendered, which resulted in $ of operating expenses during the three months ended July 31, 2021.
During the three months ended July 31, 2021, the Company granted an aggregate total of shares of its common stock and equity options to purchase up to shares (which are now expired) to six new brand ambassadors as compensation for services. The expense related to the issuance of the shares and equity options is being recognized over the service agreements, similar to the warrants and equity options issued to the four other brand ambassadors in the prior year. During the three and nine months ended January 31, 2022, the Company recognized $ and $ of operating expenses related to the shares, warrants and equity options granted to brand ambassadors.
On
August 6, 2021, the Note payable holder (see Note 7) exercised its right to convert its
On
August 6, 2021, the Company’s related party lender exercised its right to convert its
On October 11, 2021, the Company issued shares of its common stock to a vendor as compensation for marketing and other services rendered, which resulted in $ of operating expenses during the three months ended October 31, 2021.
On January 11, 2022, the Company issued shares of its common stock to a vendor as compensation for marketing and other services rendered, which resulted in $ of operating expenses during the three months ended January 31, 2022.
| F-38 |
Warrants Issued During the Nine Months Ended January 31, 2022
On
October 28, 2020, the Company granted warrants to a service provider for advertising services over the next year. The
warrants have an exercise price of $
On
October 29, 2020, the Company and the three members of its advisory board entered into agreements whereby each member will receive an
aggregate number of warrants each quarter equal to $ divided by the average closing price of the Company’s stock for
the five days prior to the Company’s most recently completed fiscal quarter. The warrants vest quarterly, have an exercise price
of $
On August 6, 2021, in connection with the Convertible Notes issuance (see Note 6) the Company issued warrants to purchase up to shares of common stock of the Company to the Purchasers.
On
August 6, 2021, in connection with the Convertible Notes issuance the Company also granted the lead placement agent for the Offering
On
September 3, 2021, the Company granted an aggregate total of warrants to key employees and officers of the
Company as compensation. The warrants have an exercise price of $
| F-39 |
NOTE 11: COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases its office space under short-term leases with terms under a year. Total rent expense for the three months ended January
31, 2022 and 2021 amounted to $
Contingencies
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.
NOTE 12: SUBSEQUENT EVENTS
On
February 2, 2022, Slinger Bag Australia Pty Ltd., a wholly-owned subsidiary of Slinger Bag Americas Inc. (which, in turn, is a wholly-owned
subsidiary of Slinger Bag Inc.) completed the acquisition of
Out of the Consideration Shares, the Company has retained shares as security for the obligations of Mr. Shaik and Divyaa Jalal, as trustees for the Jalaluddin Shaik Family Trust, in respect of any claim which may be made by or on behalf of the Company for breach of warranty or under an indemnity given under the terms of the Share Purchase Agreements by August 2, 2023. The retained shares will be issued promptly after August 2, 2023 to the extent that the Company has not made any such claims by that date.
On October 6, 2021, the Company entered into a merger agreement (the “PlaySight Agreement”) with PlaySight Interactive Ltd. (“PlaySight”) and Rohit Krishnan, in his capacity as the Shareholders’ Representative (as defined in the PlaySight Agreement) (the “Shareholder Representative”), pursuant to which PlaySight will, subject to the satisfaction or waiver of certain closing conditions, become a wholly owned subsidiary of the Company. On February 16, 2022, SB Merger Sub Ltd., a private company formed under the laws of the State of Israel and a wholly owned subsidiary of the Company, PlaySight, and the Shareholders’ Representative, entered into an Addendum to and Amendment to the PlaySight Agreement (the “Amendment”) to finalize the merger transaction.
Under
the terms of the PlaySight Agreement, the Company agreed, among other things, to issue shares of the Company’s common
stock (subject to adjustment) in exchange for the merger (the “Completion Merger Consideration”). As a result of the parties
to the Agreement having agreed to such adjustment, the parties to the Amendment have agreed that the Completion Merger Consideration
shall comprise the issue by the Company of
Pursuant
to and in accordance with the terms of the Amendment, the Company agreed to purchase a certain number of shares of its common stock from
certain of PlaySight’s shareholders for a maximum aggregate liability of $
| F-40 |
In connection with the closing of the merger, the Convertible Loan Agreement between the Company and PlaySight that was entered into on July 21, 2021, was extinguished.
On
February 15, 2022, for and in consideration of $
| a) | On
or before March 15, 2022, the Company shall pay to Consignor $ for the purchase of
| |
| b) | The Company also agreed to purchase the remaining Consigned Goods in accordance with the following terms and conditions: |
| i. | Within
3 business days after a Registration Statement (as defined in the Purchase and Registration
Rights Agreements) filed under the Registration Rights Agreement for the Company’s
uplist to the Nasdaq is declared to be effective (the “Registration Effective Date”)
under the Securities Act (as defined in the Purchase and Registration Rights Agreements)
by the Commission (as defined in the Purchase and Registration Rights Agreements), the Company
shall pay Consignor $ | |
| ii. | If
the Registration Statement Effectiveness Date does not occur on or before April 14, 2022,
on April 15, 2022, the Company shall pay Consignor $ | |
| iii. | If
the Registration Effectiveness Date does not occur on or before April 30, 2022, on May 1,
2022, the Company shall pay Consignor $ |
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. We are monitoring any broader economic impact from the current crisis. 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.
| F-41 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2020
U.S. DOLLARS IN THOUSAND
INDEX
| F-42 |
 |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel |
Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
We have audited the accompanying consolidated financial statements of PlaySight Interactive Ltd. and its subsidiary, which comprise the consolidated balance sheets as of December 31, 2020 and 2019 and the related consolidated statements of operation, Convertible Preferred Shares and Shareholders’ Deficit and cash flows for the years then ended, and the related notes to the consolidated financial statements.
| KOST FORER GABBAY & KASIERER |
| A Member of Ernst & Young Global |
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PlaySight Interactive Ltd. and its subsidiary at December 31, 2020 and 2019, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the consolidated financial statements, the Company has recurring operating losses, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters also are described in Note 1(b). The most recent year consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
| /s/ Kost Forer Gabbay & Kasierer | |
| A Member of Ernst & Young Global | |
| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
| December 15, 2021 | A Member of Ernst & Young Global |
| F-43 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,251 | $ | 6,007 | ||||
| Restricted cash | 155 | 59 | ||||||
| Account receivables, net | 176 | 165 | ||||||
| Prepaid expenses and other accounts receivable | 188 | 200 | ||||||
| Inventories | 496 | 603 | ||||||
| Deferred contract acquisition cost, current | 384 | 375 | ||||||
| Total current assets | 2,650 | 7,409 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Long-term lease deposits | - | 19 | ||||||
| Property and equipment, net | 125 | 62 | ||||||
| Operating lease right-of-use assets | 571 | 54 | ||||||
| Deferred contract acquisition cost, noncurrent | 313 | 566 | ||||||
| Finished products used in operations, net | 5,109 | 5,171 | ||||||
| Total non-current assets | 6,118 | 5,872 | ||||||
| Total assets | $ | 8,768 | $ | 13,281 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-44 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 699 | $ | 799 | ||||
| Employees and payroll accruals | 1,026 | 992 | ||||||
| Accrued expenses and other liabilities | 626 | 260 | ||||||
| Deferred revenues, current portion | 2,018 | 2,211 | ||||||
| Short-term operating lease liability | 287 | 41 | ||||||
| Long-term loan from shareholders, current portion | 222 | 42 | ||||||
| Total current liabilities | 4,878 | 4,345 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Convertible loans | 18,431 | 13,811 | ||||||
| Long-term deferred revenues | 1,286 | 1,671 | ||||||
| Long-term loan from shareholders | 1,129 | 1,351 | ||||||
| Long-term operating lease liability | 306 | 11 | ||||||
| Total non-current liabilities | 21,152 | 16,844 | ||||||
| Convertible Seed Investors Preferred shares of NIS 0.01 par value - Authorized, issued and outstanding: 68,711 shares at December 31, 2020 and 2019; aggregate liquidation preference of $507 and $476 as of December 31, 2020 and 2019, respectively | 297 | 297 | ||||||
| Convertible Preferred shares of NIS 0.01 par value - Authorized: 1,619,534 shares at December 31, 2020 and 2019; Issued and outstanding: 1,520,744 shares at December 31, 2020 and 2019; aggregate liquidation preference of $38,845 and $36,474 as of December 31, 2020 and 2019, respectively | 30,464 | 30,464 | ||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Ordinary shares of NIS 0.01 par value: | ||||||||
| Authorized: 2,811,755 shares at December 31, 2020 and 2019; Issued and outstanding: 338,038 and 329,449 shares at December 31, 2020 and 2019, respectively | 1 | 1 | ||||||
| Additional paid-in capital | 580 | 545 | ||||||
| Accumulated deficit | (48,604 | ) | (39,215 | ) | ||||
| Total shareholders’ deficit | (48,023 | ) | (38,669 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 8,768 | $ | 13,281 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-45 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands
Year ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 5,343 | $ | 4,133 | ||||
| Cost of revenues | 3,574 | 3,484 | ||||||
| Gross profit | 1,769 | 649 | ||||||
| Operating expenses: | ||||||||
| Research and development | 2,376 | 2,719 | ||||||
| Sales and marketing | 2,416 | 3,277 | ||||||
| General and administrative | 1,283 | 1,273 | ||||||
| Total operating expenses | 6,075 | 7,269 | ||||||
| Operating loss | 4,306 | 6,620 | ||||||
| Financial expense, net | 5,083 | 1,035 | ||||||
| Net loss | $ | 9,389 | $ | 7,655 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-46 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT
U.S. dollars in thousands, except share and per share data
Seed Investors Preferred shares | Preferred shares | Ordinary shares | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | deficit | ||||||||||||||||||||||||||||
| Balance as of January 1, 2019 | 68,711 | 297 | 1,417,386 | 28,014 | 322,449 | 1 | 510 | (31,560 | ) | (31,049 | ) | |||||||||||||||||||||||||
| Issuance of Preferred C-1 shares, net | - | - | 103,358 | 2,450 | - | - | - | - | - | |||||||||||||||||||||||||||
| Exercise of options granted to employees | - | - | - | - | 7,000 | *)- | - | - | *)- | |||||||||||||||||||||||||||
| Share based compensation expenses | - | - | - | - | - | - | 35 | - | 35 | |||||||||||||||||||||||||||
| Net loss | (7,655 | ) | (7,655 | ) | ||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 68,711 | 297 | 1,520,744 | 30,464 | 329,449 | 1 | 545 | (39,215 | ) | (38,669 | ) | |||||||||||||||||||||||||
| Exercise of options granted to employees and consultants | - | - | - | - | 8,587 | *)- | 6 | - | 6 | |||||||||||||||||||||||||||
| Share based compensation expenses | - | - | - | - | - | - | 29 | - | 29 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (9,389 | ) | (9,389 | ) | ||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 68,711 | $ | 297 | 1,520,744 | $ | 30,464 | 338,036 | $ | 1 | $ | 580 | $ | (48,604 | ) | $ | (48,023 | ) | |||||||||||||||||||
| *) | Represents less than $1. |
The accompanying notes are an integral part of the consolidated financial statements.
