Item
1. Financial Statements
SLINGER
BAG INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
October
31,
|
|
April
30,
|
|
|
2020
|
|
2020
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
652,871
|
|
|
$
|
79,847
|
|
Accounts receivable
|
|
|
353,505
|
|
|
|
-
|
|
Inventory
|
|
|
1,912,693
|
|
|
|
919,644
|
|
Prepaid
expenses and other current assets
|
|
|
271,055
|
|
|
|
381,510
|
|
Total
assets
|
|
$
|
3,190,124
|
|
|
$
|
1,381,001
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
$
|
1,308,225
|
|
|
$
|
989,112
|
|
Deferred revenue
|
|
|
809,514
|
|
|
|
179,366
|
|
Accrued interest
- related parties
|
|
|
455,516
|
|
|
|
138,967
|
|
Notes payable -
related party
|
|
|
4,038,708
|
|
|
|
2,100,000
|
|
Notes payable, net
|
|
|
1,820,000
|
|
|
|
-
|
|
Convertible note
payable , net
|
|
|
-
|
|
|
|
82,128
|
|
Derivative liability
|
|
|
-
|
|
|
|
620,238
|
|
Due
to related parties
|
|
|
738,714
|
|
|
|
377,106
|
|
Total current liabilities
|
|
|
9,170,677
|
|
|
|
4,486,917
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Long-term portion of convertible notes
payable, net
|
|
|
-
|
|
|
|
1,493,939
|
|
Note payable,
net
|
|
|
422,455
|
|
|
|
393,975
|
|
Total liabilities
|
|
|
9,593,132
|
|
|
|
6,374,831
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 300,000,000
shares authorized, 26,609,714 and 24,749,354 shares issued and outstanding as of October 31, 2020 (unaudited) and April 30,
2020, respectively; 6,921,299 shares issuable as of October 31, 2020 (unaudited)
|
|
|
26,610
|
|
|
|
24,749
|
|
Additional paid-in
capital
|
|
|
7,705,020
|
|
|
|
5,214,970
|
|
Accumulated other
comprehensive loss
|
|
|
(7,973
|
)
|
|
|
(5,036
|
)
|
Accumulated
deficit
|
|
|
(14,126,665
|
)
|
|
|
(10,228,513
|
)
|
Total
stockholders’ deficit
|
|
|
(6,403,008
|
)
|
|
|
(4,993,830
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
3,190,124
|
|
|
$
|
1,381,001
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
SLINGER
BAG INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For
the Three Months Ended
|
|
For
the Six Months Ended
|
|
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
October
31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,620,068
|
|
|
$
|
-
|
|
|
$
|
3,185,053
|
|
|
$
|
-
|
|
Cost of sales
|
|
|
1,579,750
|
|
|
|
-
|
|
|
|
2,516,650
|
|
|
|
-
|
|
Gross profit
|
|
|
1,040,318
|
|
|
|
-
|
|
|
|
668,403
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
397,922
|
|
|
|
106,545
|
|
|
|
699,940
|
|
|
|
132,740
|
|
General and administrative expenses
|
|
|
711,491
|
|
|
|
503,027
|
|
|
|
1,404,933
|
|
|
|
675,599
|
|
Stock-based compensation
|
|
|
118,019
|
|
|
|
-
|
|
|
|
183,845
|
|
|
|
-
|
|
Research and
development costs
|
|
|
15,439
|
|
|
|
84,769
|
|
|
|
43,549
|
|
|
|
133,569
|
|
Total
operating expenses
|
|
|
1,242,871
|
|
|
|
694,341
|
|
|
|
2,332,267
|
|
|
|
941,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(202,553
|
)
|
|
|
(694,341
|
)
|
|
|
(1,663,864
|
)
|
|
|
(941,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
52,543
|
|
|
|
321,970
|
|
|
|
286,251
|
|
|
|
321,970
|
|
Change in value of derivatives
|
|
|
-
|
|
|
|
-
|
|
|
|
(566,667
|
)
|
|
|
-
|
|
Loss on extinguishment of debt
|
|
|
1,999,487
|
|
|
|
-
|
|
|
|
1,999,487
|
|
|
|
-
|
|
Induced conversion loss
|
|
|
51,412
|
|
|
|
-
|
|
|
|
51,412
|
|
|
|
-
|
|
Interest expense - related party
|
|
|
144,085
|
|
|
|
5,000
|
|
|
|
316,549
|
|
|
|
5,000
|
|
Interest expense
|
|
|
74,046
|
|
|
|
428,855
|
|
|
|
147,256
|
|
|
|
446,355
|
|
Total
other expense (income)
|
|
|
2,321,573
|
|
|
|
755,825
|
|
|
|
2,234,288
|
|
|
|
773,325
|
|
Loss before income taxes
|
|
|
(2,524,126
|
)
|
|
|
(1,450,166
|
)
|
|
|
(3,898,152
|
)
|
|
|
(1,715,233
|
)
|
Provision for
(benefit from) income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(2,524,126
|
)
|
|
$
|
(1,450,166
|
)
|
|
$
|
(3,898,152
|
)
|
|
$
|
(1,715,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(1,544
|
)
|
|
|
(5,993
|
)
|
|
|
(2,937
|
)
|
|
|
(6,010
|
)
|
Total
other comprehensive loss, net of tax
|
|
|
(1,544
|
)
|
|
|
(5,993
|
)
|
|
|
(2,937
|
)
|
|
|
(6,010
|
)
|
Comprehensive
loss
|
|
$
|
(2,525,670
|
)
|
|
$
|
(1,456,159
|
)
|
|
$
|
(3,901,089
|
)
|
|
$
|
(1,721,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share, basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.07
|
)
|
Weighted average number of common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding,
basic and diluted
|
|
|
26,420,584
|
|
|
|
24,380,000
|
|
|
|
26,255,603
|
|
|
|
24,380,000
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
SLINGER
BAG INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
|
|
Deficit
|
|
Total
|
Balance,
April 30, 2019
|
|
|
24,380,000
|
|
|
$
|
24,380
|
|
|
$
|
2,520
|
|
|
$
|
-
|
|
|
$
|
(33,091
|
)
|
|
$
|
(6,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of Slinger Bag Limited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(967,678
|
)
|
|
|
(967,680
|
)
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
-
|
|
|
|
(17
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(265,067
|
)
|
|
|
(265,067
|
)
|
Balance,
July 31, 2019
|
|
|
24,380,000
|
|
|
|
24,380
|
|
|
|
2,520
|
|
|
|
(19
|
)
|
|
|
(1,265,836
|
)
|
|
|
(1,238,955
|
)
|
Shares
issuable related to note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492,188
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492,188
|
|
Distribution
to shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
(332,239
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(332,239
|
)
|
Forgiveness
of net liabilities owed to former majority shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
15,289
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,289
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,993
|
)
|
|
|
-
|
|
|
|
(5,993
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,450,166
|
)
|
|
|
(1,450,166
|
)
|
Balance,
October 31, 2019
|
|
|
24,380,000
|
|
|
$
|
24,380
|
|
|
$
|
1,177,758
|
|
|
$
|
(6,012
|
)
|
|
$
|
(2,716,002
|
)
|
|
$
|
(1,519,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2020
|
