UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from ________ to ________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including Zip Code)
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934 Act.
| 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 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
The number of shares outstanding of the registrant’s Common Stock, $ par value per share, as of March 24, 2025, was .
EXPLANATORY NOTE
As this is the Company’s first Quarterly Report following the sale of the Legacy Business (as defined herein) to a third party, this report does not reflect any results of such business. Unless otherwise indicated, the financial statements included in this report and comparisons therein are based on and only reflect the results of Yuanyu Enterprise Management Co., Limited (“YYEM”) to October 31, 2024, and from November 1, 2024 both YYEM and Connexa Sports Technologies Inc.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenue, profitability, cash flow, and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including the risks in the section entitled “Risk Factors” in our Form 10-K for the fiscal year ended April 30, 2024, filed on July 25, 2024, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.
Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:
| ● | risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures; | |
| ● | risk that we fail to meet the requirements of the agreements under which we acquired our business interests, including any cash payments to the business operations, which could result in the loss of our right to continue to operate or develop the specific businesses described in the agreements; | |
| ● | risk that we will be unable to secure additional financing in the near future in order to commence and sustain our planned development and growth plans; | |
| ● | risk that we cannot attract, retain, and motivate qualified personnel, particularly employees, consultants, and contractors for our operations; | |
| ● | risks and uncertainties relating to the various industries and operations we are currently engaged in; | |
| ● | results of initial feasibility, pre-feasibility, and feasibility studies, and the possibility that future growth, development or expansion will not be consistent with our expectations; | |
| ● | 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; | |
| ● | risks related to commodity price fluctuations; | |
| ● | the uncertainty of profitability based upon our history of losses; | |
| ● | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned development projects; | |
| ● | risks related to environmental regulation and liability; | |
| ● | risks related to tax assessments; and | |
| ● | other risks and uncertainties related to our prospects, properties, and business strategy. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
As used in this Quarterly Report, “Connexa,” “Company,” “we,” “us,” or “our” refer to Connexa Sports Technologies Inc. and Yuanyu Enterprise Management Co., Limited unless otherwise indicated.
Unless otherwise indicated, all share numbers and per share totals have been adjusted to reflect the 1-for-40 reverse stock split that was effective on September 25, 2023 and the 1-for-20 reverse stock split that was effective on June 27, 2024.
| i |
CONNEXA SPORTS TECHNOLOGIES INC.
INDEX
| ii |
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONNEXA SPORTS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (IN US$) (UNAUDITED)
AS OF JANUARY 31, 2025 AND APRIL 30, 2024
| January 31, | April 30, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investment | ||||||||
| Accounts receivable, net | ||||||||
| Prepayments | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets: | ||||||||
| Intangible assets, net of amortization | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Derivative liabilities | ||||||||
| Income taxes payable | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingency | ||||||||
| Shareholders’ Equity | ||||||||
| Common stock, par value, $, and shares authorized, and shares issued and outstanding as of January 31, 2025 and April 30, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity before non-controlling interest | ||||||||
| Non-controlling interest | ||||||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-1 |
CONNEXA SPORTS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$) (UNAUDITED)
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED JANUARY 31, 2025 AND 2024
| Nine
Months Ended January 31 | Three
Months Ended January 31 | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenue | ||||||||||||||||
| . | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Non-Operating Expense | ||||||||||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Total Non-Operating Expense | ( | ) | ( | ) | ||||||||||||
| Net Income from Operations Before Provision for Income Taxes | ||||||||||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Income | ||||||||||||||||
| Net Income Attributable to Non-Controlling Interest | ( | ) | ( | ) | ||||||||||||
| Net Income/(Loss) to Controlling Interest | $ | $ | $ | ( | ) | $ | ||||||||||
| Net income per share – basic | $ | $ | $ | $ | ||||||||||||
| Net income per share – diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding – basic | ||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
CONNEXA SPORTS TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN US$) (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED JANUARY 31, 2025 AND 2024
| Additional | Retained | Non- | ||||||||||||||||||||||
| Common Stock | Paid-In | Earnings/ | Controlling | |||||||||||||||||||||
| Shares | Amount | Capital | (Deficit) | Interest | Total | |||||||||||||||||||
| Balance – May 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Balance – January 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance – November 1, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Balance – January 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance – May 1, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Reverse merger adjustment | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||||||
| Balance – January 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance – November 1, 2024 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Reverse merger adjustment | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net income/(loss) for the period | - | ( | ) | |||||||||||||||||||||
| Balance – January 31, 2025 | $ | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
CONNEXA SPORTS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US$) (UNAUDITED)
NINE-MONTH PERIODS ENDED JANUARY 31, 2025 AND 2024
| 2025 | 2024 | |||||||
| Cash Flow from Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net (loss)/income to net cash provided by/(used in) operating activities | ||||||||
| Depreciation, amortization and impairment expense | ||||||||
| Change in fair value of derivative liability | ||||||||
| Shares and warrants issued for services | ||||||||
| Changes in assets and liabilities, net of acquired amounts | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Prepaid inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Total adjustments | ( | ) | ( | |||||
| Net cash provided by operating activities | ||||||||
| Net Increase in Cash | ||||||||
| Cash – Beginning of Period | ||||||||
| Cash – End of Period | $ | $ | ||||||
| Cash Paid During the Period For: | ||||||||
| Interest expense | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
CONNEXA SPORTS TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: ORGANIZATION AND NATURE OF BUSINESS
Organization
Lazex Inc. (“Lazex”) was incorporated
under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority owner of Lazex entered into a Stock Purchase
Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger Bag Americas”), which was
On May 16, 2022, the Company changed its domicile from Nevada to Delaware. On April 7, 2022, the Company effected a name change to Connexa Sports Technologies Inc. We also changed our ticker symbol to “CNXA”.
On June 14, 2022, the Company consummated a public offering of shares of its common stock, par value $ per share (the “Common Stock”), and the listing of the Common Stock on the Nasdaq Capital Market.
On
January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with
three investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i)
shares of Common Stock (the “Shares”) and (ii) pre-funded warrants to purchase an aggregate of
On
March 18, 2024, the Company entered into a share purchase agreement (the “Purchase Agreement”) and a share exchange
agreement (the “Exchange Agreement”) to acquire %
of Yuanyu Enterprise Management Co., Limited (“YYEM”) from Mr. Hongyu Zhou, the sole shareholder of YYEM (the
“YYEM Seller”) for a combined $
On April 15, 2024, the Company effected a symbol change from “CNXA” to “YYAI”.
From
April 2024 through May 2024, the Company acknowledged and agreed to the entry into certain warrant purchase agreements (the
“WPAs”) by the January 2024 Investors and 10 purchasers (the “Pre-Funded Warrant Purchasers”) pursuant to
which the January 2024 Investors sold all of the
On
June 27, 2024, the Company (i) increased the number of authorized shares of Common Stock from
to
and (ii) effected a
On May 28 2024, the Company filed a registration statement in respect of shares of its Common Stock consisting of (a) Shares and (b) shares of Common Stock issuable upon the exercise of the Pre-Funded Warrants, and on August 21, 2024 such registration statement became effective.
On October 11, 2024, the Company filed a registration statement in respect of shares of Common Stock that were issued on August 16, 2024 upon the exercise of pre-funded warrants issued on January 19, 2024. This registration statement became effective on November 22, 2024.
On November 21,
2024, following The Nasdaq Stock Market LLC’s (“Nasdaq”) approval of the new listing application submitted to it
in connection with the Acquisition, the Company completed the purchase of ordinary
shares of YYEM, representing
As
an inducement to the Company to complete the Acquisition, Hongyu Zhou (the YYEM Seller and a member of the Board and the
Company’s controlling shareholder since November 21, 2024), pursuant to the Exchange Agreement, agreed to make an aggregate
payment to the Company of $
| F-5 |
YYEM was registered in Hong Kong on November 11, 2021. Its business purpose is to provide technology services. YYEM’s registered office is located at Rm 4, 16/F, Ho King Comm Ctr, 2-16 Fayuen St, Mongkok, Kowloon, Hong Kong.
For details of all prior operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL, and Flixsense Pty, Ltd. please see the Company’s previous filing on Form 10-K for the year ended April 30, 2024, filed July 25, 2024.
Basis of Presentation
The accompanying condensed consolidated financial statements of Connexa Sports Technologies Inc. (“YYAI”) and YYEM, collectively referred to as 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 YYAI and YYEM for the periods ended January 31, 2025 and 2024. No amounts or disclosures related to our Legacy Business of Slinger Bag, Inc. are reflected herein.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying condensed financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures required by GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine-month period ended January 31, 2025, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending April 30, 2025 and should be read in conjunction with the Company’s audited financial statements included in the Company’s registration statement on Form S-1 filed with the SEC on May 28, 2024. Please note that the Company’s accounting policies going forward post-merger may differ, as the Company’s management has now changed.
Non-controlling Interests
In
accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements, the Company classifies non-controlling
interests as a component of equity within the consolidated balance sheet. Effective with the purchase of the additional
Use of Estimates
The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that 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 and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Financial Statement Reclassification
Certain prior year amounts within accounts payable, accrued expenses, and certain operating expenses have been reclassified for consistency with the current year presentation and had no effect on the Company’s balance sheet, net loss, shareholders’ equity, or cash flows.
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are all considered to be highly liquid investments with a maturity of three months or less at the time of purchase.
Accounts Receivable
Management reviews accounts receivable periodically to determine if any receivables will potentially be uncollectible. Management’s evaluation includes several factors including the aging of the accounts receivable balances, a review of significant past due accounts, economic conditions, and our historical write-off experience, net of recoveries. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve, in its allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. As of January 31, 2025 and April 30, 2024, the Company had made no reserves.
| F-6 |
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired as additional paid-in capital is the fair value at the date of acquisition. Each intangible asset with a finite life is subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each year end.
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 follows ASC 606, Revenue from Contracts with Customers, 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 in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
The Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled for its products and services. Accounts receivable are recorded when the right to consideration becomes unconditional. The Company’s terms and conditions vary by customer and typically provide net 90-day terms.
The Company receives royalty income in the form of license fees from customers for the use of the Company’s technology rights by the customers. Royalty income is recognized over time when the Company’s technology rights are used by the customers in accordance with the terms and conditions of the relevant license agreement. Revenue is recognized by the Company not only when invoices have been signed and confirmed by customers but also at the end of each month over the term of the relevant license agreements as the service is provided to the customers.
Cost of Revenue
The cost of revenue consists primarily of amortization charge of intangible assets – technology rights, which are directly attributable to the revenue.
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.
As discussed in Note 5, the Company holds a Level 1 investment in a Hong Kong company that has a quoted market price. The contributor of this investment has provided a downside guarantee to ensure a minimum value, so the asset is carried at a consistent value during periods in which the per-share price of the investment is below the originally contributed amount.