| F-47 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (9,389 | ) | $ | (7,655 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 26 | 25 | ||||||
| Write-off of property and equipment | 21 | - | ||||||
| Share based compensation expenses | 29 | 35 | ||||||
| Interest related to shareholder’s loan | 509 | 364 | ||||||
| Changes in convertible loans’ fair market value | 4,470 | 167 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivables | (11 | ) | 290 | |||||
| Decrease (increase) finished products used in operations | 62 | (1,421 | ) | |||||
| Decrease (increase) in prepaid expenses and other accounts receivable and long-term lease deposits | 10 | 291 | ||||||
| Decrease (increase) in inventories | 107 | (31 | ) | |||||
| Decrease in operating lease ROU assets | 249 | 67 | ||||||
| Decrease (increase) in deferred contract acquisition costs | 244 | (9 | ) | |||||
| Increase (decrease) in accounts payables | (100 | ) | 291 | |||||
| Increase in employees and payroll accruals | 34 | 73 | ||||||
| Decrease in deferred revenues | (578 | ) | (25 | ) | ||||
| Increase in accrued expenses and other liabilities | 366 | 12 | ||||||
| Decrease in operating lease liabilities | (204 | ) | (62 | ) | ||||
| Net cash used in operating activities | (4,155 | ) | (7,588 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (110 | ) | (18 | ) | ||||
| Net cash used in investing activities | (110 | ) | (18 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of Preferred C-1 shares, net | - | 2,450 | ||||||
| Proceeds from exercise of options | 6 | - | ||||||
| Proceeds from Convertible loans and shareholders’ bridge loans, net | 150 | 7,729 | ||||||
| Proceeds from loan from shareholders, net | - | 1,337 | ||||||
| Repayment of loan from shareholders | (551 | ) | (308 | ) | ||||
| Net cash provided by (used in) financing activities | (395 | ) | 11,208 | |||||
| Increase (decrease) in cash and restricted cash | (4,660 | ) | 3,602 | |||||
| Cash, cash equivalents and restricted cash at the beginning of the year | 6,066 | 2,464 | ||||||
| Cash, cash equivalents and restricted cash at the end of the year | $ | 1,406 | $ | 6,066 | ||||
| Supplemental disclosure of cash financing transactions: | ||||||||
| Interest payments relating to Convertible loans and loan from shareholder | $ | 616 | $ | 762 | ||||
| Supplemental disclosure of non-cash financing transactions: | ||||||||
| ROU assets and lease liabilities created during the period | $ | 766 | $ | 120 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
| F-48 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 1:- | GENERAL |
| a. | PlaySight Interactive Ltd. (the “Company”) was incorporated in Israel in May 2010 under the laws of the state of Israel and commenced its operations on the same date. | |
| The Company engaged in developing, manufacturing and selling of advanced video and analytics technologies for sports courts around the world. | ||
| In March 2014, the Company established a wholly-owned subsidiary in the United States under the name of PlaySight Interactive USA Inc. (the “U.S. Subsidiary”), which is engaged primarily in customer support and marketing the Company’s service. | ||
| b. | The Company’s ability to continue to operate is dependent on the ability to market and sell its products, development of new products and raise additional financing until profitability is achieved. In respect of additional financing, see notes 6, 7 and 8. The Company incurred losses in the amount of $9,389 during the year ended December 31, 2020 and has an accumulated deficit of $48,604 as of December 31, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue to operate as a going concern. 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. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all. |
| F-49 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).
| a. | Use of estimates: | |
| The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP and requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated customer life on deferred contract acquisition costs, the allowance for doubtful accounts, the fair value of financial assets and liabilities, the useful life of acquired property and equipment and impairment of long-lived assets, share-based compensation including the determination of the fair value of the Company’s ordinary shares, convertible loans, and the valuation of deferred tax assets and uncertain tax positions. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. |
Management believes the Company’s critical accounting policies and estimates are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| b. | Financial statements in U.S. dollars: |
The accompanying consolidated financial statements have been prepared in dollars.
The majority of the Company’s revenues and financing activities are incurred in U.S. dollars. Although a portion of the Company’s expenses is denominated in New Israeli Shekels (“NIS”)(mainly cost of personnel), a portion of its expenses is denominated in dollars. Accordingly, the Company’s management believes that the currency of the primary economic environment in which the Company and its subsidiary operate is the dollar; thus, the dollar is the functional currency of the Company. Transactions and balances denominated in dollars are presented at their original amounts. Monetary accounts denominated in currencies other than the dollar are re-measured into dollars in accordance with Accounting Standard Codification (“ASC”) 830, “Foreign Currency Matters”. All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.
| c. | Principles of consolidation: |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated upon consolidation.
| F-50 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| d. | Cash and cash equivalents: |
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less.
The following table provides a reconciliation of the cash balances reported on the balance sheets and the cash and restricted cash at the end of the year balances reported in the statements of cash flows:
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Cash as reported on the balance sheets | 1,251 | 6,007 | ||||||
| Restricted cash as reported on the balance sheets | 155 | 59 | ||||||
| Cash and restricted cash in the statements of cash flows | 1,406 | 6,066 | ||||||
| e. | Restricted cash: |
Restricted cash is restricted bank deposits with maturities of up to one year and are pledged in favor of the bank as a security for the bank guaranties issued to the landlords of the Company’s offices and credit card payments. The short-term restricted bank deposits are denominated in NIS and USD and bear interest at an average rate of 0.01% as of December 31, 2020 and 2019. The short-term restricted bank deposits are presented at their cost, including accrued interest.
| f. | Account receivables and allowance for doubtful accounts: |
The Company’s account receivables are derived from sales to customers. The Company performs ongoing credit evaluations of its customers’ balances and establishes an allowance for doubtful accounts based on factors that may affect a customers’ ability to pay, such as known disputes, age of the receivable balance and past experience. Allowance for doubtful accounts amounted to $221 and $96 as of December 31, 2020 and 2019, respectively. The Company writes off receivables when they are deemed uncollectible, having exhausted all collection efforts.
| F-51 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| g. | Inventories: |
Inventories are stated at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory write-down is measured as the difference between the cost of the inventory and net realizable value upon assumptions about future demand and is charged to the cost of sales.