|
|
24,749,354
|
|
|
$
|
24,749
|
|
|
$
|
5,214,970
|
|
|
$
|
(5,036
|
)
|
|
$
|
(10,228,513
|
)
|
|
$
|
(4,993,830
|
)
|
Shares
issued related to note payable
|
|
|
1,216,560
|
|
|
|
1,217
|
|
|
|
(1,217
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for services
|
|
|
243,800
|
|
|
|
244
|
|
|
|
65,582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,826
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,393
|
)
|
|
|
-
|
|
|
|
(1,393
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,374,026
|
)
|
|
|
(1,374,026
|
)
|
Balance,
July 31, 2020
|
|
|
26,209,714
|
|
|
$
|
26,210
|
|
|
$
|
5,279,335
|
|
|
$
|
(6,429
|
)
|
|
$
|
(11,602,539
|
)
|
|
$
|
(6,303,423
|
)
|
Shares
issued for conversion of convertible debt
|
|
|
300,000
|
|
|
|
300
|
|
|
|
238,149
|
|
|
|
-
|
|
|
|
-
|
|
|
|
238,449
|
|
Shares
issued for services
|
|
|
100,000
|
|
|
|
100
|
|
|
|
113,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,000
|
|
Warrants
issued with note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
2,069,617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,069,617
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
4,019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,019
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,544
|
)
|
|
|
-
|
|
|
|
(1,544
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,524,126
|
)
|
|
|
(2,524,126
|
)
|
Balance,
October 31, 2020
|
|
|
26,609,714
|
|
|
$
|
26,610
|
|
|
$
|
7,705,020
|
|
|
$
|
(7,973
|
)
|
|
$
|
(14,126,665
|
)
|
|
$
|
(6,403,008
|
)
|
See
accompanying notes to unaudited condensed consolidated financial statements
SLINGER
BAG INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For
the Six Months Ended
|
|
|
October
31,
|
|
October
31,
|
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,898,152
|
)
|
|
$
|
(1,715,233
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
-
|
|
|
|
650
|
|
Change in value of derivatives
|
|
|
(566,667
|
)
|
|
|
-
|
|
Stock-based compensation
|
|
|
183,845
|
|
|
|
-
|
|
Loss on extinguishment
of debt
|
|
|
1,999,487
|
|
|
|
|
|
Induced conversion
loss
|
|
|
51,412
|
|
|
|
|
|
Non-cash interest
expense
|
|
|
-
|
|
|
|
358,855
|
|
Amortization of
debt discount
|
|
|
286,251
|
|
|
|
321,970
|
|
|
|
|
|
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(353,505
|
)
|
|
|
-
|
|
Inventory
|
|
|
(993,049
|
)
|
|
|
-
|
|
Prepaid expenses
and other current assets
|
|
|
110,455
|
|
|
|
(675,172
|
)
|
Accounts payable
and accrued expenses
|
|
|
327,579
|
|
|
|
163,986
|
|
Deferred revenue
|
|
|
630,148
|
|
|
|
(25,897
|
)
|
Accrued interest
- related parties
|
|
|
316,549
|
|
|
|
5,000
|
|
Due
to related parties
|
|
|
361,608
|
|
|
|
(11,319
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
|
(1,544,039
|
)
|
|
|
(1,577,160
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
Proceeds from
contribution of net assets of Slinger Bag Limited
|
|
|
-
|
|
|
|
73,400
|
|
Net cash provided
by investing activities
|
|
|
-
|
|
|
|
73,400
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
Distribution to
shareholder
|
|
|
-
|
|
|
|
(332,239
|
)
|
Proceeds from notes
payable - related party
|
|
|
2,000,000
|
|
|
|
500,000
|
|
Proceeds
from note payable
|
|
|
120,000
|
|
|
|
1,700,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by financing activities
|
|
|
2,120,000
|
|
|
|
1,867,761
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate fluctuations on cash
|
|
|
(2,937
|
)
|
|
|
(6,010
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
573,024
|
|
|
|
357,991
|
|
Cash, beginning of the period
|
|
|
79,847
|
|
|
|
1,994
|
|
Cash, end of
the period
|
|
$
|
652,871
|
|
|
$
|
359,985
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
140,180
|
|
|
$
|
70,000
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of non-cash investing and financing information:
|
|
|
|
|
|
|
|
|
Forgiveness of net
liabilities owed to former majority shareholder
|
|
$
|
-
|
|
|
$
|
15,289
|
|
Shares issuable
related to convertible note payable agreement
|
|
$
|
-
|
|
|
$
|
1,492,188
|
|
Debt discount due
to derivative liability
|
|
$
|
-
|
|
|
$
|
566,667
|
|
Conversion of note
payable and accrued interest into common stock
|
|
$
|
187,037
|
|
|
$
|
-
|
|
Warrants issued
with note payable
|
|
$
|
70,130
|
|
|
$
|
-
|
|
Loss on extinguishment
of debt
|
|
$
|
1,999,487
|
|
|
$
|
-
|
|
Induced conversion
loss
|
|
$
|
51,412
|
|
|
$
|
-
|
|
Net assets contributed
from Slinger Bag Limited
|
|
$
|
-
|
|
|
$
|
(967,680
|
)
|
See
accompanying notes to unaudited condensed consolidated financial statements
SLINGER
BAG INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1: ORGANIZATION AND BASIS OF PRESENTATION
Organization
Lazex
Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority
owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger
Bag Americas”) which was 100% owned by Slinger Bag Ltd. (“SBL”), an Israeli company. In connection with the
Stock Purchase Agreement, Slinger Bag Americas acquired 20,000,000 shares of common stock of Lazex for $332,239. On September
16, 2019, SBL transferred its ownership of Slinger Bag Americas to Lazex in exchange for the 20,000,000 shares of Lazex acquired
on August 23, 2019. As a result of these transactions, Lazex owned 100% of Slinger Bag Americas and the sole shareholder of SBL
now owned 20,000,000 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name
to Slinger Bag Inc.
On
October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., (“Slinger Bag Canada”) a Canadian
company incorporated on November 3, 2017. There are no assets or liabilities or historical operational activity of Slinger Bag
Canada at the time of acquisition.
On
February 10, 2020, Slinger Bag Americas became the 100% owner of SBL, along with SBL’s wholly owned subsidiary Slinger Bag
International (UK) Limited (“Slinger Bag UK”) formed on April 3, 2019, after Zehava Tepler, the owner of SBL, contributed
it to Slinger Bag Americas for no consideration.
The
operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK and SBL are collectively referred to
as the “Company.”