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 nine-month period ended January 31, 2025:
Schedule of Derivative Liabilities | ||||||||
| Note derivative is related to | January 31, 2025 Balance |
(Gain)/Loss for the Nine Months Ended January 31, 2025 | ||||||
| 8/6/21 convertible notes | $ | $ | ||||||
| 6/17/22 underwriter warrants | ||||||||
| Total | $ | $ | ||||||
The Black-Scholes option pricing model assumptions for the derivative liabilities during the periods ended January 31, 2025 and 2024 consisted of the following:
| Schedule of Derivative Liabilities Using Black-Scholes Pricing Method | ||||||||
Period Ended January 31, 2025 | Period Ended January 31, 2024 | |||||||
| Expected life in years | ||||||||
| Stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividends | % | % | ||||||
| F-7 |
Income Taxes
The Company has adopted ASC 740, Income Taxes, which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary 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.
Prior to the acquisition by YYAI, YYEM was a limited liability company. As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for federal income taxes has been included in the financial statements. In the event of an examination of the Company’s tax return, the tax liability of the members could be changed if an adjustment in the Company’s income is ultimately sustained by the taxing authorities.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Impairment and Disposal of Long-Lived Assets, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. Factors which could trigger impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets, or significant negative industry or economic trends. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. If those net undiscounted cash flows do not exceed the carrying amount, impairment, if any, is based on the excess of the carrying amount over the fair value based on the market value or discounted expected cash flows of those assets and is recorded in the period in which the determination is made.
The Company accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation. 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.
The warrants granted during the periods ended January 31, 2025 and 2024 were valued using a Black-Scholes option pricing model on the date of grant using the following assumptions:
| Schedule of Warrants Granted Valuation Using Black-Scholes Pricing Method | ||||||||
Period Ended January 31, 2025 | Period Ended January 31, 2024 | |||||||
| Expected life in years | ||||||||
| Stock price volatility | % | % | ||||||
| Risk free interest rate | % | % | ||||||
| Expected dividends | % | % | ||||||
| F-8 |
Basic earnings per share are calculated by dividing income available to shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period.
All common stock equivalents such as shares to be issued for the conversion of warrants were excluded from the calculation of diluted earnings per share as the effect is antidilutive.
Recent Accounting Pronouncements
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows, or disclosures.
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07 (“ASU 2023-07”). ASU 2023-07 requires more detailed information about reportable segments and expenses, including the requirement to disclose qualitative information about factors used to identify reportable segments and quantitative information about profit and loss measures and significant expense categories. ASU 2023-07 became effective for public companies in fiscal years beginning after December 15, 2023. The Company operates as a single reportable segment. The chief operating decision maker is the Company’s chief executive officer, who assesses performance based on total revenue, expenses, cash flows, and progress made in the Company’s ongoing development efforts. All of the Company’s long-lived assets are located in Hong Kong. The Company reports revenue by geographical location as required under the standard. The Company has analyzed ASU 2023-07 and determined that the required information is presented within the consolidated financial statements and note disclosures herein. The Company does not believe that ASU 2023-07 will have a material impact on the consolidated financial statements.
Note 3: INTANGIBLE ASSETS
Technology
rights are stated at cost less accumulated amortization and impairment losses. Amortization is calculated on a straight-line basis over
their estimated useful lives of
| Schedule of Acquisition of Intangible Asset – Technology Right | ||||||
| Date | Note | Amount | ||||
| 02/01/2022 | Hey Yuan metaverse Marriage and Love social platform | $ | ||||
| 02/01/2023 | Shangou secure shopping | |||||
| 02/01/2023 | Xinjudi creative base system | |||||
| 01/31/2024 | Safe transaction method of payment with QR code | |||||
| 01/31/2024 | Multifunctional network information security server | |||||
| 01/31/2024 | Internet of things trade follow up method | |||||
| 01/31/2024 | Retail information management control | |||||
| 01/31/2024 | Live scene video automatic production system | |||||
| 01/31/2024 | Video chat method and other storage media | |||||
| 01/31/2024 | Speech recognition and other methods | |||||
| 01/31/2024 | Data processing method and other storage media | |||||
| Total | $ | |||||
| Schedule of Amortization of Intangible Asset – Technology Right | ||||||
| Date | Note | Amount | ||||
| 10/31/2024 | Cost | $ | ||||
| 10/31/2024 | Accumulated amortization | ( | ) | |||
| Net value of Intangible Asset – Technology Right as of January 31, 2025 | $ | |||||
Amortization
expense for the nine-month periods ended January 31, 2025 and 2024 was approximately $
| F-9 |
Note 4: REVENUE – SEGMENT REPORTING BY GEOGRAPHIC REGION
The following represents the Company’s revenue segmented by geographic region for the nine-month and three-month periods ended January 31, 2025. All of the revenue in the nine-month and three-month periods ended January 31, 2024 was from Hong Kong.
| Schedule of Revenue Segment Reporting by Geographic Region | ||||||||
| Location | Nine Months Ended January 31, 2025 | Three Months Ended January 31, 2025 | ||||||
| Hong Kong | ||||||||
| United States of America | ||||||||
| United Kingdom | ||||||||
Note 5: INVESTMENT
This represents a quoted investment in Brightstar Technology Group Co., Ltd. as of January 31, 2025, a company listed on the Hong Kong Stock Exchange. The contributor of this investment has provided a downside guarantee to ensure a minimum value, so the asset is carried at a consistent value during periods in which the per-share price of the investment is below the originally contributed amount.
Note 6: PREPAYMENTS
Prepayments are for the use of technology from unrelated third parties. The prepayments are to be expensed upon the Company using the technology, which is expected to commence in the next financial year beginning on May 1, 2025.
Note 7: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of accounts payable and accrued expenses as of January 31, 2025 and April 30, 2024, respectively.
| Schedule of Accounts Payable and Accrued Expenses | ||||||||
| Note derivative is related to | January 31, 2025 | April 30, 2024 | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries and benefits – management | ||||||||
| Accrued signing bonus | ||||||||
| Accrued success fee | ||||||||
| Accrued directors’ fees | ||||||||
| Accrued professional fees | ||||||||
| Total | $ | $ | ||||||
Note 8: SHAREHOLDERS’ EQUITY (DEFICIT)
Common Stock
The Company has shares of common stock authorized with a par value of $ per share. As of January 31, 2025 and April 30, 2024, the Company had and shares of common stock issued and outstanding, respectively.
For the period from August 1, 2024 through October 31, 2024, the Company issued shares of common stock for the exercise of warrants.
For
the period from May 1, 2024 through July 31, 2024, the Company issued
shares of common stock to true-up shares related to the February 22, 2022 acquisition of PlaySight Interactive Ltd. (),
for services rendered (),
for the exercise of warrants (),
and for fractional shares as part of the
For the period from May 1, 2023 through July 31, 2023, the Company issued shares of common stock to brand ambassadors under their agreements (), to vendors in settlement of accounts payable (), for settlement with former owners of Foundation Sports Systems, LLC (), for the exercise of warrants (), and to satisfy the profit guarantee on a note ().
For
the period from August 1, 2023 through October 31, 2023, the Company issued
shares of common stock for services rendered (),
for settlement with former owners of Flixsense Pty, Ltd. and as remaining contingent consideration (),
for the exercise of warrants (),
and to satisfy the profit guarantee on a note ().
In addition, we issued
to satisfy our requirement under the
For the period November 1, 2024 through January 31, 2025, the Company issued shares of common stock to complete the acquisition of YYEM.
Restricted Stock Grants
The
Company issued restricted stock grants to five directors and officers. The grants are for common stock with a value of $
Note 9: COMMITMENT
On
November 21, 2024, the Company entered into a service agreement with its CEO for a period of five years. Pursuant to the service
agreement, the CEO will be compensated as follows: (a) a monthly gross salary of $
As of January 31, 2025, the Company accrued the
$
Note 10: SUBSEQUENT EVENTS
Not applicable.
| F-10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See “Cautionary Statement Regarding Forward Looking Information” elsewhere in this report. Because this discussion involves risks and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.
Recent Developments Related to the Acquisition
On March 18, 2024, the Company entered into a share purchase agreement (the “Purchase Agreement”) and a share exchange agreement (the “Exchange Agreement”) to acquire 70% of Yuanyu Enterprise Management Co., Limited (“YYEM”) from Mr. Hongyu Zhou, the sole shareholder of YYEM (the “YYEM Seller”) for a combined $56 million (the “Acquisition”). $16.5 million of this amount was paid in cash on March 20, 2024 pursuant to the Purchase Agreement to acquire 20% of YYEM.
On November 21, 2024, following The Nasdaq Stock Market LLC’s (“Nasdaq”) approval of the new listing application submitted to it in connection with the Acquisition, the Company completed the purchase of 5,000 ordinary shares of YYEM, representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the YYEM Seller, representing 55.8% of the issued and outstanding shares of Common Stock as of the date of the closing (the “Share Exchange Transaction”). Upon the purchase of this additional 50%, the Company now owns 70% of YYEM; the additional 30% is reflected as non-controlling interests on the consolidated financial statements. The Company accounted for this transaction as a reverse merger and, as a result, the historical operating results are those of the accounting acquirer YYEM. As part of this transaction, the Company agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established Florida limited liability company called J&M Sports LLC (“J&M”). J&M is owned by Yonah Kalfa, former Chief Innovation Officer and director of the Company, Mike Ballardie, former President, Chief Executive Officer, Treasurer, and director of the Company, Juda Honickman, former Chief Marketing Officer of the Company, and Mark Radom, former general counsel and Secretary of the Company (Mr. Radom is currently a consultant to the Company). On November 21, 2024, the Company entered into a separation and assignment agreement (the “Separation Agreement”) with J&M, to sell, transfer, and assign all or substantially all of its legacy business, assets, and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy Business”) to J&M, in consideration for $1.00. Under the Separation Agreement, J&M obtained the sole right to and assumed all the obligations of the Legacy Business and is liable to the Company for any losses arising from third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). As a result of the completion of the Acquisition, on November 21, 2024, the Company’s directors and officers resigned from their positions on November 21, 2024. On November 19, 2024, prior to the resignation of all the directors of the Company, the Company’s Board of Directors (the “Board”) appointed the five directors named below, with such appointment taking effect on November 21, 2024 upon the closing of the Acquisition.
As an inducement to the Company to complete the Acquisition, Hongyu Zhou (the YYEM Seller and a member of the Board and the Company’s controlling shareholder since November 21, 2024), pursuant to the Exchange Agreement, agreed to make an aggregate payment to the Company of $5 million, of which $2,344,960 was transferred to the Company prior to the closing of the Acquisition and $2,100,000 was transferred to J&M from November 21, 2024 through the date hereof. The remaining $555,040 in cash is due to be paid to J&M, together with an additional $250,000 as additional compensation for J&M’s willingness to delay receipt of the $5 million payment in full.