Cost of inventories is determined as follows:
Raw Materials - cost is determined on the actual cost on a weighted average basis.
Finished products- cost is determined on the actual costs on a weighted average basis.
No inventory write-offs were recorded for the years ended December 31, 2020 and 2019, respectively.
| h. | Property and equipment: |
Property and equipment are measured at cost, net of accumulated depreciation. Depreciation is calculated via the straight-line method over the estimated useful life. The following are the annual depreciation rates for various types of property and equipment:
| % | Mainly % | |||||||
| Computers and software | 33 | - | ||||||
| Office furniture and equipment | 7 - 15 | 15 | ||||||
| Leasehold improvements | 6.5 | - | ||||||
| i. | Impairment of long-lived assets: |
The long-lived assets of the Company are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2020, and 2019, no impairment indicators have been identified.
| F-52 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| j. | Revenue recognition: |
The Company offers its customers a cloud-based solution combining Products, including video cameras, laptops, other related equipment and a proprietary back-end cloud platform software, and Services including integration services, support services and access to the Company’s website and applications. These together create an integrated system that provides the Company’s customers with services such as live streaming, automated broadcasting, VOD, ball and event tracking etc. (the “Solution”).
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 that provides them with the Solution. 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 pre-determined fixed amounts, variable amounts, or both. The Company’s contracts do not include any rights of returns or refunds.
| F-53 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| j. | Revenue recognition (cont.): |
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).
| k. | Deferred Revenue: |
Deferred revenues include unearned amounts received from customer but not recognized as revenues.
| l. | Finished products used in operations, net: |
The Company evaluates whether or not it should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered. As of December 31, 2020, and December 31, 2019, there was approximately $5,109 and $5,171, respectively, of finished products used in operations, which are presented in the accompanying consolidated balance sheets within non-current assets. These costs primarily relate to the satisfaction of performance obligations related to providing the Solution to customers and are comprised of the cost of the finished products and installation costs, where applicable. These costs are amortized to cost of goods on a straight-line basis over the contract period which is generally over a period of 4 years.
| F-54 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| m. | Deferred contract acquisition cost: |
The Company’s incremental direct costs of obtaining a contract, which consist primarily of sales commissions, are generally deferred and amortized to sales and marketing expense over the estimated life of the relevant customer relationship of approximately 4 years and are subject to being monitored every period to reflect any significant change in assumptions. In addition, the deferred contract cost asset is assessed for impairment on a periodic basis.
| Year Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Beginning balance | $ | 941 | $ | 932 | ||||
| Additions to deferred acquisition costs | 152 | 366 | ||||||
| Amortization of deferred contract acquisition costs | (396 | ) | (357 | ) | ||||
| Ending balance | $ | 697 | $ | 941 | ||||
| Deferred contract acquisition costs included in other current assets | $ | 384 | $ | 375 | ||||
| Deferred contract acquisition costs, noncurrent | 313 | 566 | ||||||
| Total deferred contract acquisition costs | $ | 697 | $ | 941 | ||||
| n. | Concentration of credit risks: |
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, restricted cash and accounts receivable.
Cash and restricted cash are primarily invested in major banks in Israel and the USA. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
Credit risk with respect to the Company’s account receivables is limited due to the number of customers comprising the Company’s customer base. The Company considers its account receivables to be of good credit quality as a large portion of its customers are long- standing reputable sports and education facilities and the Company has not experienced any significant write-offs of accounts receivable in the past. The Company does not require collateral or other securities to support its accounts receivable.
The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
| F-55 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| o. | Income taxes: |
The Company and its subsidiary account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). This codification prescribes the use of the “asset and liability” method, whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. As of December 31, 2020, and 2019, no liability for unrecognized tax benefits was recorded as a result of the implementation of ASC 740.
| p. | Research and development expenses, net: |
Research and development expenses are charged to the statement of operations as incurred. Royalty bearing grants from the Israeli Innovation Authority, for funding research and development activities are recognized at the time the Company is entitled to such grants on the basis of the related cost incurred. Research and development expenses are included in the financial statements net of related grants.
| F-56 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| q. | Share-based compensation: |
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”, which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. Share-based compensation expense related to share awards is recognized based on the fair value of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary shares, the expected term of the option, the expected volatility of the price of the Company’s ordinary shares, risk-free interest rates, and the expected dividend yield of ordinary shares. The assumptions used to determine the fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. The related share-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, including awards with graded vesting and no additional conditions for vesting other than service conditions. Forfeitures are accounted for as they occur.
| r. | Fair value of financial instruments: |
The Company applies ASC 820 “Fair Value Measurement Disclosures” (“ASC 820”). Under this standard, fair value is defined as the price that would be received to sell as asset or paid liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the Company. Unobservable inputs are in puts that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
| F-57 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| s. | Fair value of financial instruments (cont.): |
The hierarchy is broken down into three levels based on the inputs as follows:
| Level 1 - | Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. | |
| Level 2 - | Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. | |
| Level 3 - | Valuations based on the inputs that are unobservable and significant to the overall fair value measurement. |
The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment, and the investments are categorized as Level 3.
The carrying amounts of cash and cash equivalents, restricted cash, account receivables, net, other accounts receivable and prepaid expenses, account payables, other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Some of the inputs in these models are unobservable in the market and are significant. The Company measured its Convertible loans using Level 3 inputs (see Note 6).
| t. | Severance pay: |
The Company’s employees have been signed on Section 14 of Israel’s Severance Compensation Law, 1963 (“Section 14”). Pursuant to Section 14, the Company’s employees, covered by this section, are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made on their behalf by the Company. Payments in accordance with Section 14 release the Company from any future severance liabilities in respect of those employees. Neither severance pay liability nor severance pay fund under Section 14 are recorded in the Company’s balance sheets.
| F-58 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| u. | Legal and other contingencies: |
The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies”. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2020, and 2019, the Company is not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| v. | Leases: |
Lessee accounting:
On January1, 2019, the Company adopted ASU No. 2016-02, “Leases” (“ASC 842”). The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use (“ROU”) asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases is generally not determinable; therefore, the Company uses the Incremental Borrowing Rate(“IBR”) based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.
The lease includes options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option.
| F-59 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| w. | Recently accounting pronouncements not yet adopted by the Company: |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the effect that ASU 2020-06 will have on its consolidated financial statements and related disclosures.
| F-60 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 3:- | PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE |
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Prepaid expenses | $ | 48 | $ | 61 | ||||
| Government authorities | 88 | 99 | ||||||
| Other receivables | 52 | 40 | ||||||
| $ | 188 | $ | 200 | |||||
| NOTE 4:- | PROPERTY AND EQUIPMENT, NET |
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cost: | ||||||||
| Computers and software | $ | 59 | $ | 111 | ||||
| Office furniture and equipment | 89 | 67 | ||||||
| Leasehold improvements | 41 | 4 | ||||||
| 189 | 182 | |||||||
| Accumulated depreciation: | ||||||||
| Computers and software | 40 | 94 | ||||||
| Office furniture and equipment | 21 | 26 | ||||||
| Leasehold improvements | 3 | *)- | ||||||
| 64 | 120 | |||||||
| Depreciated cost | $ | 125 | $ | 62 | ||||
| *) | Represents less than $1. |
Depreciation expenses for the years ended December 31, 2020 and 2019 were $26 and $25, respectively. Disposals of property and equipment, net for the year ended December 31, 2020 and 2019 were $21 and $0, respectively.