The
Company operates in the sporting and athletic goods business. The Company is the owner of Slinger Launcher, which is a portable
tennis ball launcher.
Effective
February 25, 2020, the Company increased its number of authorized shares of common stock from 75,000,000 to 300,000,000 and effected
a four-to-one forward split of the outstanding shares of common stock. All share and per share information contained in this report
have been retroactively adjusted to reflect the impact of the stock split.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company are presented in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). As a result of the transactions described
above, the accompanying consolidated financial statements include the combined results of Slinger Bag Inc., Slinger Bag Americas,
Slinger Bag Canada, Slinger Bag UK and SBL for the year ended April 30, 2020. The contribution of the net assets of SBL is reflected
as an equity contribution at historical cost on May 1, 2019, the beginning of the earliest period in which the entities were under
common control. Therefore, the comparative information presented in the unaudited condensed consolidated financial statements
for the three and six months ended October 31, 2019 includes the activity of SBL. There was no historical activity in Slinger
Bag Americas, Slinger Bag Canada or Slinger Bag UK prior to May 1, 2019. All intercompany accounts and transactions have been
eliminated in consolidation.
NOTE
2: GOING CONCERN
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit
of $14,126,665 as of October 31, 2020 and more losses are anticipated in the development of the business. Accordingly, there is
substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include
any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or being
able to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations
when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans
from related parties, and/or private placement of common stock.
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim
Financial Statements
These
unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in
the opinion of management, are necessary to present fairly the financial position, results of operations, and cash flows for the
periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s
financial statements and notes thereto for the years ended April 30, 2020 and 2019, respectively, which are included in the Company’s
Form 10-K filed with the United States Securities and Exchange Commission on August 24, 2020. The Company assumes that the users
of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the
preceding period, and that the adequacy of additional disclosure needed for a fair presentation of these may be determined in
that context. The results of operations for the six months ended October 31, 2020 are not necessarily indicative of results for
the entire year ending April 30, 2021.
Use
of Estimates
The
preparation of consolidated 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 reporting amounts of revenues and expenses during the reported period. Accordingly, actual results
could differ from those estimates.
Financial
Statement Reclassification
Certain
account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period
classifications.
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased,
to be cash equivalents.
Accounts
Receivable
The
Company’s accounts receivable are non-interest bearing trade receivables resulting from the sale of products and payable
over terms ranging from 15 to 60 days. The Company provides an allowance for doubtful accounts at the point when collection is
considered doubtful. Once all collection efforts have been exhausted, the Company charges-off the receivable with the allowance
for doubtful accounts. The Company has no allowance for doubtful accounts as of October 31, 2020 or April 30, 2020.
Inventory
Inventory
is valued at the lower of the cost or net realizable value. The Company’s inventory as of October 31, 2020 consisted of
$1,299,441 of finished goods and $613,252 of component and replacement parts. The Company’s inventory as of April 30, 2020
consisted of $663,750 of finished goods and $255,894 of component and replacement parts.
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. The Company believes it is
not exposed to any significant credit risk on cash or cash equivalents.
Revenue
Recognition
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606. The Company’s contracts
with customers contain one performance obligation. The Company recognizes revenue for its performance obligation at a point in
time once products are shipped or physically delivered, depending on the third-party shipping terms. The Company’s sales
contracts include a fixed price which becomes payable when performance of the obligation is complete. Amounts collected from customers
in advance of revenue being recognized are reflected as deferred revenue on the accompanying unaudited condensed consolidated
balance sheets. The Company’s standard terms are non-cancelable and do not provide for the right-of-return, other than for
defective merchandise covered under the Company’s standard warranty. The Company has not historically experienced any significant
returns or warranty issues.
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal,
most advantageous market for the specific asset or liability.
GAAP
provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
●
|
Level
1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity
can access.
|
|
|
●
|
Level
2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the asset or liability, including:
|
|
–
|
Quoted
prices for similar assets or liabilities in active markets
|
|
–
|
Quoted
prices for identical or similar assets or liabilities in markets that are not active
|
|
–
|
Inputs
other than quoted prices that are observable for the asset or liability
|
|
–
|
Inputs
that are derived principally from or corroborated by observable market data by correlation or other means
|
●
|
Level
3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants
would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally
derived assumptions surrounding the timing and amount of expected cash flows).
|
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and amounts
due to related parties. The carrying amount of these financial instruments approximates fair value due to their short-term maturity.
The Company’s derivative liability was calculated using Level 2 assumptions.
Income
Taxes
Income
taxes are accounted for in accordance with the provisions of ASC 740, Accounting for Income Taxes. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized, but no less than quarterly.
Long-Lived
Assets
In
accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the
projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives
against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value,
based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which
the determination is made. There was no impairment of long-lived assets identified during the three or six months ended October
31, 2020 or 2019.
Share-Based
Payment
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under
the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the
vesting period.
Warrants
The
Company grants warrants to key employees and executives as compensation on a discretionary basis. The Company also grants warrants
in connection with certain note payable agreements. The Company measures the fair value of the awards using the Black-Scholes
option pricing model as of the measurement date. Warrants granted in connection with ongoing arrangements are more fully described
in Note 4: Note Payable – Related Party, Note 6: Note Payable and Note 8: Stockholders’ Deficit.
The
warrants granted during the six months ended October 31, 2020 and 2019 were valued using the Black-Scholes pricing method on the
date of grant using the following assumptions below.
|
|
2020
|
|
|
2019
|
|
Expected life in years
|
|
|
10 years
|
|
|
|
NA
|
|
Stock price volatility
|
|
|
148.3% - 151.9
|
%
|
|
|
NA
|
|
Risk free interest rate
|
|
|
0.68%
- 0.85
|
%
|
|
|
NA
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
NA
|
|
Foreign
Exchange
A
portion of SBL’s operations are conducted in Israel and its functional currency is the Israeli Shekel. In addition, the
operations of Slinger Bag Canada are conducted in its functional currency of Canadian Dollars. The accounts of SBL and Slinger
Bag Canada have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable
exchange rates at period-end. Stockholders’ equity is translated using historical exchange rates. Revenue and expenses are
translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation
adjustments in accumulated other comprehensive income in the Company’s stockholders’ equity.
Basic
and Diluted Earnings Per Share
Basic
earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares
outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive
common share equivalents outstanding during the period. The Company had 6,921,299 and 8,137,859 common shares issuable as of October
31, 2020 and 2019, respectively, (see Note 6) which were not included in the calculation of diluted earnings per share as the
effect is antidilutive. The Company also had outstanding warrants exercisable into 16,025,000 shares of common stock as of October
31, 2020 which were excluded from the calculation of diluted earnings per share as the effect is antidilutive. As a result, the
basic and diluted earnings per share are the same for each of the periods presented.