The following table lists the names, ages, and positions of the individuals who now serve as executive officers and directors of the Company following completion of the Acquisition:
| Name | Age | Position | ||
| Thomas Tarala | 58 | Chief Executive Officer and Director | ||
| Guibao Ji | 60 | Chief Financial Officer | ||
| Hongyu Zhou | 36 | Director | ||
| Warren Thomson | 48 | Director | ||
| Chenlong Liu | 35 | Director | ||
| Kong Liu | 35 | Director |
Set forth below is a brief description of the background and business experience for the past five years of these individuals.
| 1 |
Thomas Tarala
Thomas Tarala has 30 years of international corporate finance experience in New York, London, and Hong Kong, including as a partner at two leading international law firms and as General Counsel for the international operations of one of the largest private conglomerates in China. As a partner of Baker McKenzie from 2022 to 2024 and another international firm earlier in his career, Thomas has led U.S. securities practices in Hong Kong, advising on equity and debt transactions, as well as cross-border joint ventures involving companies listed on Nasdaq. With a particular focus on the technology sector, he has acted for companies and investment banks in Mainland China, Hong Kong, Singapore, Indonesia, and Thailand, including on award-winning transactions in the region.
As General Counsel in the overseas headquarters of HNA Group (International) Company Limited, a large conglomerate, from 2017 to 2022, Thomas worked closely with the business teams on a wide range of corporate and finance transactions, including multi-billion dollar acquisitions and divestments of household-name companies, the sale of airlines, and a range of investments ranging from New York and London skyscrapers to global technology companies, as well as numerous companies that were number one globally in their respective fields.
Thomas graduated magna cum laude and Phi Beta Kappa from Georgetown University with a Bachelor of Science degree in Foreign Service and holds a Juris Doctor degree from the University of Virginia School of Law. Thomas speaks English, French, Spanish, and Mandarin and is qualified to practice law in New York, Connecticut, Florida, England and Wales, and Hong Kong.
Guibao Ji
Guibao Ji has been a certified public accountant in China for 25 years and has worked as an accountant at Shenzhen Wanda Accounting Firm since January 2005. He has been a partner of the firm and also an independent director of a number of listed companies, including Brightstar Technology Group and Hekeda Technology Co. Ltd.
Mr. Ji graduated from Central Radio and TV University in 1994 with a degree in Business Accounting. He was certified by the Chinese Institute of Certified Public Accountants in 1999.
Hongyu Zhou
Hongyu Zhou has 15 years of experience founding, growing, and managing successful enterprises. His experience extends to such areas as enterprise management, entertainment technology, and information technology, including as an investor and business manager of a technology company, as a founder and manager of an innovative entertainment company, and as the founder and manager of several technology companies. Mr. Zhou has served as the Chairman of each of Shenzhen Qiangwo Entertainment Technology Co., Ltd. and Shenzhen Qianyue Information Technology Co., Ltd. since 2021. Mr. Zhou founded Shenzhen Yuanzu Century Network Technology Co., Ltd. in 2020 and Shenzhen Qiangwo Entertainment Technology Co., Ltd. in 2017. In founding, managing, and growing companies across various industries, Mr. Zhou has honed his skills in strategic planning, business development, and team leadership. Mr. Zhou owns 8,127,572 shares of Common Stock, representing 55.8% of the issued and outstanding shares of Common Stock as of March 24, 2025.
Warren Thomson
Warren Thomson is a lawyer with over 20 years of experience at international law firms and companies. Mr. Thomson served as a partner at Hogan Lovells, an international law firm in Dubai from 2013 to 2017, where he advised companies of all sizes in the Middle East and Asia through the whole of their corporate lifecycle, from incorporation through financing and expansion, and sometimes to winding-up. This experience included mergers and acquisitions, and commercial transactions, as well as regulatory, employment, and corporate finance matters. Mr. Thomson worked at HNA Group (International) Company Limited as Senior Counsel from 2018 to 2022 and as General Counsel in 2022, and since 2022 he has served as General Counsel (Overseas) at Link Asset Management Limited, the manager of Link REIT, a multi-billion-dollar real estate investment trust listed in Hong Kong.
Mr. Thomson graduated with a Bachelor of Arts degree from Canberra University and a Bachelor of Laws degree with Honors from Australian National University before earning a Graduate Diploma in legal practice from the College of Law in Sydney. Mr. Thomson is a member of the Australian Chamber of Commerce (sitting on the Finance, Legal and Tax Committee) and the Association of Corporate Counsel and is qualified to practice law in New South Wales (Australia) and Hong Kong.
| 2 |
Chenlong Liu
Chenlong Liu is a certified public accountant, as well as an investor active in the technology industry. Mr. Liu’s career has focused on technology-related investments and mergers and acquisitions. He has participated in many well-known transactions in the industry. As an investment director at China Fusion Capital from 2016 to 2020, he helped execute Nasdaq-listed iQiyi’s convertible bond transactions, Kosdaq-listed Longtu’s acquisition and reverse takeover, Hong Kong-listed Kuaishou’s Series B investment round, and China Fusion Capital’s acquisition of Particle, Inc. Since 2020, Mr. Liu has served as a director of Particle, a San Francisco-based technology company.
Mr. Liu earned a Bachelor of Science degree in mathematics from the University of Minnesota-Twin Cities in 2013 and was awarded a master’s degree in accounting from George Washington University in 2015. Mr. Liu became a certified public accountant in Washington State in January 2019.
Kong Liu
Kong (“Luke”) Liu is an entrepreneur with experience in both traditional industries and the technology and Web3 areas. (He is not related to Chenlong Liu.) Mr. Liu has experience in management and strategy roles in companies ranging from startups to multinationals, and he has founded several companies over the years. Mr. Liu has a particular focus on digital strategies at both traditional retailers and technology companies, as well as in the recruitment field. He serves as a managing director of MS Consultancy Pte Ltd, a business consultancy that he founded in November 2020 focusing on recruitment and M&A advisory work. He previously served as the CEO of World@Meta, a Singapore-based technology company developing mobile apps and games, where maximizing user engagement was a primary objective. In such environments, Mr. Liu has been responsible for establishing the vision of the enterprise and working across teams to make that vision a reality.
Mr. Liu graduated from Nanyang Polytechnic, in Singapore, with a Diploma of Information Technology and from Trent University, in Canada, with a Bachelor of Business Administration.
The following table identifies the individual who serve as independent and non-independent board and committee members of the Company following completion of the Acquisition:
| Name: | Independent | Audit | Compensation | Nominating | ||||
| Thomas Tarala | ||||||||
| Hongyu Zhou | ||||||||
| Warren Thomson | Yes | Yes | Yes | Yes | ||||
| Chenlong Liu | Yes | Yes | Yes | Yes | ||||
| Kong (“Luke”) Liu | Yes | Yes | Yes | Yes |
Business Overview
Established in November 2021, YYEM is based in Hong Kong and operates in the emerging love and marriage market sector. YYEM owns proprietary intellectual property (IP), that the Company believes is unique to this business sector. Its AI matchmaker application is designed to integrate with existing Big Data models and provides the ability to connect to other larger AI models.
YYEM collected royalties of approximately $1.9 million in its fiscal year ended January 31, 2024 In addition, YYEM has entered into term sheets with three entities — one in Hong Kong for rights to use the IP in Japan and South Korea among other locations, one in the UK for rights to use the IP in Europe, and one in the USA for rights to use the IP in Sub-Saharan Africa — with cumulative possible revenue over the next three years of more than $70 million.
For the quarter ended January 31, 2025, the operations of Connexa Sports Technologies Inc. and YYEM are collectively referred to as the “Company.” Following the closing of the Acquisition and the Separation, the Company’s historic operations are no longer part of the Company’s operations and YYEM is the Company’s operating subsidiary. The results of the Company’s operations for the nine-month period ended January 31, 2025 do not reflect the Legacy Business operations and are not representative of what the results of operations of the Company would have been if the Acquisition had not taken place.
| 3 |
Recent Developments Unrelated to the Acquisition
Change in Accountants
On October 30, 2024, the Board and the audit committee approved the engagement of Bush & Associates CPA (“B&A”) as the Company’s independent registered public accounting firm for the fiscal year ended April 30, 2025, effective immediately, and dismissed Olayinka Oyebola & Co (“OOC”) as the Company’s independent registered public accounting firm. OOC had audited the Company’s consolidated financial statements for the fiscal years ended April 30, 2023 and 2024. However, in light of charges brought by the SEC against OOC and its principal, Olayinka Oyebola, for allegedly aiding and abetting a securities fraud, the Board and audit committee considered it inadvisable to continue with OOC as the Company’s auditor.
On October 31, 2024, the management of YYEM also dismissed OOC as its independent registered public accounting firm.
OOC’s reports on the consolidated financial statements of the Company for the years ended April 30, 2024 and 2023 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, other than an explanatory paragraph regarding the Company’s ability to continue as a going concern.
During the course of OOC’s engagement there were no disagreements with OOC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of OOC, would have caused OOC to make reference to the matter in its audit opinion. There were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K) during the period OOC was engaged as the Company’s auditor.
For more information regarding recent developments related to OOC, see “Risk Factors — Our former independent auditor, Olayinka Oyebola & Co. and its principal have been charged by the SEC in connection with securities fraud allegations.”
MCN Agency Services Agreement
In February 2025, YYEM signed a Multi-Channel Network (MCN) agency services agreement to create and sell content to TikTok as part of YYEM’s new vertical centered on social networking applications. Under this agreement, YYEM will procure the production of content to be live-streamed or served as videos to TikTok’s users in the Middle East and North Africa. This is expected to include engaging broadcasts across various categories, such as sports, gaming, and lifestyle topics, produced by popular Twitch hosts and other influencers within the network that YYEM is developing. We anticipate that YYEM’s new vertical will also include live-streaming, voice chat rooms, gaming, and influencer-driven user-generated content. The fees generated by the arrangement with TikTok will depend on the rate of conversion by TikTok end-users. YYEM did not receive any payment from TikTok upon the signing of this agreement. Neither the Company nor YYEM has built a network of influencers yet.
| 4 |
Results of Operations for the Nine-Month and Three-Month Periods Ended January 31, 2025 and 2024
The following are the results of our operations for the nine-month period ended, and the three-month period ended, January 31, 2025 as compared to the corresponding period in 2024. In the discussion that follows the table of results, figures in the hundreds of thousands are rounded to the nearest thousand, while figures in the millions, are rounded to one decimal place, i.e., to the nearest hundred thousand.
| Nine Months Ended January 31, | Change | Three Months Ended January 31, | Change | |||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||
| Net Revenue | $ | 9,818,181 | $ | 1,442,308 | 581 | % | $ | 3,272,727 | $ | 480,768 | 581 | % | ||||||||||||
| Cost of Revenue | 2,232,693 | 432,692 | 416 | % | 744,231 | 144,230 | 416 | % | ||||||||||||||||
| Gross Profit | 7,585,488 | 1,009,616 | 651 | % | 2,528,496 | 336,538 | 651 | % | ||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||
| General and administrative expenses | 2,286,207 | 6,087 | N/A | * | 1,998,205 | 1,905 | N/A | |||||||||||||||||
| Total Operating Expenses | 2,286,207 | 6,087 | N/A | * | 1,998,205 | 1,905 | N/A | |||||||||||||||||
| Operating Income | 5,299,281 | 1,003,529 | 428 | % | 530,791 | 334,633 | 58 | % | ||||||||||||||||
| Non-Operating Income/(Expense) | ||||||||||||||||||||||||
| Change in fair value of derivative liability | (4 | ) | (4 | ) | - | |||||||||||||||||||
| Total Non-Operating Income | (4 | ) | (4 | ) | ||||||||||||||||||||
| Net Income from Operations Before Provision for Income Taxes | 5,299,277 | 1,003,529 | 428 | % | 530,287 | 334,633 | 58 | % | ||||||||||||||||
| Provision for Income Taxes | (1,250,762 | ) | (165,582 | ) | 655 | % | (373,879 | ) | (55,216 | ) | 577 | % | ||||||||||||
| Net Income | 4,084,515 | 837,947 | 156,408 | 279,417 | ||||||||||||||||||||
* Over 10,000%
Note: The above chart does not include amounts for the non-controlling interest.