| NOTE 5:- | ACCOUNTS PAYABLE |
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Trade payables | $ | 350 | $ | 428 | ||||
| Notes payable | 305 | 356 | ||||||
| Other payables | 44 | 15 | ||||||
| $ | 699 | $ | 799 | |||||
| F-61 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 6:- | CONVERTIBLE LOANS |
| a. | From February through August 2018, the Company received convertible bridge loans from new and existing investors in the aggregate principal amount of $5,875 (net of issuance cost of $125 and of which $2,000 were converted on April 15, 2018 from bridge loans). The convertible bridge loans bear an annual interest of 8% paid monthly and the principal amount will be repaid at the earliest of 24 months or at the occurrence of certain events as stipulated in the convertible bridge loan agreements. The convertible bridge loans are convertible into shares at a conversion price which reflects up to a 25% discount from the price per share which will be determined in future financing and in accordance with the mechanism determined in the agreement. During July 2019, two investors owning a principal amount of $2,500 approved that their monthly interest will be accrued at the same annual interest rate and not paid in case. During April 2020, two investors owning a principal amount of $3,000 approved that their monthly interest will be accrued at the same annual interest rate and not paid in case. | |
| From September through January 2020, the Company received convertible bridge loans from new and existing investors in the aggregate principal amount of $7,889 (net of issuance cost of $11). The convertible bridge loans bear an annual interest of 8% accrued monthly which together with the principal amount will be repaid at the earliest of 24 months or at the occurrence of certain events as stipulated in the convertible bridge loan agreements. The convertible bridge loans are convertible into shares at a conversion price which is the lower of (i) a 25% discount from the price per share which will be determined in future financing and (ii) the price per share on a fully-dilutive basis representing a Company valuation of $60,210. | ||
| The conversion features in the convertible loans are considered embedded derivatives which needs to be bifurcated from the host instrument in accordance with ASC 815 Derivative and Hedging: Embedded Derivatives (“ASC 815-15”), the Company has elected to account for the convertible bridge loans at fair value. ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The Company elected to measure each bridge loan in its entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date in accordance with ASC 815-15-25. The Company determined the fair value of the bridge loans using an Option Pricing Model (“OPM”), therefore they are categorized as Level 3 in accordance with ASC 820. |
| F-62 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 6:- | CONVERTIBLE LOANS (Cont.): |
The fair value of each loan was estimated at each balance sheet date using the following assumptions:
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Volatility (%) | 47.77 | % | 51.90 | % | ||||
| Risk-free interest rate (%) | 0.10 | % | 0.86 | % | ||||
| Dividend yield (%) | 0 | % | 0 | % | ||||
| Expected term (years) | 1.16 | 2.16 | ||||||
The following is a roll forward of the fair values:
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Fair value at the beginning of the year | $ | 13,811 | $ | 5,915 | ||||
| Fair value balance on issue date | 150 | 7,729 | ||||||
| Change in fair value reported in statement of operations | 4,470 | 167 | ||||||
| Fair value at the end of the year | $ | 18,431 | $ | 13,811 | ||||
| NOTE 7:- | LOAN FROM SHAREHOLDERS |
During 2019, the Company received a loan from one of its shareholders in the total amount of $3,250. The loan is bearing no interest and is payable in equal 60 monthly installments. The Company agreed to pledge all of its assets, including intellectual property in favor of the lender. In addition, the Company issued to the shareholder new shares of Preferred C-1 shares par value of NIS 0.01 each. The Company recorded the loan at inception based on the relative fair market value at $1,337 (see Note 8 below). During April 2020, the Company amended the terms of the loan such that several installments were deferred and amortized over the remaining life of the loan. Pursuant to ASC 470-50, the Company reassessed the revised term of the loan and determined it is not substantially different from the original terms, therefor treated the amendment as a modification of the loan.
Maturities of the loan from shareholders as of December 31, 2020 were as follows:
| Year ended December 31, | ||||
| 2021 | $ | 222 | ||
| 2022 | 328 | |||
| 2023 | 475 | |||
| 2024 | 326 | |||
| Total | $ | 1,351 | ||
| F-63 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 8:- | SHAREHOLDERS’ DEFICIT |
| a. | 1. | Ordinary shares: |
The Ordinary shares confer upon the holders the right to receive notice to participate and vote in general meetings of the Company, and the rights to receive dividends, if declared and to participate in the distribution of the surplus assets of the Company upon liquidation of the Company.
| 2. | Seed Investors Preferred (“SIP”) shares and Preferred shares: |
The holders of SIP shares, Preferred A shares, Preferred B shares and Preferred C shares are entitled to all of the rights of Ordinary shares, as well as additional rights as further detailed in the Company’s articles of association.
Liquidation Preference:
Upon the occurrence of a Realization Event, all available assets shall be distributed first among the shareholders of Preferred C Shares followed by the shareholders of Preferred B Shares, shareholders of Preferred A Shares and the SIP shareholders.
Dividends:
The SIP shares, Preferred A shares, Preferred B shares and Preferred C shares will participate in any dividends declared or paid on Ordinary share on the basis of the number of shares of Ordinary share into which it is then convertible as well as accrued annual interest of 6.5% of the original issue price.
Voting:
On all matters submitted to a vote of the holders of Ordinary shares, the holders of SIP shares, Preferred A shares and Preferred B shares shall be entitled to vote as-converted basis with the Ordinary shareholders.
| F-64 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 8:- | SHAREHOLDERS’ DEFICIT |
| b. | Composition of share capital of the Company as of December 31, 2020 and 2019, each of NIS 0.01 par value: |
| December 31, 2020 | ||||||||||||
Authorized shares | Shares Issued and outstanding | Aggregate Liquidation Preference | ||||||||||
| Number of shares | ||||||||||||
| Ordinary share of | 2,811,755 | 338,036 | - | |||||||||
| Seed Investors Preferred | 68,711 | 68,711 | $ | 507 | ||||||||
| Preferred A shares | 300,000 | 201,216 | 2,100 | |||||||||
| Preferred B-2 shares | 74,090 | 74,090 | 961 | |||||||||
| Preferred B-1 shares | 245,350 | 254,344 | 4,396 | |||||||||
| Preferred C-2 shares | 378,100 | 378,100 | 10,957 | |||||||||
| Preferred C-1 shares | 612,994 | 612,994 | 20,431 | |||||||||
| Total Ordinary shares and Preferred shares | 4,500,000 | 1,927,491 | $ | 39,352 | ||||||||
| December 31, 2019 | ||||||||||||
Authorized shares | Shares Issued and outstanding | Aggregate Liquidation Preference | ||||||||||
| Number of shares | ||||||||||||
| Ordinary share of | 2,811,755 | 329,449 | - | |||||||||
| Seed Investors Preferred | 68,711 | 68,711 | $ | 476 | ||||||||
| Preferred A shares | 300,000 | 201,216 | 1,972 | |||||||||
| Preferred B-2 shares | 74,090 | 74,090 | 902 | |||||||||
| Preferred B-1 shares | 245,350 | 254,344 | 4,129 | |||||||||
| Preferred C-2 shares | 378,100 | 378,100 | 10,285 | |||||||||
| Preferred C-1 shares | 612,994 | 612,994 | 19,186 | |||||||||
| Total Ordinary shares and Preferred shares | 4,500,000 | 1,918,904 | $ | 36,950 | ||||||||
| c. | During 2019, the Company signed an agreement with existing shareholders for funding in the amount of $3,787 (net of issuance cost of $34) comprised of $537 of equity investment and $3,250 of a loan from shareholder. As of December 31, 2019, the Company received the balance of $3,787 and issued 103,358 preferred C-1 shares par value NIS 0.01 each. The proceeds of $3,250 received in lieu of the shareholders’ loan were allocated based on the relative fair value basis as follows: $1,913 to preferred C-1 shares issued in connection with the shareholders loan and $1,337 were allocated to the shareholders’ loan (see Note 7). |
| F-65 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 8:- | SHAREHOLDERS’ DEFICIT (Cont.) |
| d. | Share based payment: |
| 1. | Under the Company’s Employees Stock Ownership (the “Plan”), options may be granted to directors, employees and consultants of the Company. Each option granted under the Plan is exercisable until the earlier of 10 years from the date of the grant of the option or the expiration date of the Plan. The options vest primarily over a period of four years. Any options, which are forfeited or not exercised before expiration, become available for future grants. Pursuant to the Plan, as of December 31, 2020 the Company reserved 209,875 Ordinary shares for issuance of which an aggregate of 98,352 Ordinary shares of the Company were still available for future grant, respectively. | |
| 2. | During 2019, the Company granted 38,200 options to employees to purchase up to 38,200 Ordinary shares of NIS 0.01 par value, at an exercise price ranging between $0.01 and $11.283 and 4,000 options to service providers to purchase up to 4,000 Ordinary shares of NIS 0.01 par value, at an exercise price equal to $11.283. The options will vest over a period of 4 years. | |
| 3. | A summary of the Company’s options granted to employees and service providers activity and related information is as follows: |
| Number of | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | |||||||||||||
| options | $ | Years | $ | |||||||||||||
| Outstanding at beginning of year | 130,626 | 5.82 | 5.42 | 411 | ||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited/expired | 10,516 | 10.53 | 6 | |||||||||||||
| Exercised | 8,587 | 0.64 | 75 | |||||||||||||
| Outstanding at end of year | 111,523 | 5.77 | 4.64 | 513 | ||||||||||||
| Exercisable options | 61,274 | 1.09 | 3.23 | 498 | ||||||||||||
The aggregate intrinsic value in the above table represents the total intrinsic value (the difference between the Company’s closing stock price on the last day of the fiscal 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all the option holders exercised their options on December 31, 2020. This amount is impacted by the changes in the fair value of the Ordinary share.
| F-66 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 8:- | SHAREHOLDERS’ DEFICIT (Cont.) |
| 4. | The fair value of each option award was estimated on the date of grant using the Black-Scholes-Merton model using following assumptions: |
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Volatility (%) | - | 56.05 | % | |||||
| Risk-free interest rate (%) | - | 2.63 | % | |||||
| Dividend yield (%) | - | 0 | % | |||||
| Expected term (years) | - | 6.11 | ||||||
As of December 31, 2020, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to the date was $17, which is expected to be recognized over a weighted average period of approximately 0.95years.
| NOTE 9:- | TAXES ON INCOME |
| a. | The Company and its Subsidiary are separately taxed under the domestic tax laws of the respective state of incorporation of each entity. | |
| b. | Tax laws applicable to the Company in Israel: |
In February 2008, the Knesset (Israel’s parliament) passed an amendment to the Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law starting 2008 and thereafter. Since 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Israeli CPI carried out in the period up to December 31, 2007. Adjustments relating to capital gains such as for sale of property (betterment) and securities continue to apply until disposal. Since 2008, the amendment to the law includes, among others, the cancellation of the inflationary additions and deductions and the additional deduction for depreciation (in respect of depreciable assets purchased after the 2007 tax year).
| c. | Tax rates applicable to the income of the Company in Israel: |
A company is taxable on its real capital gains at the corporate income tax rate in the year of sale.