Recent
Accounting Pronouncements
In
December 2019, the FASB issued Accounting Standards Update (“ASU”), 2019-12, Simplifying the Accounting for Income
Taxes which amends ASC 740 Income Taxes, or ASC 740. This update is intended to simplify accounting for income taxes
by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application
of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various
elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.
The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
Other
accounting pronouncements have been issued but deemed by management to be outside the scope of relevance to the Company.
NOTE
4: NOTE PAYABLE – RELATED PARTY
On
October 3, 2019, the Company entered into a loan agreement with a related party entity controlled by the former shareholder of
Slinger Bag Canada for borrowings of $500,000 bearing interest at 12% per annum. All principal and accrued interest were due on
demand under the original agreement. On December 13, 2019, the Company entered into an Amended and Restated Loan Agreement making
all principal and accrued interest due on July 15, 2020.
On
December 3, 2019, the Company entered into a loan agreement with the same related party for borrowings of $500,000 bearing interest
at 12% per annum. All principal and accrued interest were due on demand under the original agreement. On December 13, 2019, the
Company entered into an Amended and Restated Loan Agreement increasing the interest rate earned from 12% to 24% per annum and
making all principal and accrued interest due on July 15, 2020.
On
December 11, 2019, the Company entered into a loan agreement with the same related party for borrowings of $700,000 bearing interest
at 24% per annum. All principal and accrued interest were due on July 15, 2020.
On
January 6, 2019, the Company entered into a loan agreement with the same related party for borrowings of $200,000 bearing interest
at 24% per annum. All principal and accrued interest were due on January 8, 2021.
On
March 1, 2020, the Company entered into a loan agreement with the same related party for borrowings of $200,000 bearing interest
at 24% per annum. All outstanding borrowings and accrued interest under all agreements were due on January 8, 2021.
On
May 12, 2020, the Company borrowed an additional $1,000,000 from the same related party, and on July 3, 2020 the Company borrowed
an additional $500,000 from the same related party. The borrowings bear interest at a rate of 24% per annum and were due on January
8, 2021.
On
July 8, 2020, the Company entered into a Purchase Order Financing Agreement (“PO Financing Agreement”) whereby $1,900,000
of the total $3,600,000 in outstanding debt due to the related party as of the date of the agreement has been labeled as inventory
financing (“PO Financing Amount”). The PO Financing Amount, along with any accrued interest, is due in full no later
than six months from the effective date of the PO Financing Agreement, or January 8, 2021. The outstanding balance of the PO Financing
Amount bears interest at a rate of 2% per month. The Company has agreed to repay the PO Financing Amount together with any accrued,
but unpaid, interest thereon out proceeds from the sale of its products, licensing activities, revenue to be generated from operations
and/or amounts received by the Company from investors, lenders, financiers, financing sources or other persons before making payments
of any other nature (including dividends and distributions) except for payments required to finance the Company’s operations.
On
August 10, 2020, the Company borrowed an additional $250,000 from its existing related party lender subject to the PO Financing
Agreement.
On
September 7, 2020, the outstanding debt from the existing related party lender was amended to reduce the interest rate to 9.5%
per annum on all outstanding loans. As consideration for agreeing to reduce the interest rate, the Company issued the related
party warrants to purchase 2,500,000 shares of the Company’s common stock at an exercise of $0.001 per share. The warrants
vest immediately and have a contractual life of 10 years. The amendment of the outstanding debt was treated as an extinguishment
of the debt, and therefore the value of the warrants issued to the lender amounting to $1,999,487 were expensed as loss on extinguishment
during the three and six months ended October 31, 2020.
On
September 8, 2020, the related party lender agreed to extend the due date of all outstanding loans to September 1, 2021.
On
September 15, 2020, the Company borrowed an additional $250,000 existing related party lender. The borrowings bear interest at
9.5% per annum and are due in full on September 15, 2021. In connection with the loan, the Company issued warrants to the related
party lender to purchase 125,000 shares of the Company’s common stock at $0.001 per share. The warrants vest immediately
and have a contractual life of 10 years. The note was discounted by $70,130 allocated from the valuation of the warrants issued.
The discount recorded on the note is being amortized through the maturity date, which amounted to $8,838 for the three and six
months ended October 31, 2020. As of October 31, 2020, the remaining discount was $61,292.
Total
outstanding borrowings from this related party as of October 31, 2020 amounted to $4,100,000. The outstanding amount is net of
total discounts of $61,292 for a net book value of $4,038,708 as of October 31, 2020.
On
December 3, 2020, the related party lender purchased the outstanding debt of $1,820,000 from Montsaic (see Note 6).
Interest
expense to this related party for three months ended October 31, 2020 and 2019 amounted to $144,085 and $5,000, respectively.
Interest expense to this related party for six months ended October 31, 2020 and 2019 amounted to $316,549 and $5,000, respectively.
Accrued interest due to this related party as of October 31, 2020 and April 30, 2020 amounted to $455,516 and $138,967, respectively.
NOTE
5: CONVERTIBLE NOTES PAYABLE
On
February 11, 2020, the Company entered into a convertible note payable agreement for borrowings of $125,000 bearing interest at
12% per annum. All outstanding borrowings and accrued interest are due on February 11, 2021. The outstanding principal and accrued
interest are convertible into shares of the Company’s common stock at any time at the option of the debtholder at a conversion
price equal to 70% of the lowest closing price of the common stock as defined in the agreement. On September 4, 2020, the holder
of the outstanding convertible note payable elected to convert the outstanding principal and accrued interest balance into 300,000
shares of the Company’s common stock.
The
Company evaluated the conversion option under the guidance in ASC 815-10, Derivatives and Hedging, and determined it to have characteristics
of a derivative liability. Under this guidance, this derivative liability is marked-to-market at each reporting period with the
non-cash gain or loss recorded in the period as a gain or loss on derivatives. The value of the conversion option amounted to
$53,571 as of the issuance date on February 11, 2020, which was initially recorded as a discount to the outstanding note balance
and a derivative liability. The discount was being amortized over the term of the agreement.
On
September 4, 2020, to induce the convertible debt holder to promptly convert the outstanding balance into shares of the Company’s
common stock, the Company offered the debt holder a one-time reduction in the conversion price. The debt holder subsequently agreed
to convert the outstanding convertible note payable balance of $125,000 and accrued interest of $8,466 into 300,000 shares of
the Company’s common stock. Under the guidance in ASC 470-20-40-16, the Company recognized an expense at the conversion
date equal to the fair value of the stock transferred after the change in terms, less the fair value of securities issuable under
the original conversion terms. The excess in value amounted to $51,412, and was reflected as induced conversion loss in the accompanying
unaudited condensed consolidated statement of operations for the three and six months ended October 31, 2020.
At
the time of the conversion, the remaining debt discount was fully amortized and the derivative liability amount of $53,571 was
reclassified as additional paid-in capital as part of stockholders’ equity. Amortization of debt discounts during the three
and six months ended October 31, 2020 amounted to $29,465 and $42,872, respectively, and is recorded as amortization of debt discount
in the accompanying unaudited condensed consolidated statements of operations.