Net Revenue
Net revenue increased by $8.4 million, or 581%, for the nine-month period ended January 31, 2025, and by $2.8 million, or 581%, for the three-month period ended January 31, 2025, each as compared to the corresponding period in 2024. These increases were driven by royalty income from new licensees. Because of the revenue recognition policies described in Note 2 to the financial statements, in particular the fact that revenue is recognized at the end of each month over the term of the relevant license agreements as the service is provided to the customers, the three-month percentage increases and the nine-month percentage increases are consistent.
Cost of Revenue and Gross Income
Cost of revenue increased by $1.8 million, or 416%, for the nine-month period ended January 31, 2025, and by $600,000, or 416%, for the three-month period ended January 31, 2025, each as compared to the corresponding period in 2024. These increases were primarily due to the increase in amortization costs of new intellectual property or technology rights. Gross profit increased by $2.2 million, or 651%, for the three-month period ended January 31, 2025, and by $6.6 million or 651%, for the nine-month period ended January 31, 2025, as compared to the same periods in 2024, driven by our higher royalty income.
General and Administrative Expenses
General and administrative expenses, which, in these periods, mainly related to our salaries, professional fees, and other operating expenses, increased by $2,280,120 for the nine-month period ended January 31, 2025, and by $1,996,300 for the three-month period ended January 31, 2025, in both cases from an immaterial amount in the corresponding periods in 2024. These increases were primarily driven by increases in royalty revenue for the period and by the fact that we began incurring personnel costs in preparation for YYEM becoming an operating subsidiary of a Nasdaq-listed company and expenses related to YYAI and directors’ fees.
Net Income from Operations
Net income from operations increased by $4.3 million for the nine-month period ended January 31, 2025, and by $196,000 for the three-month period ended January 31, 2025, each as compared to the corresponding period in 2024. These increases were primarily the result of the royalty income generated by new licensees in relation to the intellectual property and technology rights noted above partially offset by increases in professional fees and director fees.
Liquidity and Capital Resources
We finance our operations primarily through cash generated from operations. We recorded net current assets of $15.3 million as of January 31, 2025, compared to $9.0 million as of April 30, 2024, an increase of approximately $6.3 million. Our accounts receivable increased by $9.1 million as we recognized royalty revenue over this period in accordance with our recognition policy while the credit terms of our licensees, to afford them time to monetize the licensed technology, gave them 90 days from the end of the financial year to pay.
| 5 |
Description of Indebtedness
We have no outstanding indebtedness.
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.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide disclosure about market risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Form 10-Q, is collected, recorded, processed, summarized, and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. Because of the inherent limitations of the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved. As required under Exchange Act 13a-15, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report.
Based on this evaluation, the Company’s principal executive and principal financial officers concluded that the disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in reports the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the chief executive and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s principal executive and principal financial officers believe that the Company would benefit from finance personnel with extensive experience and expertise in U.S. public company accounting and internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
Apart from appointing distinct individuals to the Chief Executive and Chief Financial Officer positions, which addressed a material weakness in the Company’s internal control over financial reporting under prior management, there have been no substantial changes in internal control over financial reporting following the Acquisition.
| 6 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us or has a material interest adverse to us.
None of our executive officers or directors have (i) been involved in any bankruptcy proceedings within the last five years, (ii) been convicted in or has pending any criminal proceedings (other than traffic violations and other minor offenses), (iii) been subject to any order, judgment, or decree enjoining, barring, suspending, or otherwise limiting involvement in any type of business, securities, or banking activity, or (iv) been found to have violated any Federal, state, or provincial securities or commodities law without such finding being reversed, suspended, or vacated.
Item 1A. Risk Factors
Due to the change of control of the Company and the completion of the Acquisition, there have been material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended April 30, 2024.
The market price of our Common Stock will continue to fluctuate.
The market price of our Common Stock will continue to fluctuate, potentially significantly, as a result of a variety of factors, including, among others, general market and economic conditions, and changes in our business, operations and prospects, in interest rates, in general market, industry and economic conditions and in other factors generally affecting stock prices, federal, state and local legislation, governmental regulation and legal developments in the industry segments in which we will operate. Our market capitalization and trading volume may contribute to greater volatility. In addition, any significant price or volume fluctuations in the stock market generally could have a material adverse effect on the market for, or liquidity of, our Common Stock, regardless of our actual operating performance.
| 7 |
Due to the Acquisition, our stockholders have a significantly lower ownership and voting interest in us than they had in Connexa prior thereto and exercise less influence over management and policies of Connexa.
Based on the number of shares of our Common Stock outstanding as of the close of business on March 24, 2025, stockholders of the Company owned approximately 44.2% of the outstanding shares of our Common Stock and the YYEM shareholder owned approximately 55.8% of the outstanding shares of our Common Stock. Consequently, the YYEM Seller is able to exert significant influence over certain matters, including matters that must be resolved by a general meeting of shareholders, such as the election of members to the board of directors or the declaration of dividends or other distributions. To the extent that the interest of this shareholder may differ from the interests of the Company’s other shareholders, the Company’s other shareholders may be disadvantaged by any actions that this shareholder may seek to pursue. Additionally, stockholders may not realize a benefit from the Acquisition commensurate with the ownership dilution they experienced in connection with that transaction.
Although we expect that our Common Stock will remain listed on Nasdaq, there can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.
On several occasions in the past, we have failed to comply with Nasdaq’s listing rules. We cannot assure you that we will be able to meet Nasdaq’s continued listing standards, and we can provide no assurance that we will be able to satisfy the initial listing requirements.
If Nasdaq delists our Common Stock due to our failure to meet its continued listing standards, we and our stockholders could face significant material adverse consequences including:
| ● | a limited availability of market quotations for our securities; | |
| ● | a determination that our Common Stock is a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares; | |
| ● | a limited amount of analyst coverage and more limited universe of potential investors in our securities; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
| 8 |
The price of our Common Stock may continue to be especially volatile, and if the Acquisition’s benefits do not meet the expectations of investors, stockholders, or financial analysts, the market price of our Common Stock may decline.
Prior to the Acquisition, there was no public market for YYEM’s securities. Accordingly, the valuation ascribed to YYEM and our Common Stock in the Acquisition might not have been indicative of the price that will prevail in the trading market following the Acquisition. If an active market for our Common Stock continues, the trading price could be especially volatile, and fluctuations in the price of our Common Stock could contribute to the loss of all or part of your investment. For the period following the Acquisition and beyond, our stock price may be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below, among others, could have a material adverse effect on your investment, and our Common Stock may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our Common Stock may not recover and may experience a further decline.
If the benefits of the Acquisition, and the performance of the Company more broadly, do not meet the expectations of investors or securities analysts, the market price of our Common Stock may decline. Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial condition, or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
YYEM may not realize anticipated growth opportunities.
We expect that YYEM will realize growth opportunities and other financial and operating benefits as a result of the Acquisition, although we cannot predict with certainty if or when these growth opportunities and benefits will occur, or the extent to which they actually will be achieved. For example, the benefits from the Acquisition may be offset by costs incurred in connection with the Acquisition, or as a result of being part of a public company.
Risks Related to Our Business, Operations, Industry, Legal, and Regulatory Requirements
We are dependent on third parties for a significant portion of our revenue through intellectual property licensing agreements, and we may not realize the expected benefits of such arrangements.
We have in the past entered into, and may continue to enter into, licensing arrangements with third parties that we believe will commercialize our intellectual property and bolster our revenue.
Our revenue from licensing agreements increased significantly in the nine-month period ended January 31, 2025, constituting substantially all of our revenue, and our results of operations have been, and may continue to be, affected by such arrangements. Licensing agreements involving our intellectual property are subject to various risks. Our licensees may fail to comply with their obligations set out in the respective agreements. If the licensees generate insufficient revenue from their operations, they may be unable to meet the minimum payments required under the agreements. Our licensees may elect to cease the licensing arrangements due to a change in their strategic focus, the availability of funding, or other external factors. Termination of any licensing arrangements may result in a reduction in our revenue and the need for replacement arrangements with other licensees.
Our licensees have significant discretion in determining the efforts and resources that they will apply to their own operations, potentially resulting in less revenue than we anticipate at the outset of the relationship. Such licensees may independently develop intellectual property that could substitute for ours or may partner with competitors offering different technology.
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Our licensees may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property rights or our rights over our proprietary information or could expose us to potential liability.
Disputes may arise between us and our licensees that interfere with the licensing arrangements or lead to the termination of the licensing agreements. Such disputes could result in costly litigation or arbitration that diverts management attention and resources.
As we expand to new jurisdictions, if we fail to enter into licensing arrangements for a particular territory with a suitable strategic partner and do not have sufficient funds or local expertise to undertake the necessary commercialization activities ourselves, we may not be able to generate revenue from such territory.
For these and other reasons, we may not achieve the outcomes expected from our licensing arrangements. These arrangements are subject to significant business, economic, and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond our control. We may face operational and financial risks including increases in near- and long-term expenditure, exposure to unknown liabilities, disruption of our business, and diversion of our management’s time and attention. Even if we achieve the expected benefits, we may not be able to do so within the anticipated time frame. Any of the foregoing could materially adversely affect our business, financial condition, results of operations, and prospects.
The love and marriage market sector, including matchmaking apps, is competitive, with low switching costs and a consistent stream of new services and entrants, and innovation by competitors may disrupt our business.
The love and marriage market sector, including matchmaking apps, is competitive, with a consistent stream of new services and entrants. Some of our competitors and the competitors of our licensees may enjoy better competitive positions in certain geographical regions, user demographics, or other key areas that we or our licensees currently serve or may serve in the future. These advantages could enable such competitors to offer services that are more appealing to users and potential users than the services offered by us or our licensees or to respond more quickly or cost-effectively than us or our licensees to new or changing opportunities.