The Israeli corporate tax rate was 23% in 2020 and 2019.
| F-67 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 9:- | TAXES ON INCOME (Cont.) |
| d. | Tax rates applicable to the subsidiary: |
The American entity is incorporated in the U.S. and subject to weighted tax rate of about 27% (Federal tax, State tax and City tax of the city where the Company operates).
On December 22, 2017, the U.S. government signed into law a tax reform that introduces significant and extensive changes in the U.S. tax system (“the reform”). The reform includes several provisions that will affect the Company’s tax liability in the United States. Following is a provision of the reform that is relevant to the Company:
Reduction of the U.S. federal income tax rate from 35% to 21% effective January 1, 2018.
| e. | Tax assessments: |
The Company’s tax assessments are deemed final through 2013 tax year.
The US subsidiary have not been assessed for tax purposes since its incorporation.
| f. | Deferred income taxes: |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforwards | $ | 9,230 | $ | 7,385 | ||||
| Research and development expenses | 573 | 614 | ||||||
| Leasing liabilities | 137 | 11 | ||||||
| Accruals, deferred revenues and reserves | 573 | 608 | ||||||
| Gross deferred tax assets | 10,513 | 8,618 | ||||||
| Valuation allowance | (10,202 | ) | (8,362 | ) | ||||
| Total deferred tax assets, net | 311 | 256 | ||||||
| Deferred tax liability | ||||||||
| Deferred contract acquisition cost | 180 | 244 | ||||||
| Operating lease right-of-use assets | 131 | 12 | ||||||
| Gross tax liabilities | 311 | 256 | ||||||
| Net deferred taxes | $ | - | $ | - | ||||
As of December 31, 2020, the Company has provided valuation allowances of $10,202 in respect of deferred tax assets resulting from tax loss carryforward and other temporary differences. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carryforward and other temporary differences will not be realized in the foreseeable future.
| F-68 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 9:- | TAXES ON INCOME (Cont.) |
| g. | Net operating losses carryforward: |
The Company have accumulated losses and deductions for tax purposes as of December 31, 2020, in the amount of approximately $39,158 which may be carried forward and offset against taxable income in the future for an indefinite period. As of December 31, 2020, the subsidiary’s carryforward tax losses amounted to approximately $827. Tax losses can be carried forward for a period of up to 20 years and may be subject to restrictions due to ownership changes. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
| h. | No liability for unrecognized tax benefits was recorded as a result of implementation of ASC 740. |
| i. | The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes. |
| F-69 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 10:- | LEASES |
On January 1, 2019, the Company adopted Topic 842 and elected the available practical expedient to recognize the cumulative effect of initially adopting Topic 842 as an adjustment to the opening balance sheet of the period of adoption (i.e., January 1, 2019). In addition, the Company elected not to apply the transition requirements for leases for which the lease term is less than 12 months.
The Company`s leases include offices in Israel and the USA, as well as car leases, which are all classified as operating leases. Certain leases include renewal options that are under the Company`s sole discretion. The renewal options were included in the ROU and liability calculation if it was reasonably certain that the Company will exercise the option.
The components of lease expense and supplemental cash flow information related to leases for the year ended December 31, 2020 were as follows:
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Components of lease expenses | ||||||||
| Operating lease cost | $ | 1,061 | $ | 189 | ||||
| Short-term lease | - | 199 | ||||||
| Total lease expenses | $ | 1,061 | $ | 388 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | 270 | 70 | ||||||
| Supplemental non-cash information related to lease liabilities from obtaining ROU assets | 766 | 120 | ||||||
For the year ended December 31, 2020, the weighted average remaining lease term is 3 years, and the weighted average discount rate is 7.80 percent. The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.
Maturities of the lease liabilities as of December 31, 2020 were as follows:
| Year ended December 31, | ||||
| 2021 | $ | 324 | ||
| 2022 | 309 | |||
| 2023 | 11 | |||
| Total operating lease payments | 644 | |||
| Less: imputed interest | (51 | ) | ||
| Total | $ | 593 | ||
| F-70 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 11:- | COMMITMENTS AND CONTINGENT LIABILITIES |
| a. | As part of the Share Purchase Agreement from May 2017 it was agreed that in the event of “Qualified Event” as described in the SPA, the Company shall grant a one-time cash bonus of up to $5,000 to certain employees based on the recommendation of the CEO to the board of directors. The one-time cash bonus is subject to vesting period as stipulated in the agreement. The cash bonus amount will be determined based on Company’s value. | |
| b. | Furthermore, in the event of an IPO or Deemed liquidation event, as defined in the Company’s Article of Association (“Qualified event”), the Company shall grant to the founders up to 55,852 warrants convertible into Preferred C-1 shares. The amount of warrants will be determined based on the Company’s value upon the Qualified event. | |
| c. | In April 2020, the U.S. Subsidiary received a loan in the amount of $343 from the U.S. Small and Medium Business Agency (the “SBA”) under the paycheck protection program (“PPP”) which is a part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES act”). The loan is forgivable, subject to meeting the conditions set out in the program. At December 31, 2020 the loan was included within accrued expenses and other liabilities. The loan was forgiven by the SBA in 2021. | |
| d. | During August 2020, the Company was approved for a grant in the amount of up to approximately $485 sponsored by the Israeli Government through the Israeli Innovation Authority (“IIA”) for the support of certain of the Company’s research and development projects. The Company accepted such grant according to which it will be obligated to pay royalties to the Government of Israel, at the rates of 3% on sales proceeds from products developed through the grants received from the IIA. The maximum amount of royalties payable to the Government is limited to 100% of the grants received, including interest at the Libor rate. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of December 31, 2020, the Company received grants totaling to $246 which were recorded as a reduction of the Company’s research and development expenses. | |
| e. | The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, while the Company has continued to sell its products and grow its business it did experience certain disruptions in its supply chains. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company has not experienced any material disruptions to its business and operations as a result of the COVID-19 pandemic, it is possible such disruptions may occur in the future which may impact its financial and operational results, and which could be material. |
| F-71 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 12:- | SELECTED STATEMENTS OF OPERATIONS DATA |
Financial expenses, net:
| Year ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Bank charges | $ | 10 | $ | 10 | ||||
| Change in fair value of convertible bridge loans reported in statement of operations | 4,470 | 167 | ||||||
| Interest related to shareholder’s loan | 509 | 364 | ||||||
| Interest paid in cash on convertible bridge loans | 107 | 398 | ||||||
| Foreign Currency adjustments, net | (19 | ) | 72 | |||||
| Other finance expenses | 6 | 24 | ||||||
| Total financial expenses, net | $ | 5,083 | $ | 1,035 | ||||
| F-72 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
| NOTE 13:- | SUBSEQUENT EVENTS |
| a. | The Company has evaluated subsequent events from the balance sheet date through December 15, 2021 the date at which the consolidated financial statements were available to be issued. | |
| b. | On March 3, 2021, the Company received a convertible loan from an existing investor in the principal amount of $2,000. The convertible loan bears an annual interest of 6% accrued monthly which together with the principal amount may be repaid at the earliest of 36 months or at the occurrence of certain events as stipulated in the convertible loan agreement. The convertible loan is convertible into shares at a conversion price which reflects up to a 25% discount from the price per share which will be determined in future financing or other liquidation events in accordance with the mechanism determined in the agreement. In connection with this loan the Company converted 89,340 Preferred A shares par value of NIS 0.01 each, 234,848 Preferred B-1 shares par value of NIS 0.01 each and 30,798 Preferred B-2 shares par value of NIS 0.01 each held by the investor into 354,986 Preferred C-1 shares par value of NIS 0.01 each. | |
| c. | On March 29, 2021, the Company signed a non-binding term-sheet with Slinger Bag Inc. (the “Purchaser”) to acquire the entire share capital of the Company on a fully diluted basis for a total consideration of 28,333,333 newly issued shares of the Purchaser. On October 6, 2021 the Company and the Purchaser signed a merger agreement pursuant to which the Purchaser will acquire all the outstanding securities of the Company in exchange for the following consideration: |
| (i) | 28,333,333 newly issued common shares of the Purchaser | |
| (ii) | Payment of the Company’s certain transaction related costs; and | |
| (iii) | Up to a maximum an additional 5,142,858 newly issued common shares of the Purchaser as earn-out subject to fulfilment of certain milestones. |
| The merger is conditional upon the satisfaction or waiver of certain conditions on or before February 28, 2022. | ||
| There are no assurances, that post-merger the Company will be able to obtain an adequate level of financial resources that are required to fulfill its financial obligations or for the long-term development and commercialization of its product offering. | ||