NOTE
6: NOTE PAYABLE
On
June 1, 2019, the Company entered into a note payable agreement with Montsaic Investments (“Montsaic”) which provided
for borrowings of $1,700,000 bearing interest at a rate of 12.6% per annum. All outstanding amounts were due on the maturity date
360 days after the loan issue date. The Company may repay up to 50% of the outstanding balance on the loan prior to the maturity
date at their discretion. The outstanding principal and accrued interest were convertible into shares of the Company’s common
stock at any time at the option of the debtholder at a conversion price equal to 75% of the lowest closing price of the common
stock as defined in the agreement. Effective June 1, 2020, the Company and Montsaic entered into an amendment to the note payable
agreement to eliminate the conversion right contained in the original agreement and extend the maturity date to June 1, 2021.
The
note payable agreement, as amended on September 11, 2019, also provides Montsaic with a warrant giving them the right to acquire
33% of the outstanding shares of SBL on a fully-diluted basis for no consideration up through the maturity date. On September
16, 2019, Montsaic and Slinger Bag Inc. entered into a warrant assignment and conveyance agreement which transferred the right
to acquire 33% of the outstanding common stock shares of SBL to Slinger Bag Inc., resulting in a total of 8,137,859 shares of
common stock issuable to Montsaic. The allocated value of the warrant amounted to $1,492,188, which has been reflected as a discount
to the outstanding note balance. On May 6, 2020, the Company issued 1,216,560 shares of common stock as partial satisfaction of
the shares issuable. As of October 31, 2020, the Company has 6,921,299 shares of common stock that are issuable.
The
Company evaluated the conversion option under the guidance in ASC 815-10, Derivatives and Hedging, and determined it to have characteristics
of a derivative liability. Under this guidance, this derivative liability is marked-to-market at each reporting period with the
non-cash gain or loss recorded in the period as a gain or loss on derivatives. The value of the conversion option amounted to
$566,667 as of the issuance date on September 11, 2019, which has been recorded as a discount to the outstanding note balance,
less $358,855 representing the amount of the conversion option exceeding the face value of the note payable which was recorded
immediately as interest expense, and a derivative liability. Effective June 1, 2020, the Company and Montsaic entered into an
amendment to the note payable agreement to eliminate the conversion right contained in the original agreement. As a result, the
value of the derivative liability was $0 as of October 31, 2020 and the Company has recorded a gain on the change in value of
derivative of $566,667 during the six months ended October 31, 2020.
The
combined discount relating to the warrant and conversion option are being amortized over the term of the agreement. Amortization
of debt discounts during the three and six months ended October 31, 2020 amounted to $206,061 and is recorded as amortization
of debt discount in the accompanying unaudited condensed consolidated statements of operations. The unamortized discount balance
amounted to $0 as of October 31, 2020.
On
June 30, 2020, the Company entered into a loan agreement with Montsaic to borrow an additional $120,000. This loan bears interest
at an annual rate of 12.6% and is required to be repaid in full, together with all accrued, but unpaid, interest by June 30, 2021.
On
December 3, 2020, Montsaic sold its full right, title and interest in its outstanding notes payable amounting to $1,820,000 to
2490585 Ontario, Inc., the Company’s existing related party lender, along with the 1,216,560 shares of common stock previously
issued in connection with the debt agreement and the rights to receive the remaining 6,921,299 shares issuable (see Note 10).
On
March 16, 2020, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 12%
per annum. Interest on the note is payable monthly and outstanding principal on the note is due in full on March 16, 2022.
In
connection with the promissory note payable on March 16, 2020, the Company issued warrants to purchase 500,000 shares of the Company’s
common stock at an exercise price equal to a 40% discount of the market price of the Company’s stock, as defined in the
agreement. The warrants expire on March 16, 2022 and are fully vested upon issuance. The note was discounted by $112,990 allocated
from the valuation of the warrants issued. The discount recorded on the note is being amortized through the maturity date, which
amounted to $14,240 and $28,480, respectively, for the three and six months ended October 31, 2020. As of October 31, 2020, the
net book value of the promissory note amounted to $422,455 including the principal amount outstanding of $500,000 net of the remaining
discount of $77,545.
Future
scheduled maturities of notes payable as of October 31, 2020 were as follows.
|
|
Year Ended
|
|
|
|
October 31,
|
|
|
|
|
|
2021
|
|
$
|
1,820,000
|
|
2022
|
|
|
500,000
|
|
Total
|
|
$
|
2,320,000
|
|
Less current portion
|
|
|
1,820,000
|
|
Long-term portion of notes payable
|
|
|
500,000
|
|
Less discount
|
|
|
(77,545
|
)
|
Long-term portion of notes payable, net
|
|
$
|
422,455
|
|
NOTE
7: RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that
the Company can support its operations or attain adequate financing through sales of its equity or traditional debt financing.
There is no formal written commitment for continued support by officers, directors, or shareholders. Amounts represent advances
or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by
a promissory note.
Amounts
due to related parties were $738,714 and $377,106 as of October 31, 2020 and April 30, 2020, respectively, which represented unpaid
salaries and reimbursable expenses due to officers of the Company.
The
Company has outstanding notes payable of $4,100,000 and $2,100,000 and accrued interest of $455,516 and $138,967 due to a related
party as of October 31, 2020 and April 30, 2020, respectively (see Note 4).
NOTE
8: STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company has 300,000,000 shares of common stock authorized with a par value of $0.001 per share. As of October 31, 2020, the Company
had 26,609,714 shares of common stock issued and outstanding.
On
May 6, 2020, the Company issued 1,216,560 shares of its common stock to Montsaic as partial satisfaction of the shares issuable
under this note payable agreement.
On
May 15, 2020, the Company issued 243,800 shares of its common stock to a vendor as compensation for business advisory services
performed which resulted in $65,826 of operating expenses during the six months ended October 31, 2020.
On
September 4, 2020, the Company issued 300,000 shares of its common stock for the conversion of debt (see Note 5).
On
October 8, 2020, the Company issued 100,000 shares of its common stock to a vendor as compensation for business advisory services
performed which resulted in $114,000 of operating expenses during the six months ended October 31, 2020.
There
were no issuances of common stock during the six months ended October 31, 2019.
Common
Stock Issuable
As
discussed in Note 6, on September 16, 2019, the Company entered into a warrant assignment and conveyance agreement with Montsaic,
pursuant to which the Company allows Montsaic to acquire 33% of the outstanding common stock shares of the Company on a fully-diluted
basis for no consideration. As of October 31, 2020, there are 6,921,299 shares of common stock that are issuable under this agreement.
Warrants
Issued for Compensation
On
April 30, 2020, the Company granted an aggregate total of 12,500,000 warrants to key employees and officers of the Company as
compensation. The warrants have an exercise price of $0.001 per share, a contractual life of 10 years from the date of issuance,
and are vested immediately upon grant.