In addition, within the love and marriage market sector generally, costs for consumers to switch between services are low, and consumers have a propensity to try new approaches to connecting with people and to use multiple services at the same time. As a result, new services, entrants, and business models are likely to continue to emerge. If we or a licensee become established as a dominant player in any particular market, it is possible that a new service could gain rapid scale at the expense of existing brands by harnessing a new technology, such as generative AI, or a new or existing distribution channel, creating a new or different approach to connecting people, or some other means. We may need to respond by introducing new services or features (for us or for our licensees), and we may not be successful in that. If we do not sufficiently innovate to provide new services, or improve upon existing services, that users or prospective users find appealing, we or our licensees may be unable to continue to attract new users or continue to appeal to existing users.
Potential competitors include larger companies that could devote greater resources to the promotion or marketing of their services, take advantage of acquisitions or other opportunities more readily, or develop and expand their services more quickly than we or our licensees do. Potential competitors also include established social media companies that may develop features or services that compete with ours or our licensees’ or operators of mobile operating systems and app stores. For example, Facebook offers a dating feature on its platform, which it rolled out globally several years ago and has grown dramatically in size supported by Facebook’s massive worldwide user footprint. These social media and mobile platform competitors could use strong or dominant positions in one or more markets, coupled with ready access to existing large pools of potential users and personal information regarding those users, to gain competitive advantages over us or our licensees, including by offering different features or services that users may prefer or offering their services to users at no charge, which may enable them to acquire and engage users at the expense of our user growth or engagement.
If we are not able to compete effectively against current or future competitors as well as other services that may emerge, or if our decisions regarding where to focus our investments are not successful in the long term, the size and level of engagement of our user base may decrease, which could have an adverse effect on our business, financial condition, and results of operations. If, similarly, our licensees are unable to compete effectively or are unsuccessful in this regard, the size and level of engagement of their user base may decrease, which could impact their payments to us and therefore have an adverse effect on our business, financial condition, and results of operations.
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The limited operating history and geographic reach of YYEM’s brands and services makes it difficult to evaluate our current business and future prospects.
We seek to tailor our services to meet the preferences of specific geographies, demographics, and other communities of users. Building a given brand or service is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditure. The historical growth rate of any brand or service may not be indicative of future growth rates for the brand or service or for brands and services that we may launch in other jurisdictions. We may encounter risks and difficulties as we build our brands and services. The failure to successfully scale these brands and services and address these risks and difficulties could adversely affect our business, financial condition, and results of operations.
If our licensees fail to add users (or if we fail to do so after developing our own offerings for end users), our revenue, financial results, and business may be significantly harmed.
Our financial performance will be significantly determined by our licensees’ success in adding and retaining users of their services (or our ability to do so if we develop our own offerings for end users). Currently, the size of our licensees’ user base is impacted by a number of factors, including competing products and services and global and regional business, macroeconomic, and geopolitical conditions.
If people do not perceive our licensees’ services to be useful, the licensees may not be able to attract or retain users. With each new generation of users, expectations of matchmaking and dating services change and user behaviors and priorities shift. As a result, we may need to further leverage our existing capabilities or advances in technologies such as artificial intelligence (“AI”) and those relating to the metaverse, or adopt new technologies, to improve our licensees’ existing services or introduce new services in order to better satisfy existing users and to expand our licensees’ penetration of what continues to be a large available new-user market. However, there can be no assurance that further implementation of technologies such as AI and those relating to the metaverse will enhance our licensees’ services or be beneficial to our business, and the introduction of new features or services to their existing services may have unintended consequences for their ecosystem, which could lead to fluctuations in the size of their user base.
If our licensees are unable to maintain or increase the size of their user base (or if we are unable to do so), our revenue and other financial results may be adversely affected. Furthermore, as the size of our licensees’ user base fluctuates in one or more markets from time to time, we may become increasingly dependent on our ability to maintain or increase levels of monetization in order to grow our revenue. Any significant decrease in user retention or growth could render our licensees’ services less attractive to users, which could have a material adverse impact on our business, financial condition, and results of operations.
If we develop our own offerings for end users, our growth and profitability will rely, in significant part, on our ability to attract and retain users through cost-effective marketing efforts. Any failure in those efforts could adversely affect our business, financial condition, and results of operations.
Attracting and retaining users for any services we develop for end users will involve considerable expenditure for online and offline marketing, likely requiring higher marketing outlays over time in order to sustain our growth. This also applies to our licensees, whose success is a key component of our own. Evolving consumer behavior can affect the availability of profitable marketing opportunities. Offline campaigns may diminish in effectiveness as consumers move increasingly online. Online campaigns may become less fruitful as large tech platforms, such as Apple and Google, increasingly limit advertisers’ ability to access and use unique advertising identifiers, cookies, and other information to acquire potential users (such as Apple’s rules regarding the collection and use of identifiers for advertising, often referred to as IDFA). To continue to reach potential users and grow our businesses after developing our own offerings for end users, we will likely be required to identify and devote more of our overall marketing expenditure to newer advertising channels, such as social media and online video platforms. We could have less success using these newer advertising channels and methods to identify potential customers. There can be no assurance that we will be able to appropriately manage our marketing efforts in response to these and other trends in the advertising industry. Any failure to do so could adversely affect our business, financial condition, and results of operations.
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Distribution and marketing of, and access to, the online services offered by us and our licensees may rely, in significant part, on a variety of third-party platforms, in particular, mobile app stores. If these third parties limit, prohibit, or otherwise interfere with features or services or change their policies in any material way, it could adversely affect our business, financial condition, and results of operations.
We may market and distribute our online services (including our AI matchmaker application) through a variety of third-party distribution channels, some of which may limit or prohibit advertisements for services such as ours, whether because they decide to launch competing offerings in the same industry or because they are reacting to poor behavior by other industry participants, or for some other reason. Furthermore, certain platforms on which we may market our services may not properly monitor or ensure the quality of content located adjacent to or near our advertisements on such platforms, which could have a negative effect on consumers’ perceptions of our company. The same issues apply to our licensees’ distribution channels and the platforms on which they may market their services. Any of these developments could rise to a level where our business, financial condition, and results of operations are adversely affected.
Additionally, our mobile applications and those of our licensees’ will be most often accessed through the Apple App Store and Google Play Store. Both Apple and Google have broad discretion to change their policies regarding their mobile operating systems and app stores in ways that may limit, eliminate, or otherwise interfere with a company’s ability to distribute or promote its applications through their stores, its ability to update its applications, and its ability to access information that the apps collect about users. To the extent either Apple or Google does so, our business, financial condition, and results of operations could be adversely affected.
The success of our services for end users, and those of our licensees, will depend in part on our ability, or our licensees’ ability, to access, collect, and use personal data about users and subscribers.
We and our licensees may rely extensively on the Apple App Store and Google Play Store, as well as other technology platforms, to distribute and monetize our mobile applications. Users and subscribers will pay through these platforms, which will prevent us or our licensees from accessing key user data that we or they would otherwise receive if the transaction were with the users and subscribers directly. This could negatively impact customer relationship management efforts, the ability to reach new segments of our respective user and subscriber bases and the population generally, the efficiency of paid marketing efforts, the rates we or our licensees are able to charge advertisers seeking to reach users and subscribers of our respective services, our ability to comply with applicable law, and our ability, and our licensees’ ability, to identify and exclude users and subscribers whose access would violate applicable terms and conditions, including underage individuals and bad actors, all of which could cause our business, financial condition, and results of operations to be adversely affected.
As the distribution of our online services through app stores increases, in order to maintain our profit margins, we may need to take steps to offset increasing app store fees by decreasing traditional marketing expenditure, increasing user volume or monetization per user, or consolidating back-office and technical functions, or by engaging in other efforts to increase revenue or decrease costs generally.
While we expect that any mobile applications that we may develop will be free to download from intermediary platforms like the Apple App Store and the Google Play Store, we intend to offer our users the opportunity to purchase subscriptions and features within the applications. These purchases are in most cases required to be processed through the in-app payment systems provided by the intermediary, thus requiring us to pay them a meaningful share of the revenue we receive from these transactions.
While we expect to innovate and develop our own payment systems and methods, given the expected increase in fees relating to these intermediary platforms, we may in the future need to offset these increased fees by decreasing traditional marketing expenditure as a percentage of revenue, increasing user volume or monetization per user, or consolidating back-office or technical functions, or by engaging in other efforts to increase revenue or decrease costs generally.
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Challenges properly managing the use of artificial intelligence could result in reputational harm, competitive harm, and legal liability.
We and our licensees are working to integrate AI technologies into our respective services, which integrations may become important to our operations over time. Competitors or other third parties may incorporate AI into their services more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, AI algorithms and training methodologies may be flawed. If the content or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, offensive, biased, or otherwise improper or harmful, we or our licensees may face reputational consequences or legal liability, and our business, financial condition, and results of operations may be adversely affected. Furthermore, the use of AI has been known to result in, and may in the future result in, cybersecurity incidents that implicate the personal data of end users of AI-enhanced services. Any such cybersecurity incidents related to our use of AI or our licensees’ use of AI could adversely affect our reputation and results of operations. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience reputational harm, competitive harm, or legal liability. The rapid evolution of AI will require the dedication of significant resources to develop, test, and maintain AI technologies, including to further implement AI ethically in order to minimize unintended harmful impact. While we will aim to deploy AI responsibly and attempt to identify and mitigate ethical and legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before they arise.
The legal and regulatory landscape surrounding generative AI technologies is rapidly evolving and uncertain, including in the areas of intellectual property, discrimination, cybersecurity, and privacy and data protection. Compliance with existing, new, and changing laws, regulations, and industry standards relating to AI may limit some uses of AI, impose significant operational costs, and limit our ability to develop, deploy, or use AI technologies. Furthermore, the integration of AI technologies into our products and services may result in new or enhanced governmental or regulatory scrutiny. Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory action, or reputational harm.
Foreign currency exchange rate fluctuations may adversely affect our results of operations.
Because our reporting currency is the U.S. dollar but our revenue may be received in various other currencies due to our international operations, our revenue could be reduced when translated into U.S. dollars during periods of a strengthening U.S. dollar. In addition, as foreign currency exchange rates fluctuate, the translation of our international revenue into U.S. dollar-denominated operating results affects the period-to-period comparability of such results and could also result in foreign currency exchange gains and losses.
We depend on our key personnel.
Our future success will depend on our continued ability to identify, hire, develop, motivate, and retain highly skilled individuals across the markets where we operate, with the continued contributions of management, as well as contributions from sales teams and technology teams, being especially critical to our success. Competition for well-qualified employees is intense, and our continued ability to compete effectively depends, in part, on our ability to attract new employees.
Effective succession planning is also important to our future success. If we fail to ensure the effective transfer of management or other institutional knowledge, our ability to execute short- and long-term strategic, financial, and operating goals, as well as our business, financial condition, and results of operations generally, could be adversely affected.
In addition to intense competition for talent, workforce dynamics are constantly evolving, such as recent broad shifts to hybrid work models. If we do not manage changing workforce dynamics effectively, it could materially adversely affect our culture, reputation, and operational flexibility going forward.