| d. | On July 21, 2021 the Purchaser provided a convertible loan in the amount of $2,000 to be drawn down at agreed upon schedule until November 2021. The convertible loan agreement was amended on October 6, 2021 such that the Purchaser increased the loan amount to $3,500 to be drawn by the Company at set dates until February 2022. The convertible loan bears an annual interest of 15% accrued monthly which together with the principal amount will be repaid at the closing of the merger transaction. The convertible loan is convertible into shares at a conversion price which reflects up to a 25% discount off the price per share to be paid by the Purchaser to the shareholders of the Company. |
- - - - - - - - - - - - - - - - - - - - - - -
| F-73 |
PLAYSIGHT INTERACTIVE LTD. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
U.S. DOLLARS IN THOUSAND
INDEX
- - - - - - - - - -
| F-74 |
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 380 | $ | 1,251 | ||||
| Restricted cash | 155 | 155 | ||||||
| Account receivables, net | 250 | 176 | ||||||
| Prepaid expenses and other accounts receivable | 280 | 188 | ||||||
| Inventories | 506 | 496 | ||||||
| Deferred contract acquisition cost, current | 337 | 384 | ||||||
| Total current assets | 1,908 | 2,650 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | 148 | 125 | ||||||
| Operating lease right-of-use assets | 374 | 571 | ||||||
| Deferred contract acquisition cost, noncurrent | 260 | 313 | ||||||
| Finished products used in operations, net | 5,021 | 5,109 | ||||||
| Total non-current assets | 5,803 | 6,118 | ||||||
| Total assets | $ | 7,711 | $ | 8,768 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-75 |
CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 405 | $ | 699 | ||||
| Employees and payroll accruals | 997 | 1,026 | ||||||
| Accrued expenses and other liabilities | 676 | 626 | ||||||
| Deferred revenues, current portion | 1,988 | 2,018 | ||||||
| Short-term operating lease liability | 264 | 287 | ||||||
| Long-term loan from shareholders, current portion | 299 | 222 | ||||||
| Total current liabilities | 4,629 | 4,878 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Convertible loans | 24,020 | 18,431 | ||||||
| Long-term deferred revenues | 1,326 | 1,286 | ||||||
| Long-term loan from shareholders | 896 | 1,129 | ||||||
| Long-term operating lease liability | 114 | 306 | ||||||
| Total non-current liabilities | 26,356 | 21,152 | ||||||
| Convertible Seed Investors Preferred shares of NIS 0.01 par value - Authorized, issued and outstanding: 68,711 shares at September 30, 2021 and December 31, 2020; aggregate liquidation preference of $531 and $507 as of September 30, 2021 and December 31, 2020, respectively | 297 | 297 | ||||||
| Convertible Preferred shares of NIS 0.01 par values - Authorized: 1,619,534 shares at September 30, 2021 and December 31, 2020; Issued and outstanding: 1,520,744 shares at September 30, 2021 and December 31, 2020; aggregate liquidation preference of $40,720 and $38,845 as of September 30, 2021 and December 31, 2020, respectively | 30,464 | 30,464 | ||||||
| SHAREHOLDERS’ DEFICIT: | ||||||||
| Ordinary shares of NIS 0.01 par value: | ||||||||
| Authorized: 2,811,755 shares at September 30, 2021 and December 31, 2020; Issued and outstanding: 347,117 and 338,038 shares at September 30, 2021 and December 31, 2020, respectively | 1 | 1 | ||||||
| Additional paid-in capital | 591 | 580 | ||||||
| Accumulated deficit | (54,627 | ) | (48,604 | ) | ||||
| Total shareholders’ deficit | (54,035 | ) | (48,023 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 7,711 | $ | 8,768 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-76 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands
For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues | $ | 4,623 | $ | 4,011 | ||||
| Cost of revenues | 3,121 | 2,736 | ||||||
| Gross profit | 1,502 | 1,275 | ||||||
| Operating expenses: | ||||||||
| Research and development | 2,065 | 1,842 | ||||||
| Sales and marketing | 1,617 | 1,717 | ||||||
| General and administrative | 924 | 1,032 | ||||||
| Total operating expenses | 4,606 | 4,591 | ||||||
| Operating loss | 3,104 | 3,316 | ||||||
| Financial expense, net | 2,919 | 3,732 | ||||||
| Net loss | $ | 6,023 | $ | 7,048 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-77 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT
U.S. dollars in thousands, except share and per share data
Seed Investors Preferred shares | Preferred shares | Ordinary shares | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | deficit | ||||||||||||||||||||||||||||
| Balance as of January 1, 2021 | 68,711 | $ | 297 | 1,520,744 | $ | 30,464 | 338,038 | $ | 1 | $ | 580 | $ | (48,604 | ) | $ | (48,023 | ) | |||||||||||||||||||
| Exercise of options granted to employees and consultants | - | - | - | - | 9,079 | *) - | - | - | *) - | |||||||||||||||||||||||||||
| Share based compensation expenses | - | - | - | - | - | - | 11 | - | 11 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (6,023 | ) | (6,023 | ) | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | 68,711 | $ | 297 | 1,520,744 | $ | 30,464 | 347,117 | $ | 1 | $ | 591 | $ | (54,627 | ) | $ | (54,035 | ) | |||||||||||||||||||
Seed Investors Preferred shares | Preferred shares | Ordinary shares | Additional paid-in | Accumulated | Total shareholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | deficit | ||||||||||||||||||||||||||||
| Balance as of January 1, 2020 | 68,711 | $ | 297 | 1,520,744 | $ | 30,464 | 329,449 | $ | 1 | $ | 545 | $ | (39,215 | ) | $ | (38,669 | ) | |||||||||||||||||||
| Exercise of options granted to employees | - | - | - | - | 487 | *) - | - | - | *) - | |||||||||||||||||||||||||||
| Share based compensation expenses | - | - | - | - | - | - | 23 | - | 23 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (7,048 | ) | (7,048 | ) | |||||||||||||||||||||||||
| Balance as of September 30, 2020 | 68,711 | $ | 297 | 1,520,744 | $ | 30,464 | 329,936 | $ | 1 | $ | 568 | $ | (46,263 | ) | $ | (45,694 | ) | |||||||||||||||||||
| *) | Represents less than $1. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-78 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (6,023 | ) | $ | (7,048 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 35 | 20 | ||||||
| Write-off of property and equipment | - | 22 | ||||||
| Share based compensation expenses | 11 | 23 | ||||||
| Interest related to shareholder’s loan | 353 | 385 | ||||||
| Changes in convertible loans’ fair market value | 2,589 | 3,315 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivables | (74 | ) | 47 | |||||
| Decrease in finished products used in operations | 88 | 192 | ||||||
| Decrease (increase) in prepaid expenses and other accounts receivable and long-term lease deposits | (92 | ) | (49 | ) | ||||
| Decrease (increase) in inventories | (10 | ) | 187 | |||||
| Decrease in operating lease ROU assets | 197 | 220 | ||||||
| Decrease in deferred contract acquisition costs | 100 | 186 | ||||||
| Increase (decrease) in accounts payables | (294 | ) | (393 | ) | ||||
| Increase (decrease) in employees and payroll accruals | (29 | ) | (142 | ) | ||||
| Increase (decrease) in deferred revenues | 10 | (734 | ) | |||||
| Increase in accrued expenses and other liabilities | 50 | 389 | ||||||
| Decrease in operating lease liabilities | (215 | ) | (212 | ) | ||||
| Net cash used in operating activities | (3,304 | ) | (3,592 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (58 | ) | (141 | ) | ||||
| Net cash used in investing activities | (58 | ) | (141 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Convertible loans and shareholders’ bridge loans, net | 3,000 | 150 | ||||||
| Repayment of loan from shareholders | (509 | ) | (381 | ) | ||||
| Net cash provided by (used in) financing activities | 2,491 | (231 | ) | |||||
| Increase (decrease) in cash and restricted cash | (871 | ) | (3,964 | ) | ||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 1,406 | 6,066 | ||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 535 | $ | 2,102 | ||||
| Supplemental disclosure of cash financing transactions: | ||||||||
| Interest payments relating to Convertible loans and loan from shareholder | $ | 383 | $ | 482 | ||||
| Supplemental disclosure of non-cash financing transactions: | ||||||||
| ROU assets and lease liabilities created during the period | $ | - | $ | 766 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| F-79 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1:- GENERAL
| a. | PlaySight Interactive Ltd. (the “Company”) was incorporated in Israel in May 2010 under the laws of the state of Israel and commenced its operations on the same date. The Company engaged in developing, manufacturing and selling of advanced video and analytics technologies for sports courts around the world. | |
| In March 2014, the Company established a wholly-owned subsidiary in the United States under the name of PlaySight Interactive USA Inc. (the “U.S. Subsidiary”), which is engaged primarily in customer support and marketing the Company’s service. | ||
| b. | The Company’s ability to continue to operate is dependent on the ability to market and sell its products, development of new products and raise additional financing until profitability is achieved. The Company incurred losses in the amount of $6,023 during the nine months period ended September 30, 2021 and has an accumulated deficit of $54,627 as of September 30, 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue to operate as a going concern. 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. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all. | |
| c. | On March 29, 2021, the Company signed a non-binding term-sheet with Slinger Bag Inc. (the “Purchaser”) to acquire the entire share capital of the Company on a fully diluted basis for a total consideration of 28,333,333 newly issued shares of the Purchaser. On October 6, 2021 the Company and the Purchaser signed a merger agreement pursuant to which the Purchaser will acquire all the outstanding securities of the Company in exchange for the following consideration: |
| (i) | 28,333,333 newly issued common shares of the Purchaser | |
| (ii) | Payment of the Company’s certain transaction related costs; and | |
| (iii) | Up to a maximum of an additional 5,142,858 newly issued common shares of the Purchaser as earn-out subject to fulfilment of certain milestones. |
The merger is conditional upon the satisfaction or waiver of certain conditions on or before February 28, 2022.