On
October 28, 2020, the Company granted 400,000 warrants to a services provider for advertising services over the next year. The
warrants have an exercise price of $0.75 per share, a contractual life of 10 years from the date of issuance, and vest quarterly
over a year from the grant date. As of October 31, 2020, none of the award has vested or is exercisable.
On
October 29, 2020, the Company granted a stock-based compensation award to three members of its advisory board, whereby they receive
an aggregate number of warrants equal to $90,000 divided by the average closing price of the Company’s stock for the previous
five days prior to the most recently completed fiscal quarter. The award vests quarterly over a year from the grant date. The
warrants have exercise price of $0.001 per share and a contractual life of 10 years from the date of issuance.
The
Company recorded a total of $4,019 of stock-based compensation expense related to these awards for the three and six months ended
October 31, 2020. The Company expects to record an additional $512,834 of stock-based compensation expense associated with these
warrants through October 2021.
NOTE
9: COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases its office space under short-term leases with terms under a year. Total rent expense for the three months ended
October 31, 2020 and 2019 amounted to $2,100 and $0, respectively. Total rent expense for the six months ended October 31, 2020
and 2019 amounted to $4,200 and $0, respectively.
Contingencies
From
time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is
not presently a party to any legal proceedings that it currently believes would individually or taken together have a material
adverse effect on the Company’s business or financial statements.
NOTE
10: SUBSEQUENT EVENTS
On
November 10, 2020, the Company entered into a Trademark Assignment Agreement to acquire the “Slinger” trademark for
$30,000 in cash, 35,000 shares of the Company’s common stock, and warrants to purchase 50,000 shares of the Company’s
common stock at an exercise price of $0.50 per share. The warrants are exercisable immediately and have a contractual life of
10 years.
On
November 24, 2020, the Company received additional borrowings of $300,000 from its related party debt holder. The borrowings bear
interest at 9.5% per annum and are due in full on November 24, 2021. In connection with the loan, the Company issued warrants
to the related party lender to purchase 125,000 shares of the Company’s common stock at $0.001 per share. The warrants vest
immediately and have a contractual life of 10 years.
On
November 24, 2020, the Company issued 46,087 shares of common stock to a vendor for payment of services.
On
November 24, 2020, the Company issued 55,945 shares of common stock to a consultant as payment of $30,000 of outstanding payables.
On
December 3, 2020, Montsaic entered into an Assignment and Conveyance Agreement with 2490585 Ontario Inc., the Company’s
existing related party lender. In connection with the agreement, Montsaic sold its full right, title and interest in its outstanding
notes payable amounting to $1,820,000 to 2490585 Ontario, Inc., along with the 1,216,560 shares of common stock previously issued
to Montsaic in connection with the debt agreement and the rights to receive the remaining 6,921,299 shares issuable. Subsequent
to this point in time, the outstanding debt of $1,820,000 and all accrued interest is payable to 2490585 Ontario, Inc., and future
interest will accrue at a rate of 9.5% per annum consistent with the rate being charged on their other outstanding debt. The scheduled
maturity date of the debt remains unchanged.
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 and our Annual Report on Form 10-K for the year ended April 30, 2020. 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 risk and uncertainties,
our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
and Description of Business
Lazex
Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. On August 23, 2019, the majority
owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delaware corporation (“Slinger
Bag Americas”) which was 100% owned by Slinger Bag Ltd. (“SBL”), an Israeli company. In connection with the
Stock Purchase Agreement, Slinger Bag Americas acquired 20,000,000 shares of common stock of Lazex for $332,239. On September
16, 2019, SBL transferred its ownership of Slinger Bag Americas to Lazex in exchange for the 20,000,000 shares of Lazex acquired
on August 23, 2019. As a result of these transactions, Lazex owned 100% of Slinger Bag Americas and the sole shareholder of SBL
owned 20,000,000 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name to
Slinger Bag Inc.
On
October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., (“Slinger Bag Canada”) a Canadian
company incorporated on November 3, 2017. There are no assets or liabilities or historical operational activity of Slinger Bag
Canada.
On
February 10, 2020, Slinger Bag Americas became the 100% owner of SBL, along with SBL’s wholly owned subsidiary Slinger Bag
International (UK) Limited (“Slinger Bag UK”) formed on April 3, 2019, after Zehava Tepler, the owner of SBL, contributed
it to Slinger Bag Americas for no consideration.
The
operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada and SBL are collectively referred to as the “Company,”
“Slinger Bag,” or “Slinger.”
The
Company operates in the sporting and athletic goods business. The Company is the owner of Slinger Launcher, a highly portable
and affordable ball launcher built into an easy to transport wheeled trolley bag. The Slinger Launcher allows anyone to simply
and easily control the speed, frequency and elevation of balls that are launched for practice, training or fitness purposes.
The
Company will initially focus all its energies on the tennis market worldwide.
For
the regular tennis player, the Slinger Launcher is much more than a tennis ball launcher. It also functions as a complete tennis
bag with ample room for racquets, shoes, towels, water bottles and other accessories and can charge mobile phones and other devices.
Tennis
Ball machines have been around since the 1950’s when they were introduced by Renne Lacoste. Improvements to performance
were made in the 1970’s when Prince started its tennis business on the back of its first product – Little Prince –
which was a vacuum operated ball machine. In the 1990’s the first battery operated machines came to the market and since
that time very little, if anything has changed in the structure of ball machines products outside of added computerization. Typically,
the machines being marketed by traditional ball machine brands are large, cumbersome and awkward to operate. They are also very
expensive – often well above U.S. $1,000. Up until today the vast majority of all tennis ball machines have sold to tennis
facilities, with only a few being sold directly to owners of private courts or tennis playing consumers.
According
to the Tennis Industry Association (www.tia.org) the single largest challenge facing tennis participation is the fact that 34%
of lapsed players cited a “lack of playing partner” as the reason for them stopping to play tennis. Slinger goes a
long way to solving this issue.
The
global tennis market is regarded by industry experts, governing organizations, Tennis brands and tennis-specific market research
companies as having 100 million active players globally, with as many consumers again being avid fans of the sport. Of this 100
million tennis player market, 20 million players are regarded as frequent or avid players – players who play regularly -
at least 1 time per month. These avid players drive the total tennis industry and account for 80% of all tennis revenues worldwide.
It
is this avid player market that Slinger is focused on penetrating with its Slinger Launcher and associated tennis accessories.
Slinger
intends to disrupt this traditional tennis market by creating a new ball machine category – called Slinger Launcher –
and marketing portable and affordable Slinger Launchers directly to avid, regular tennis players. Constructed within a wheeled
trolley tennis bag, a Slinger Launcher weighs around 15kgs / 34lbs when empty. If stored with 72 Balls inside the weight increases
to 19kgs / 42lbs. It can easily be stored in a car trunk, wheeled to the court and set up within minutes to use. The Slinger Launcher
is powered by a 6.6Ah Lithium battery that can last up to 3.5 hours of play depending on the settings being used and on frequency
of use. Slinger’s convenience as a tennis bag combined with its ease of operation and overall performance as a tennis ball
launcher is the basis that the company will target direct sales to these avid players.