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Our success may depend, in part, on the integrity of our systems and infrastructure and on our ability to enhance, expand, and adapt these in a timely and cost-effective manner.
To succeed with our own offerings for end users, our systems and infrastructure must perform well on a consistent basis. We may from time to time experience system interruptions that make some or all of our systems or data unavailable and prevent our services from functioning properly for our users. Any such interruption could arise for any number of reasons, including as a result of our own actions, actions by government agencies, cyberattacks, fire, power loss, telecommunications failures, computer viruses, software bugs, acts of God, and similar events. While we expect to have backup systems in place for certain aspects of our operations, not all of our systems and infrastructure will be fully redundant, disaster recovery planning will not be sufficient for all eventualities, and we may not have insurance coverage that compensates us fully, or at all, for any losses that we may suffer. Any interruptions or outages, regardless of the cause, could negatively impact our users’ experiences, tarnish our reputation, and decrease demand for our services, any or all of which could adversely affect our business, financial condition, and results of operations.
We will work on our technology and network to improve the experience of our users, accommodate substantial increases in the volume of traffic to our various platforms, and ensure acceptable load times for our services, and keep up with changes in technology and user preferences. Any failure to do so in a timely and cost-effective manner could adversely affect our users’ experience with our various services, thereby negatively impacting the demand for our services, and could increase our costs, either of which could adversely affect our business, financial condition, and results of operations.
From time to time, we may augment and enhance, or transition to other, enterprise resource planning, human resources, financial, or other systems. Such actions may cause us to experience difficulties in managing our systems and processes, which could disrupt our operations, the management of our finances, and the reporting of our financial results, which, in turn, may result in our inability to manage the growth of our business and to accurately forecast and report our results, each of which could adversely affect our business, financial condition, and results of operations.
We may not be able to protect our systems and infrastructure from cyberattacks and may be adversely affected by cyberattacks experienced by third parties.
If we build out our own online offerings, we may find ourselves targeted by cyberattacks, computer viruses, worms, bot attacks or other destructive or disruptive software, distributed denial of service attacks, and attempts to misappropriate customer information, including personal user data, credit card information, and account login credentials. While we would expect to invest in the protection of our systems and infrastructure, in related personnel and training, and in employing a data minimization strategy where appropriate, there can be no assurance that our efforts will prevent significant breaches in our systems or other such events from occurring. Any cyber or similar attack that we are unable to protect ourselves against could damage our systems and infrastructure, prevent us from providing our services, tarnish our reputation, result in the disclosure of confidential or sensitive information of our users, and be costly to remedy, as well as subject us to investigation by regulatory authorities or to litigation that could result in liability to third parties.
The impact of cyber or similar attacks experienced by any third parties who provide services to us or might otherwise process data on our behalf could have a similar effect on us. Even cyber or similar attacks that do not directly affect us or our third-party service providers or data processors may result in widespread access to user data, for instance through account login credentials that such users might have used across multiple internet sites, including our sites, or directly through access to user data that these third-party service providers could process in the context of the services they provide to us. These events can lead to government enforcement actions, fines, and litigation, as well as a loss of consumer confidence generally, which could make users less likely to use or continue to use our services. The occurrence of any of these events could have an adverse effect on our business, financial condition, and results of operations.
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Our success will depend, in part, on the integrity of third-party systems and infrastructure.
If we develop our own offerings for end users, we may rely on third parties in connection with the provision of our services generally, as well as to facilitate and process certain transactions with our users. These third parties would likely include data centers and cloud-based, hosted web service providers, as well as third-party computer systems, service providers, and broadband and other communications systems. We will have no control over any of these third parties or their operations, and such third-party systems are increasingly complex. Any changes in service levels at our data centers or hosted web service providers or any interruptions, outages, or delays in our systems or those of our third-party providers, deterioration in the performance of these systems, or cyber or similar attacks on these systems could impair our ability to provide our services or process transactions with our users, which would adversely impact our business, financial condition, and results of operations.
If the security of personal and confidential or sensitive user information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate the impact of such an event and our reputation could be harmed.
If we develop our own offerings for end users, we will receive, process, store, and transmit a significant amount of personal user and other confidential or sensitive information, including, without limitation, credit card information and user-to-user communications. We would also likely enable our users to share their personal information with each other. In some cases, we might engage third-party service providers to store or process this information. We will work to protect the security, integrity, and confidentiality of this information, but we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur in the future or that third parties will not gain unauthorized access to, or will not use for unauthorized purposes, this information despite our efforts. When such events occur, we may not be able to remedy them, and we may be required by an increasing number of laws to notify regulators and individuals whose personal information was processed, used, or disclosed without authorization. We may also be subject to claims against us, including government enforcement actions, fines, and litigation, and have to expend significant capital and other resources to mitigate the impact of such events, including by developing and implementing protections to prevent future events of this nature from occurring. When breaches of security (or the security of our service providers) occur, the perception of the effectiveness of our security measures, the security measures of our service providers, and our reputation may be harmed, we may lose current and potential users, and our reputation and competitive position may be tarnished, any or all of which might adversely affect our business, financial condition, and results of operations.
Our business is subject to complex and evolving laws and regulations, including with respect to data privacy and platform liability, particularly if we develop our own offerings for end users. These laws and regulations are subject to change and uncertain interpretation and could result in changes to our business practices, increased cost of operations, declines in user growth or engagement, legal claims, monetary penalties, or other harm to our business.
As we plan on expanding our footprint internationally, we will be subject to a variety of laws and regulations that involve matters that are important to or may otherwise impact our business. We are indirectly affected by laws and regulations in jurisdictions where we do not operate but our licensees do. Some laws and regulations can be enforced by private parties in addition to governmental entities and are constantly evolving and subject to change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the rapidly evolving industry in which we and our licensees operate, and such laws and regulations may be interpreted and applied inconsistently from jurisdiction to jurisdiction. These laws and regulations, as well as any associated inquiries, investigations, or other government actions, may be costly to comply with and may delay or impede the development of new services, require changes to or cessation of certain business practices, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines or modifications to existing business practices.
Tax laws, in particular, are subject to interpretation by the relevant taxing authorities. While we endeavor to comply with applicable law, there can be no assurance that the relevant taxing authorities will not take a position contrary to us, and if so, that such position will not adversely affect us, directly or indirectly. Any events of this nature could adversely affect our business, financial condition, and results of operations.
Proposed or new legislation and regulations could also adversely affect our business. To the extent new or more stringent measures are required to be implemented, impose new liability, or limit or remove existing protections, our business, financial condition, and results of operations could be adversely affected.
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The adoption of any laws or regulations that adversely affect the popularity or growth in use of the internet or our services, including laws or regulations that undermine open and neutrally administered internet access, could decrease user demand for our service offerings and increase our cost of doing business, thereby negatively impacting our business, financial condition, and results of operations.
If we develop our own offerings for end users, we will be subject to a number of risks related to credit card payments, including data security breaches and fraud that we or third parties experience, any of which could adversely affect our business, financial condition, and results of operations.
If we develop our own offerings for end users, we will likely accept payment from our users primarily through credit card transactions and certain online payment service providers. When we or a third party experiences a data security breach involving credit card information, affected cardholders will often cancel their credit cards. In the case of a breach experienced by a third party, the more sizable the third party’s customer base and the greater the number of credit card accounts impacted, the more likely it is that our users would be impacted by the breach. To the extent our users are affected by such a breach experienced by us or a third party, we would need to contact such users to obtain new credit card information and process any pending transactions. It is likely that we would not be able to reach all affected users, and even if we could, some users’ new credit card information may not be obtained and some pending transactions may not be processed, which could adversely affect our business, financial condition, and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their credit cards online or choose alternative payment methods that are less convenient or more costly for us or otherwise restrict our ability to process payments without significant effort on the part of the user or us, or both.
Additionally, if we fail to adequately prevent fraudulent credit card transactions, we may face litigation, fines, governmental enforcement action, civil liability, diminished public perception of our security measures, significantly higher credit card-related and remediation costs, or refusal by credit card processors to continue to process payments on our behalf, any of which could adversely affect our business, financial condition, and results of operations.
If we develop our own offerings for end users, inappropriate actions by certain of our users could be attributed to us and damage our reputation, which in turn could adversely affect our business.
Users of our services may in the future be physically, financially, emotionally, or otherwise harmed by individuals that such users meet through one of our services. If any users suffer or allege to have suffered any such harm, we could experience negative publicity or legal action that could damage our reputation. Similar events affecting users of our competitors’ services could result in negative publicity for our industry generally, which could in turn negatively affect our business.
In addition, our reputation may be adversely affected by actions of our users that are deemed to be hostile, offensive, defamatory, inappropriate, untrue, or unlawful. While our focus to date on offline matchmaking has helped to avoid such incidents, and while we intend to develop systems and processes that aim to monitor and review the appropriateness of content accessible through our online services, together with policies regarding illegal, offensive, or inappropriate use of our services, our users could nonetheless engage in activities that violate our policies. Such bad actors may also use emerging technologies, such as AI, to engage in such activities, making it more difficult for us to detect and prevent such negative behavior. Our safeguards may not be sufficient to avoid harm to our reputation, especially if such hostile, offensive, or inappropriate use is well-publicized.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We currently rely exclusively on patents that we license out, and we expect, in the future, that we will rely heavily on our trademarks and related domain names and logos for marketing and to build and maintain brand loyalty and recognition. We also expect to rely on other patented and patent-pending proprietary technologies and trade secrets, such as our own app, relating to our services.
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We will continue to rely on a combination of laws and contractual restrictions to establish and protect our intellectual property rights. For example, we continue to apply to register, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and we are reserving, registering, and renewing domain names as we deem appropriate. Effective trademark protection may not be available or sought in every country in which our services are made available, and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or registered by us, even if available.
We generally will seek to apply for patents or other similar statutory protections as and when we deem appropriate, based on then-current facts and circumstances. No assurance can be given that any patent application we have filed or will file will result in a patent being issued, or that any existing or future patents will afford adequate protection against competitors and similar technologies. In addition, no assurance can be given that third parties will not create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise, third parties could copy or otherwise obtain and use our intellectual property without authorization, our existing trademarks, patents, or trade secrets could be determined to be invalid or unenforceable, or laws and interpretations of laws regarding the enforceability of existing intellectual property rights could change over time in a manner that provides less protection. The occurrence of any of these events could tarnish our reputation, limit our marketing ability, or impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition, and results of operations.
We may also occasionally be subject to legal proceedings and claims regarding intellectual property, including claims of alleged infringement of trademarks, copyrights, patents, and other intellectual property rights held by third parties and of invalidity of our own rights. In addition, we may decide we should engage in litigation to enforce our intellectual property rights, to protect our trade secrets and patents, or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition, and results of operations.
We intend to expand to various international markets, including markets in which we have limited experience, and as a result, we face additional risks in connection with those operations.