There are no assurances, that post-merger the Company will be able to obtain an adequate level of financial resources that are required to fulfill its financial obligations or for the long-term development and commercialization of its product offering.
| F-80 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1:- GENERAL (Cont.)
| d. | Financial statement preparation: | |
| The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation for the periods presented. The preparation of these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included for the fiscal year ended December 31, 2020. The significant accounting policies applied in the audited annual consolidated financial statements of the Company as disclosed are applied consistently in these unaudited interim condensed consolidated financial statements. |
| F-81 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- CONVERTIBLE LOANS
From February through August 2018, the Company received convertible bridge loans from new and existing investors in the aggregate principal amount of $5,875 (net of issuance cost of $125 and of which $2,000 were converted on April 15, 2018 from bridge loans). The convertible bridge loans bear an annual interest of 8% paid monthly and the principal amount will be repaid at the earliest of 24 months or at the occurrence of certain events as stipulated in the convertible bridge loan agreements. The convertible bridge loans are convertible into shares at a conversion price which reflects up to a 25% discount from the price per share which will be determined in future financing and in accordance with the mechanism determined in the agreement. During July 2019, two investors owning a principal amount of $2,500 approved that their monthly interest will be accrued at the same annual interest rate and not paid in case. During April 2020, two investors owning a principal amount of $3,000 approved that their monthly interest will be accrued at the same annual interest rate and not paid in case.
From September through January 2020, the Company received convertible bridge loans from new and existing investors in the aggregate principal amount of $7,889 (net of issuance cost of $11). The convertible bridge loans bear an annual interest of 8% accrued monthly which together with the principal amount will be repaid at the earliest of 24 months or at the occurrence of certain events as stipulated in the convertible bridge loan agreements. The convertible bridge loans are convertible into shares at a conversion price which is the lower of (i) a 25% discount from the price per share which will be determined in future financing and (ii) the price per share on a fully-dilutive basis representing a Company valuation of $60,210.
On March 3, 2021, the Company received a convertible loan from an existing investor in the principal amount of $2,000. The convertible loan bears an annual interest of 6% accrued monthly which together with the principal amount may be repaid at the earliest of 36 months or at the occurrence of certain events as stipulated in the convertible loan agreement. The convertible loan is convertible into shares at a conversion price which reflects up to a 25% discount from the price per share which will be determined in future financing or other liquidation events in accordance with the mechanism determined in the agreement. In connection with this loan the Company converted 89,340 Preferred A shares par value of NIS 0.01 each, 234,848 Preferred B-1 shares par value of NIS 0.01 each and 30,798 Preferred B-2 shares par value of NIS 0.01 each held by the investor into 354,986 Preferred C-1 shares par value of NIS 0.01 each.
On July 21, 2021, the Purchaser provided a convertible loan in the amount of $2,000 to be drawn down at agreed upon schedule until November 2021. The convertible loan agreement was amended on October 6, 2021 such that the Purchaser increased the loan amount to $3,500 to be drawn by the Company at set dates until February 2022. The convertible loan bears an annual interest of 15% accrued monthly which together with the principal amount will be repaid at the closing of the merger transaction. The convertible loan is convertible into shares at a conversion price which reflects up to a 25% discount off the price per share to be paid by the Purchaser to the shareholders of the Company.
| F-82 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- CONVERTIBLE LOANS (Cont.)
The conversion features in the convertible loans are considered embedded derivatives which needs to be bifurcated from the host instrument in accordance with ASC 815 Derivative and Hedging: Embedded Derivatives (“ASC 815-15”), the Company has elected to account for the convertible bridge loans at fair value. ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The Company elected to measure each bridge loan in its entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date in accordance with ASC 815-15-25. The Company determined the fair value of the bridge loans using an Option Pricing Model (“OPM”), therefore they are categorized as Level 3 in accordance with ASC 820.
The following is a roll forward of the fair values:
| Period ended | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Fair value at the beginning of the period | $ | 18,431 | $ | 13,811 | ||||
| Fair value balance on issue date | 3,000 | 150 | ||||||
| Change in fair value reported in statement of operations | 2,589 | 4,470 | ||||||
| Fair value at the end of the period | $ | 24,020 | $ | 18,431 | ||||
| F-83 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 3:- LOAN FROM SHAREHOLDERS
During 2019, the Company received a loan from one of its shareholders in the total amount of $3,250. The loan is bearing no interest and is payable in equal 60 monthly installments. The Company agreed to pledge all of its assets, including intellectual property in favor of the lender. In addition, the Company issued to the shareholder new shares of Preferred C-1 shares par value of NIS 0.01 each. The Company recorded the loan at inception based on the relative fair market value at $1,337. During April 2020, the Company amended the terms of the loan such that several installments were deferred and amortized over the remaining life of the loan. Pursuant to ASC 470-50, the Company reassessed the revised term of the loan and determined it is not substantially different from the original terms, therefor treated the amendment as a modification of the loan.
Maturities of the loan from shareholders as of September 30, 2021 were as follows:
| Year ending September, | ||||
| 2022 | $ | 299 | ||
| 2023 | 433 | |||
| 2024 | 463 | |||
| Total | $ | 1,195 | ||
NOTE 4:- SHARE BASED PAYMENTS
| 1. | Under the Company’s Employees Stock Ownership (the “Plan”), options may be granted to directors, employees and consultants of the Company. Each option granted under the Plan is exercisable until the earlier of 10 years from the date of the grant of the option or the expiration date of the Plan. The options vest primarily over a period of four years. Any options, which are forfeited or not exercised before expiration, become available for future grants. Pursuant to the Plan, as of September 30, 2021 the Company reserved 209,875 Ordinary shares for issuance of which an aggregate of 97,929 Ordinary shares of the Company were still available for future grant, respectively. The Company did not grant any options during the nine months period ended September 30, 2021 and the year ended December 31, 2020. |
| F-84 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 4:- SHARE BASED PAYMENTS (Cont.)
| 2. | A summary of the Company’s options granted to employees and service providers activity and related information is as follows: |
| Number of | Weighted average exercise price | Weighted average remaining contractual life | Aggregate Intrinsic value | |||||||||||||
| options | $ | Years | $ | |||||||||||||
| Outstanding at beginning of period | 111,523 | 5.77 | 4.64 | 513 | ||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Forfeited/expired | 8,390 | 11.28 | 1 | |||||||||||||
| Exercised | 9,079 | 0.64 | 103 | |||||||||||||
| Outstanding at end of period | 94,054 | 5.84 | 4.14 | 554 | ||||||||||||
| Exercisable options | 85,016 | 5.14 | 4.03 | 532 | ||||||||||||
The aggregate intrinsic value in the above table represents the total intrinsic value (the difference between the Company’s estimated closing stock price on September 30, 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all the option holders exercised their options on September 30, 2021. This amount is impacted by the changes in the fair value of the Ordinary share.