While
the initial brand focus is clearly on Tennis, Slinger is developing similar launchers to address other forms of tennis around
the globe that are either rapidly gaining new participants or are already well-established sports in their own right. These include
but are not limited to Pickleball (USA), Soft Tennis (Japan), Squash (International Markets) and Paddle Tennis (International
markets).
In
future years, the company plans to enter new ball sport markets such as Baseball, Softball, Cricket, Badminton and others.
To
test the market for its products, Slinger, through its affiliate SBL, initiated a Kickstarter and Indiegogo campaign in 2019,
selling 3,100 units which generated expected revenue of approximately U.S. $866,000.
As
at the beginning of November 2019, the Company shipped 100 new product packages to potential distribution partners, high level
players and several tennis journalists as part of a final market testing program. Feedback resulted in a few minor tweaks to the
design of our Slinger Launcher, which have been incorporated into the final production unit. Our manufacturing facility in China
went into full production in late November 2019. As of October 31, 2020, we had shipped 11,250 Slinger Launchers out of
China and have another 10,000 in production. These were delivered to our logistics facilities in South Carolina for the United
States market and to Belgium for international markets and to exclusive market distributors contracted to the Slinger Bag brand.
Additionally,
we ship full containers of our Slinger Triniti Tennis Balls from Wilson (our supplier) in Thailand to the United States and Belgium
for onward distribution.
The
Company has contracted with exclusive distributors globally. These include Japan, UK, Ireland, Switzerland, Scandinavian markets
(covering Denmark, Sweden, Norway, Finland) Australia, New Zealand, Bulgaria, Singapore, Morocco, Slovenia, Hungary, Croatia and
most recently contracted with Dunlop Sports International Europe Ltd to distribute Slinger Bag exclusively in Germany, Austria,
France, Italy, Spain, Portugal, Netherlands, Belgium and Luxembourg in a transaction worth up to $100 million in purchases to
Slinger Bag through the end of 2025 and remain in various stages of negotiation with another 15 potential market distribution
companies across the globe. Manufacturing production remains at full capacity – currently 5,000 units per month. and Slinger
Bag has products leaving our production facility in Xiamen, China on a weekly basis en-route to our distribution centers in the
United States and Europe and to our key distributor partners.
Our
principal executive office is located at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244, and our telephone number is
(443) 407-7564.
Strategic
Brand Partnerships
Slinger
Bag is actively working on securing a number of highly visible ground-breaking strategic partnerships across tennis. These partnerships
will both provide Slinger Bag with co-branded products to supplement the core Slinger Bag product offering and, at the same time,
are expected to drive mutually beneficial marketing campaigns aimed at reaching avid tennis players globally.
●
Professional Tennis Registry (PTR):
The
PTR is the world’s most prestigious teaching pro organization with more than 40,000 members. Slinger has partnered with
PTR for the supply of Ball Launchers to their membership.
●
DSV Logistics DSV is the world’s leading suppliers of warehousing, freight forwarding and logistics. Slinger will use DSV
services in China, Europe and the US to optimize all logistical activities.
Competition
None.
There are currently no competitors with products that are similar to the Slinger Bag. There are, however, tennis ball machines,
including the following machines:
●
|
Spinshot
Player Tennis Ball Machine
|
●
|
Spinfire
Pro 2
|
●
|
Lobster
Sports Elite 3
|
●
|
Spinshot
Plus-2
|
●
|
Lobster
Sports Elite Grand V Limited Edition
|
●
|
Lobster
Sports Phenom II
|
●
|
Spinshot
Plus
|
●
|
Lobster
Sports Elite 2
|
●
|
Spinshot
Pro
|
●
|
Lobster
Sports Elite 1
|
●
|
Spinshot
Lite
|
●
|
Lobster
Sports Elite Liberty Tennis Ball Machine
|
●
|
Match
Mate Rookie
|
●
|
https://sportstutor.com/tennis-cube/
|
●
|
https://sportstutor.com/tennis-tutor-prolite/
|
●
|
https://sportstutor.com/tennis-tutor/
|
●
|
https://sptennis.com
|
Raw
Materials
All
materials used in the Slinger Launder are available off-the-shelf. The trolley bag is manufactured with 600D Polyester and has
the CA65 certification for the USA market. The launcher housing is produced using an injection mold using poly propylene mixed
with 30% glass fibers. The electronic, PCB and remote-control parts are all standard off the shelf items.
Intellectual
Property
The
Company retains specialist trademark and patent attorneys with international experience.
As
at the date hereof, the Company has applied for international design and utility patent protection for its main 3 products: Slinger
Launcher, Slinger Oscillator and Slinger Telescopic Ball Tube. Patents have been applied for in all key markets including USA,
China, Taiwan, India, Israel and EU markets. Trademarks have been applied for in all major markets around the globe Trademark
protection has been applied for and/or received in the following countries:
|
●
|
USA
|
|
●
|
Chile
|
|
●
|
Taiwan
|
|
●
|
Mexico
|
|
●
|
EU
|
|
●
|
Russia
|
|
●
|
Poland
|
|
●
|
Czech
Republic
|
|
●
|
Australia
|
|
●
|
New
Zealand
|
|
●
|
China
|
|
●
|
South
Korea
|
|
●
|
Vietnam
|
|
●
|
Singapore
|
|
●
|
India
|
|
●
|
Canada
|
|
●
|
United
Arab Emirates*
|
|
●
|
South
Africa*
|
|
●
|
Columbia*
|
|
●
|
Israel*
|
|
●
|
Japan*
|
|
●
|
Switzerland*
|
|
●
|
Indonesia*
|
|
●
|
Malaysia*
|
|
●
|
Thailand*
|
|
●
|
Turkey*
|
*Protection
is pending.
Slinger
Bag Inc. owns the rights to its Slingerbag.com domain.
Strategy
The
Company has an opportunity to disrupt the traditional tennis market globally. The Company expects drive 80% of its global revenues
through its direct-to-consumer go-to-market strategy, whether that be through its on-line e-commerce platform at www.slingerbag.com
or through associated e-commerce platforms established and managed by its distribution network. The balance of revenues will
be driven through partnerships with leading wholesalers, federations and teaching pro organizations and other transactions across
various markets. The Company will operate a third-party distributor structure in all markets with the exception of the United
States, the largest tennis market globally, Canada and its founder’s home market of Israel. Distributor partners will have
exclusive territories and will have a recognized background within the tennis industry for their market as well as having the
financial capacity and service infrastructure to aggressively grow the Slinger brand. Uniquely in the sports industry, all consumer
orders received into Slingerbag.com from markets outside the United States will be routed back to our local distribution partners
to fulfill and to service their local customers. All distributor partners will purchase with advanced orders, either based on
a vendor-direct FOB Asia direct ship or through 1 of our 3 global 3rd party distribution facilities on a duty paid
basis and at premium cost price. Currently, the Company has signed a number of exclusive distribution agreements in key markets
and has on-going discussions with around 15 key potential distributor partners in other markets around the globe and is looking
to close these distribution arrangements in the coming months.