Operating internationally, particularly in countries in which we have limited experience, exposes us to a number of additional risks, such as:
| ● | operational and compliance challenges caused by distance, language, and cultural differences; | |
| ● | difficulties in staffing and managing international operations; | |
| ● | differing levels of social and technological acceptance of our services or lack of acceptance of them generally; | |
| ● | differing and potentially adverse tax laws; | |
| ● | compliance challenges due to different laws and regulatory environments, particularly in the case of privacy, data security, intermediary or platform liability, and consumer protection; | |
| ● | competitive environments that favor local businesses or local knowledge of such environments; | |
| ● | limitations on the level of intellectual property protection; and | |
| ● | trade sanctions, political unrest, terrorism, war, and epidemics, or the threat of any of these events. |
These risks could adversely affect our business, financial condition, and results of operations.
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We are subject to litigation, and adverse outcomes in such litigation could have an adverse effect on our financial condition.
From time to time, we may become subject to litigation, and to various legal proceedings relating to employment matters, intellectual property matters, and privacy and consumer protection laws, as well as stockholder derivative suits, class action lawsuits, mass arbitrations, and other matters. Such litigation and proceedings may involve claims for substantial amounts of money or for other relief, may result in significant costs for legal representation, arbitration fees, or other legal or related services, or might necessitate changes to our business or operations. The defense of these actions is likely to be time consuming and expensive. We will evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential loss. Based on these assessments and estimates, we may establish reserves or disclose the relevant litigation claims or legal proceedings as and when required or appropriate. These assessments and estimates will be based on information available to our management at the time of such assessment or estimation and will involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigation claims or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition, and results of operations.
Our operations are subject to volatile global economic conditions, particularly those that adversely impact consumer confidence and spending behavior.
Adverse macroeconomic conditions, including lower consumer confidence, changes to fiscal and monetary policy, the availability and cost of credit, and weakness in the economies in which we or our licensees and the users of our services or those of our licensees are located may continue to adversely affect our business, financial condition, and results of operations. In recent years, the United States, Europe and other key global markets have experienced historically high levels of inflation, which have impacted, among other things, employee compensation expenses. If inflation rates rise again or continue to remain historically high or further increase in those locations where inflation rates remain elevated, it will likely affect our expenses, and may reduce consumer discretionary spending, which could affect the buying power of our users and lead to a reduction in demand for our services. Other events and trends that could result in decreased levels of consumer confidence and discretionary spending include a general economic downturn, recessionary concerns, high unemployment levels, and increased interest rates, as well as any sudden disruption in business conditions. Economic growth in Mainland China has declined notably in recent years, affecting us through the impact on Hong Kong’s economy and potentially through a China-based licensee. Additionally, geopolitical developments, such as wars in Ukraine and the Middle East, tensions between the United States and China, climate change, and the responses by central banking authorities to control inflation (in some economies of the West) or boost growth (in China), can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.
Our financial results may be adversely affected if substantial investments in businesses and operations fail to produce the 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.
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We may need additional capital in the future to finance our planned growth, which we may not be able to raise or which may only be available on terms unfavorable to us or our stockholders, and this 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. We may be required to raise additional funds throughout 2024 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 or perceived opportunities, such as investment, acquisition, marketing, and development activities.
If we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenue or cash flow 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 the 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 are not available or are 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 may be significantly limited. In such a capital restricted situation, we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable basis.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal controls over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal controls over financial reporting involves 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; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and to ensure that receipts and expenditures of the Company are being made only in accordance with authorizations of management or directors of the Company; and | |
| ● | provide reasonable assurance regarding the 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.
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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.
Our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer a “smaller reporting company”.
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal controls. The costs of maintaining public company reporting requirements could be significant and may preclude us from seeking financing or equity investments on terms acceptable to us and our shareholders. We estimate these costs to be in excess of $500,000 per year, and they may be higher if our business volume or business activity increases significantly. Our current estimate of costs does not include the necessary expenses associated with compliance, documentation, and specific reporting requirements of Section 404 as we will not be subject to the full reporting requirements of Section 404 until we no longer qualify as a “smaller reporting company”.
If our revenue is insufficient or non-existent, 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 result in our being unable to continue as a going concern.
If we fail to maintain effective internal controls over financial reporting, then the price of the Common Stock may be adversely affected.
Our internal controls 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 the 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 controls over financial reporting or any disclosure of management’s critical assessment of our internal controls over financial reporting may have an adverse impact on the price of the Common Stock.
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The SEC’s charges against our former independent auditor, Olayinka Oyebola & Co., could impact the credibility of our financial statements and those of YYEM, potentially leading to restatements and other adverse effects.
Our former independent auditor, OOC, has been charged by the SEC in connection with allegedly aiding and abetting violations of the antifraud provisions of the federal securities laws. The SEC also charged OOC’s principal, Olayinka Oyebola, with allegedly aiding and abetting a violation involving lying to auditors. The SEC complaint seeks civil penalties as well as permanent injunctive relief, including an order permanently barring Mr. Oyebola and OOC from acting as auditors or accountants for U.S. public companies or otherwise providing substantial assistance in the preparation of financial statements filed with the SEC. This action could affect the credibility of the financial statements audited by OOC. If their audit work is found to be deficient, our financial reporting could be questioned, leading to potential restatements, delays in regulatory filings, or reputational harm. If OOC is barred from acting as auditors or accountants for U.S. public companies, we will be unable to include the financial statements reviewed by OOC in any filing made after that date, and our financial statements will need to be reaudited. Any of these outcomes could have a material adverse effect on our business, financial condition, and stock price, which could contribute to the loss of all or part of your investment.
On October 30, 2024, the Board of Directors and the audit committee approved the engagement of B&A as the Company’s independent registered public accounting firm for the fiscal year ended April 30, 2025, effective immediately, and dismissed OOC as the Company’s independent registered public accounting firm.
In addition to serving as our former independent auditor, OOC was also the independent registered public accounting firm for YYEM for the fiscal year ended January 31, 2024. As a result, the SEC action could impact the credibility of YYEM’s financial statements audited by OOC. If a restatement of YYEM’s financial statements is required, it could materially affect our reported financial condition and results of operations, particularly given the impact of the Acquisition. Specifically, any potential restatement could affect the accounting treatment of the acquisition, our historical and pro forma financial statements, and the value of YYEM’s assets on our balance sheet. Furthermore, if any deficiencies in OOC’s audit work necessitate reauditing YYEM’s financial statements, it could result in delays in our SEC filings and increased costs associated with obtaining new audits. These factors could have a material adverse effect on our financial condition, business operations, and the value of our securities.
Fluctuations in our tax obligations and effective tax rate may have a negative effect on our operating results.
We may be subject to income taxes in multiple jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax provisions in multiple tax jurisdictions. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Further, our effective tax rate in a given financial period may be materially impacted by changes in mix and level of earnings or by changes to existing accounting rules or regulations. In addition, tax legislation enacted in the future could negatively impact our current or future tax structure and effective tax rates.
We could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities, or increased volatility in our effective tax rate.
We are subject to the tax laws in the U.S. and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which includes a number of significant changes to previous U.S. tax laws that impact us, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, and a reduction in the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, among other changes. The Tax Act also transitions U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation.
We earn a substantial portion of our income in foreign countries and are subject to the tax laws of those jurisdictions. There have been proposals to reform foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings. Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law, could have an adverse impact on our income tax expense and cash flows.
Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings. We also utilize tax rulings and other agreements to obtain certainty in the 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.
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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.
For as long as we are a “smaller reporting company,” we will not be required to comply with certain reporting requirements that apply to other publicly reporting companies. We cannot predict whether the reduced disclosure requirements applicable to smaller reporting companies will make our Common Stock less attractive to investors.
We are currently a “smaller reporting company.” For as long as we continue to be a smaller reporting company, we may choose to take advantage of certain exemptions from reporting requirements applicable to other publicly reporting companies that are not smaller reporting companies. These include not being required to comply with the auditor attestation requirements for the assessment of our internal controls over financial reporting provided by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and not being required to provide certain disclosure regarding executive compensation required of larger publicly reporting companies. We cannot predict if investors will find our common shares less attractive if we choose to rely on these exemptions. If some investors find our common shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our shares and our share price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited than that of other publicly reporting companies and you may not have the same protections afforded to shareholders of such companies.
We are subject to the periodic reporting requirements of the Exchange Act, requiring 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 be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit.
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 the Common Stock, could drop significantly.
Risks Related to Doing Business in Hong Kong
A joint statement by the SEC and the PCAOB, rule changes by Nasdaq, the HFCAA and AHFCAA, and the Consolidated Appropriations Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainty to our continued listing.
On April 21, 2020, the SEC and the Public Company Accounting Oversight Board (the “PCAOB”) released a joint statement highlighting the risks associated with investing in companies based in or having substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On December 18, 2020, the Holding Foreign Companies Accountable Act (the “HFCAA”) was signed and became law. This legislation, among other things, bans an issuer’s securities from trading if the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years (later reduced to two years by the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”)).
On December 2, 2021, the SEC issued amendments to finalize interim final rules previously adopted in March 2021 to implement the submission and disclosure requirements of the HFCAA.
While the PCAOB initially determined that it was unable to completely inspect or investigate registered public accounting firms headquartered in mainland China or Hong Kong because of a position taken by one or more authorities in each of those jurisdictions, this determination was effectively reversed on December 15, 2022, following the CSRC, the Ministry of Finance of the PRC, and the PCAOB signing a Statement of Protocol governing inspections and investigations of audit firms based in China and Hong Kong permitting the PCAOB to select any issuer audits for inspection or investigation and to transfer information unfettered to the SEC. Should any PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB would consider the need to issue a new determination.
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Neither our current auditor, Bush & Associates CPA, nor our former auditor, Olayinka Oyebola & Co. (“OOC”), is headquartered in mainland China or Hong Kong. Nevertheless, should Bush & Associates CPA or OOC in the future have any work papers in China or Hong Kong that the PCAOB is unable to fully inspect, it will be difficult to evaluate the effectiveness of Bush & Associates CPA’s or OOC’s audit procedures or equity control procedures, and investors could consequently lose confidence in our reported financial information and procedures or the quality of our financial statements, which could adversely affect us and our securities. Furthermore, if trading in our securities is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate Bush & Associates CPA at such future time, an exchange will likely delist our securities.
The Chinese government, in general, could exercise significant oversight and discretion over the conduct of our business and has made statements indicating an intent to exert more oversight and control over offerings that are conducted overseas and over foreign investment in China-based issuers.
Although our subsidiary Yuanyu Enterprise Management Company, Limited (“YYEM”) is based in a special administrative region of the PRC, which enjoys separate governing and economic systems from that of mainland China under the principle of one country, two systems, Hong Kong is part of China and, as such, the Chinese government could intervene or influence our operations at any time, which could result in a material change in YYEM’s operations and the value of our Common Stock. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas or over foreign investment in China-based issuers, in particular any effort to extend such actions directly or indirectly to Hong Kong-based companies, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Greater oversight by CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.