As of September 30, 2021, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to the date was $5, which is expected to be recognized over a weighted average period of approximately 0.52 years.
| F-85 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 5:- COMMITMENTS AND CONTINGENT LIABILITIES
| a. | As part of the Share Purchase Agreement from May 2017 it was agreed that in the event of “Qualified Event” as described in the SPA, the Company shall grant a one-time cash bonus of up to $5,000 to certain employees based on the recommendation of the CEO to the board of directors. The one-time cash bonus is subject to vesting period as stipulated in the agreement. The cash bonus amount will be determined based on Company’s value. | |
| b. | Furthermore, in the event of an IPO or Deemed liquidation event, as defined in the Company’s Article of Association (“Qualified event”), the Company shall grant to the founders up to 55,852 warrants convertible into Preferred C-1 shares. The amount of warrants will be determined based on the Company’s value upon the Qualified event. | |
| c. | In April 2020, the U.S. Subsidiary received a loan in the amount of $343 from the U.S. Small and Medium Business Agency (the “SBA”) under the paycheck protection program (“PPP”) which is a part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES act”). The loan is forgivable, subject to meeting the conditions set out in the program. At December 31, 2020 the loan was included within accrued expenses and other liabilities. The loan was forgiven by the SBA in 2021. | |
| d. | During August 2020, the Company was approved for a grant in the amount of up to approximately $485 sponsored by the Israeli Government through the Israeli Innovation Authority (“IIA”) for the support of certain of the Company’s research and development projects. The Company accepted such grant according to which it will be obligated to pay royalties to the Government of Israel, at the rates of 3% on sales proceeds from products developed through the grants received from the IIA. The maximum amount of royalties payable to the Government is limited to 100% of the grants received, including interest at the Libor rate. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. As of December 31, 2020, the Company received grants totaling to $246 which were recorded as a reduction of the Company’s research and development expenses. | |
| e. | The Company has been carefully monitoring the COVID-19 pandemic and its impact on its business. In that regard, while the Company has continued to sell its products and grow its business it did experience certain disruptions in its supply chains. The Company expects the significance of the COVID-19 pandemic, including the extent of its effect on the Company’s financial and operational results, to be dictated by, among other things, its duration, the success of efforts to contain it and the impact of actions taken in response. While the Company has not experienced any material disruptions to its business and operations as a result of the COVID-19 pandemic, it is possible such disruptions may occur in the future which may impact its financial and operational results, and which could be material. |
| F-86 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 6:- SELECTED STATEMENTS OF OPERATIONS DATA
Financial expenses, net:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Bank charges | $ | 8 | $ | 8 | ||||
| Change in fair value of convertible bridge loans reported in statement of operations | 2,589 | 3,315 | ||||||
| Interest related to shareholder’s loan | 353 | 385 | ||||||
| Interest paid in cash on convertible bridge loans | 30 | 97 | ||||||
| Foreign Currency adjustments, net | (63 | ) | (78 | ) | ||||
| Other finance expenses | 2 | 5 | ||||||
| Total financial expenses, net | $ | 2,919 | $ | 3,732 | ||||
- - - - - - - - - - - - - - - - - - - - - - -
| F-87 |
_________ Shares
Common Stock
PROSPECTUS
Spartan Capital Securities, LLC
_________ ___, 2022
Through and including , 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable in connection with the sale and distribution of the securities being registered. All amounts are estimated except the SEC registration fee and FINRA filing fee. Except as otherwise noted, all the expenses below will be paid by us.
| SEC registration fee | $ | [*] | ||
| FINRA fee | [*] | |||
| Nasdaq listing and filing fees | [*] | |||
| Transfer agent fee | [*] | |||
| Printing expenses | [*] | |||
| Legal fees and expenses | [*] | |||
| Accounting fees and expenses | [*] | |||
| Miscellaneous expenses | [*] | |||
| Total | $ | [*] |
Item 14. Indemnification of Directors and Officers.
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our articles of incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revise Statutes and our bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Item 15. Recent Sales of Unregistered Securities.
The following information relates to all securities issued or sold by us since our fiscal year end not registered under the Securities Act of 1933, (the “Securities Act”).
On April 11, 2021, the Company issued 272,332 shares of its common stock for the conversion and full satisfaction of the Company’s obligations of a $1,000,000 promissory note.
On April 11, 2021 and on April 13, 2021, the Company issued 18,750 and 5,000 shares of its common stock to two vendors as compensation for marketing and advisory services.
On May 26, 2021, the Company issued 1,636,843 shares of its common stock for the conversion and full satisfaction of the Company’s $6,220,0000 in notes payable to its related party lender.
On June 23, 2021, the Company issued 540,000 shares of its common stock in satisfaction of the first tranche related to the Company’s purchase of Foundation Sports Systems, LLC.
| II-1 |
During the three months ended July 31, 2021, the Company issued 68,965 shares of its common stock to one vendor and two employees as compensation for marketing and other services rendered.
During the three months ended July 31, 2021, the Company granted an aggregate total of 90,937 shares of its common stock to six brand ambassadors as compensation for services.
On August 6, 2021, the Company consummated an offering between the Company and certain accredited investors (“Purchasers”) whereby the Company sold to the Purchasers (i) 8% Senior Convertible Notes in an aggregate principal amount of $11,000,000 and (ii) warrants to purchase up to 7,333,334 shares of common stock of the Company (“Offering”). The Company received an aggregate of $11,000,000 in gross proceeds from the Offering, before deducting offering expenses and commissions. The shares sold in the Offering are the subject of this resale registration statement.
On August 6, 2021, the Note payable holder exercised its right to convert its 2,200,000 outstanding warrants into shares of common stock of the Company.
On August 6, 2021, the Company’s related party lender exercised its right to convert its 2,750,000 outstanding warrants and 6,921,299 common shares issuable into 9,671,299 shares of common stock of the Company.
On October 11, 2021, the Company issued 18,750 shares of its common stock to a vendor as compensation for marketing and other services rendered.
Item 16. Exhibits and Financial Statements.
We have filed the exhibits listed on the accompanying Exhibit Index of this registration statement and below in this Item 16:
EXHIBIT INDEX
| II-2 |
| 10.28 | Addendum to and Amendment to Agreement for the Merger, dated February 16, 2022 with PlaySight Interactive Ltd., Rohit Krishnan, in his capacity as Shareholders’ Representative, and SB Merger Sub Ltd. | 8-K | 02/22/2022 | 10.1 |
||||||
| 16.1 | Letter Re: Change in Certifying Accountant | 8-K | 02/17/2022 | 16.1 | ||||||
| 22.1 | Subsidiary Guarantee | 8-K | 08/10/2021 | 10.3 | ||||||
| 23.1 | Consent of Mac Accounting Group, LLP | X | ||||||||
| 23.2 | Consent of Lucosky Brookman LLP (included in Exhibit 5.1)** | |||||||||
| 23.3 | Consent of Kost Forer Gabbay & Kasierer | X | ||||||||
| 24.1 | Power of Attorney (included on the signature page to the registration statement). | |||||||||
| 101.INS | XBRL Instance Document | |||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Definition | |||||||||
| 107 | Filing Fee Table | X |
| * | Management contract or compensatory plan or arrangement |
| ** | To be filed by amendment |
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
| (1) | insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| (2) | for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (3) | for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Windsor Mill, State of Maryland on March 30, 2022.
| SLINGER BAG INC. | ||
| By: | /s/ Mike Ballardie | |
| Mike Ballardie | ||
Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Jason Seifert | |
| Jason Seifert | ||
Chief Financial Officer (Principal Financial Officer) | ||
| II-4 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Mike Ballardie, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Mike Ballardie | ||||
| Mike Ballardie | Principal Executive Officer and Director | March 30, 2022 | ||
| /s/ Tom Dye | ||||
| Tom Dye | Chief Operating Officer and Director | March 30, 2022 | ||
| /s/ Jason Seifert | ||||
| Jason Seifert | Chief Financial Officer | March 30, 2022 | ||
| (Principal Financial Officer) |
| II-5 |