Over the years, the PRC has enacted a number of laws and regulations aimed at governing the collection and security of personal data. These include the Cybersecurity Review Measures, which took effect on February 15, 2022 and require a government review of critical information infrastructure operators (“CIIOs”) and of internet operators that possesses the personal information of at least one million users or meet certain other criteria; the Network Data Security Administration (Draft for Comments), published in 2021 and not yet enacted, which provides that companies engaging in data processing activities that may affect national security must apply for a cybersecurity review by the CAC under certain circumstances; the PRC Data Security Law, promulgated in 2021, which imposes certain requirements for the collection and processing of data in order to protect its security; the Personal Information Protection Law, promulgated in 2021, which integrates various scattered rules with respect to personal information rights and privacy protection; the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which came into effect in 2021 and prohibits the operators of mobile apps from denying users access to the apps just because they do not consent to the collection of unnecessary personal information; and the Measures for the Security Assessment of Data Cross-border Transfer, effective in 2022, which require data processors to apply for a cross-border security assessment coordinated by the CAC under certain circumstances, including where they transfer personal information overseas and have already transferred personal information of more than 100,000 people, or sensitive personal information of more than 10,000 people, overseas since the start of the previous year. (See also the discussion of the Confidentiality and Archives Administration Provisions, below.)
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We do not believe YYEM is subject to cybersecurity review by the CAC, or to any of the other personal data-related laws and regulations described above, since YYEM is a Hong Kong company without subsidiaries or operations in the PRC. In addition, it does not currently have, and does not anticipate that it will be collecting, over one million users’ personal information in the foreseeable future, which might otherwise subject it to the Cybersecurity Review Measures. YYEM has not received any notice from any authorities identifying it as a CIIO or otherwise requiring it to undergo a cybersecurity review or network data security review by the CAC.
There remains uncertainty as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. There is no assurance that YYEM will be able to fully or timely comply with any of the personal data and data security laws should they be deemed to be applicable to its operations. There is no certainty as to how any review or other actions would impact YYEM’s operations, and we cannot guarantee that any clearance could be obtained or maintained if approved.
In the future, YYEM may be subject to PRC laws and regulations, including those regarding corporate structure, overseas listings, data- and cybersecurity, and anti-monopoly concerns, which could result in a material negative impact on its operations and the value of the securities we are registering for sale.
YYEM is incorporated and registered under the laws of Hong Kong. YYEM does not have, nor does it intend to have, any subsidiary, VIE structure or direct operations in mainland China. All of YYEM’s revenue and profit is currently generated by operations in Hong Kong. The Basic Law of the Hong Kong Special Administrative Region (the “Basic Law”) provides that PRC laws and regulations shall not be applied in Hong Kong except for those listed in Annex III of the Basic Law, which is confined to laws relating to national defense, foreign affairs, and other matters that are not within the scope of autonomy. YYEM therefore is not directly subject to PRC laws and regulations regarding the general conduct of its business or regarding overseas listings.
Nevertheless, with its headquarters and substantial operations in Hong Kong, YYEM faces risks and uncertainties associated with the complex and evolving PRC laws and regulations, including whether and how PRC government statements and regulatory developments, such as those relating to corporate structure, overseas listings, data- and cybersecurity, and anti-monopoly concerns, would be applicable to Hong Kong companies such as YYEM, and whether and when the Chinese government might exercise significant oversight over the conduct of business in Hong Kong. If YYEM were to become subject to PRC laws and regulations, it could incur material costs to ensure compliance, and it might be subject to fines, no longer be permitted to conduct offerings to foreign investors, or no longer be permitted to continue business operations as presently conducted.
The uncertainties regarding the enforcement of laws and the fact that rules and regulations in China can change quickly with little advance notice, along with the risk that the Chinese government may intervene in or influence YYEM’s operations, could result in a material change in its operations and the value of the securities we are registering, including the possibility that the value of such securities could become worthless.
In recent years, the PRC government initiated, with little advance notice, a series of regulatory actions and statements to regulate certain types of business operations in mainland China, including cracking down on illegal activities in the securities market, enhancing supervision over mainland China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. For example, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market, requiring various governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over mainland China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. The CAC also promulgated the various data security-related measures described above under “Greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.” As explained above, we believe the Company and its subsidiaries are not directly subject to the regulations and rules issued by CAC and other governmental agencies.
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On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances. The new rules provide that the determination as to whether a Chinese domestic company is indirectly offering and listing securities on an overseas market shall be made on a substance-over-form basis, and if the issuer meets the following conditions, the offering and listing will be deemed an indirect overseas offering and listing by a Chinese domestic company: (i) the revenue, profit, total assets or net assets of the Chinese domestic entity constitutes more than 50% of such item in the issuer’s audited consolidated financial statements for the most recent fiscal year; or (ii) the senior managers in charge of business operations and management of the issuer are mostly Chinese citizens or with a regular domicile in China, the main locations of its business operations are in China, or its main business activities are conducted in China. YYEM is headquartered in Hong Kong, and at least 50% of its executive officers and directors are based in Hong Kong and are not Chinese citizens. Furthermore, all of its assets are located in Hong Kong and all of its revenue and profit is generated from operations in Hong Kong. We therefore believe that YYEM is not subject to the New Overseas Listing Rules.
On February 24, 2023, the CSRC, the Ministry of Finance, the National Administration of State Secrets Protection, and the National Archives Administration released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which took effect on March 31, 2023. PRC domestic enterprises seeking to offer securities and list in overseas markets, either directly or indirectly, are required to establish and improve their confidentiality systems and archives work and to complete various approval and filing procedures with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents or materials involving state secrets and work secrets of state organs to relevant securities companies, securities service institutions, overseas regulatory agencies, or other entities and individuals.
As of the date of this prospectus, these new laws and guidelines have not impacted YYEM’s ability to conduct its business. YYEM is headquartered in Hong Kong and does not have a VIE structure. YYEM is not a cyberspace operator with personal information of more than 1 million users or activities that affect or may affect the national security of China, and it does not possess documents and materials likely to affect the national security or public interest of China. However, any change in foreign investment regulations or other policies in China, or related enforcement actions by the PRC government, could result in a material change in YYEM’s operations and the value of our Common Stock and could significantly limit or completely hinder our ability to offer our Common Stock to investors or cause the value of our Common Stock to significantly decline or be worthless.
We are subject to risks relating to economic, political, legal, and social conditions in Hong Kong.
Even though much of YYEM’s revenue is derived from licensees outside Hong Kong, any adverse changes in the economic, political, legal, and social conditions of Hong Kong could lead to an adverse impact on the demand for YYEM’s services and result in deteriorating financial performance of the Company.
We cannot assure you that there will not be any political movements or large-scale political unrest in Hong Kong that could adversely impact the market. If such unrest or movement persists for a substantial period of time, it may lead to disruption of the general economic, political, and social conditions in Hong Kong, and YYEM’s overall business, results of operations, and financial condition may be adversely affected.
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The Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could impact YYEM’s operations in Hong Kong.
On June 30, 2020, the Standing Committee of the PRC National People’s Congress adopted the Hong Kong National Security Law. This law defines the duties of the government bodies responsible for safeguarding national security and specifies four categories of offences — secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security — and their corresponding penalties. On July 14, 2020, the U.S. President signed the Hong Kong Autonomy Act (the “HKAA”), into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020, the U.S. government imposed HKAA-authorized sanctions on eleven individuals, including the then Hong Kong Chief Executive Carrie Lam and the current Hong Kong Chief Executive John Lee. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under the HKAA, identifying persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.” The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with a foreign person sanctioned under this authority. The imposition of sanctions may directly affect foreign financial institutions as well as any third parties or customers dealing with any foreign financial institution that is targeted. The ramifications of the Hong Kong National Security Law and the HKAA are still unfolding, and it is therefore difficult to predict the full impact on Hong Kong and companies located in Hong Kong. If YYEM is accused of violating the Hong Kong National Security Law or the HKAA by competent authorities, its business operations, financial position, and results of operations could be materially and adversely affected.
Risks Related to Ownership of Our Shares
Our stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment as a result.
You should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our Common Stock 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; | |
| ● | 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 the 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 the price and trading volume of our Common Stock to decline.
We do not intend to pay dividends on the shares of our 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. You should expect to receive a return on your investment in our Common Stock only if the market price of the stock increases, which may never occur.
Our stockholders may not be able to enforce judgments entered by U.S. courts against our officers and directors.
We are incorporated in the State of Delaware. However, all of our directors and executive officers reside outside the United States. As a result, our stockholders may not be able to effect service of process upon those persons within the United States or enforce against those persons judgments obtained in U.S. courts.
Future sales of shares of 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 decline due to sales of a large number of shares of 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.
Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized 1,000,000,000 shares of Common Stock that are not issued or reserved for issuance under convertible or exchangeable instruments. In addition, we may attempt to raise additional capital by selling shares, possibly at a deep discount to the market price. These actions may result in material dilution of the ownership interests of existing shareholders and the book value of our Common Stock.
If securities or industry analysts do not publish research, or they 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 of our stock may be negatively impacted. In the event that 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.
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Holders of our Common Stock may be diluted by the future issuance of additional shares of Common Stock or preferred stock, or securities convertible into shares of Common Stock or preferred stock, in connection with incentive plans, acquisitions or otherwise; future sales of such shares in the public market or the expectation that such sales may occur may decrease the market price of our Common Stock.
We could issue a significant number of shares of Common Stock post-Acquisition, for example in connection with investments or acquisitions. We may increase the number of shares of Common Stock reserved for the Slinger Bag Inc. Global Share Incentive Plan (2020) which would provide additional shares of Common Stock for the issuance, pursuant to the terms and subject to the conditions set forth in such plan, of long-term incentive compensation which may take the form of options, restricted stock units or other securities. Any of these issuances could dilute existing stockholders of the Company, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our Common Stock. Any issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our Common Stock, either by diluting the voting power of our Common Stock if the preferred stock votes together with the Common Stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our Common Stock. The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our Common Stock by making an investment in the Common Stock less attractive. For example, investors in the Common Stock may not wish to purchase Common Stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase Common Stock at the lower conversion price, causing economic dilution to the holders of Common Stock. As of April 30, 2024, the Company had no shares of preferred stock authorized, issued or outstanding.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following information relates to all securities issued or sold by us during the reporting period not registered under the Securities Act pursuant to an exemption from the registration requirements of the Securities Act contained in Section 4(a)(2) thereof.
On November 21, 2024, the Company issued 8,127,572 shares of common stock to Hongyu Zhou in exchange for 5,000 ordinary shares of YYEM to complete the acquisition of a 70% ownership stake in YYEM.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CONNEXA SPORTS TECHNOLOGIES INC. | ||
| Dated: March 24, 2025 | By: | /s/ Thomas Tarala |
| Thomas Tarala | ||
| Chief Executive Officer | ||
| Dated: March 24, 2025 | By: | /s/ Guibao Ji |
| Guibao Ji | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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