The
United States market will remain a direct to consumer market for Slinger. As the largest Tennis market in the world with 17.4
million players of which 10.5million are regular / avid players, the United States is a key market both to establish the Slinger
brand and to drive demonstrable growth. Direct to consumer sales will be supplemented by one or more leading tennis wholesalers
who manage large databases of coach, player, college, high school and club clients. This market will be serviced out of a third-party
logistics facility in West Columbia SC and operated Slinger’s preferred global logistics partners, DSV, one of the world’s
leading suppliers of freight-forwarding, logistics and warehousing.
Brand
Marketing
As
a direct-to-consumer e-commerce brand, all marketing activity and advertising media will be centered around pushing consumers
to www.slingerbag.com and converting them to purchases. Slinger has engaged a number of leading agencies to support its
global marketing efforts:
Brand
Nation is a world class influencer marketing agency based in London. Brand Nation will lead all influencer programming globally.
Slinger has seeded about 50% of its planned 1,000 global influencers to date. Influencers targeted are wide ranging and include
leading sports, tennis, film, TV, music and blogger celebrities all known for the fact that they play tennis regularly and have
a fan base in excess of 10,000 followers. All influencer activity is rolled back up to the Slinger social media platforms as a
means of generating significant brand awareness and product interest.
Ad
Venture Media Group is a New York based leading PPC (pay-per-click) agency whose work is grounded in sophisticated scientific
analysis of consumer data and consumer trends and they are recognized globally as leaders in paid search and paid social media
campaigns. Ad Venture Media will lead all Slinger PPC activity on a performance-based fee structure and is briefed to drive consumer
engagement, through bespoke advertising campaigns that are aligned to our product profitability objectives.
In
the United States market, we have partnered with an organization called Team HQS who will manage an affiliate marketing program
across USA based teaching professionals, players, juniors and events. These affiliates will be provided with unique affiliate
marketing codes to share with their social media followers and other such communities that they are connected to and each will
receive an affiliate marketing fee based on revenues generated by consumers purchasing Slinger products attributable to their
unique code.
Each
of our distributor partners around the world are establishing their Slinger Bag distribution business as Slinger itself would
do if it was establishing a Slinger Bag subsidiary in each market. As such, each distributor will also adopt all forms of Slinger
brand marketing programs as well as initiating new local concepts of their own – all aimed at reaching the avid/regular
tennis player directly and ensuring that the Slinger brand message is consistent around the globe. Slinger Bag has agreed a local
marketing budget structure with each distributor as part of its distribution agreement. This marketing budget will be primarily
funded by the distributor partner with an additional contribution coming from Slinger with the contribution being linked to the
distributors purchase objectives. Each distributor will execute local grassroots programs including demonstration days, local
teaching pro partnerships, specialist tennis network communications, seeding of Slinger Bag product locally as necessary to local
key market tennis influencers to further increase the intensity of the influencer effort. Marketing dollars will also be allocated
to Google, Facebook, YouTube and other social media advertising spend and, where appropriate, approved and overseen by Ad Venture
Media Group.
Distribution
Agreements
As
at the date of this report, Slinger Bag Americas has entered into exclusive distribution agreements for Slinger’s line of
products, including, but not limited to, tennis ball launcher devices, tennis ball launcher accessories, sports bags, tennis balls
tennis court accessories and other tennis related products in the following markets and with the following distributors:
Territory
|
|
Distributor
|
|
Minimum Purchase Requirement of Slinger Bag Tennis Ball Launchers
|
Japan
|
|
Globeride Inc.
|
|
32,500 through the end of January 2025
|
United Kingdom and Ireland
|
|
Framework Sports & Marketing Ltd
|
|
9,000 through the end of May 2025
|
Switzerland
|
|
Ace Distribution
|
|
3,000 through the end of May 2025
|
Denmark, Finland, Norway and Sweden
|
|
Frihavnskompagniet ApS
|
|
6,500 through the end of December 2025
|
Morocco
|
|
Planet Sport Sarl
|
|
1,000 through the end of December 2025
|
Australia
|
|
Sportsman Warehouse t/a Tennis Only
|
|
2,500 through the end of 2025
|
New Zealand
|
|
Sporting Goods Specialists
|
|
100 through the end of 2025
|
Bulgaria
|
|
Ark Dream EOOD
|
|
950 through the end of 2025
|
Chile
|
|
Sporting Brands Ltds
|
|
165 through the end of 2025
|
Croatia, Hungary and Slovenia
|
|
Go 4 d.o.o.
|
|
380 through the end of 2025
|
Austria, Belgium, France, Germany, Italy, Luxembourg, Portugal, Spain and The Netherlands
|
|
Dunlop International Europe Ltd
|
|
120,000 through the end of 2025
|
Singapore
|
|
Tennis Bot Pte Ltd
|
|
950 through the end of 2025
|
Bahrain, Bangladesh, Egypt, Kuwait, Maldives, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Tunisia and United Arab Emirates
|
|
Color Sports Inc
|
|
3,000 through the end of 2025
|
Total
|
|
|
|
180,045
|
Brand
Endorsements
Slinger
has reached agreement with several globally recognized brand ambassadors.
Nick
Bollettieri is without question the most famous tennis coach globally, having trained 10 world #1 players such as Andre Agassi,
Jim Courier, Boris Becker, Monica Seles, Maria Sharapova and Serena Williams. Nick will join Slinger Bag as “Head Coach”
and will provide registered Slinger consumers with regular training and coaching tips through Slingers “Coaches Corner”
on its website.
Mike
& Bob Bryan (aka the Bryan Brothers – the foremost doubles team in the Tennis world) will be the global ambassadors
for Slinger Bag from the global Tennis tour and will feature prominently in our marketing messaging.
The
Professional Tennis Registry (PTR) – a United States-based teaching teacher association with approximately 40,000 members
will become a non-exclusive strategic partner for Slinger with all their members able to access an affiliate member part of our
website.
PTCA
Central Europe is a European Coach organization of leading touring pro coaches and they, like others, will undertake an affiliate
marketing approach.
Slinger
Bag is currently in discussions with other organizations, events, prominent coaches and players and has to date seeded Slinger
Bag products to 12 of the Top 20 ATP male players, 5 of the top 20 WTA women players, plus numerous other top-class touring and
teaching professionals.
Throughout
2020 Slinger Bag became a brand sponsor of several prominent tennis events, e.g. Battle of the Brits and Tie Break 10s (all shown
live across the globe).
Research
and Development
The
Company is involved in additional research and development of transportable, affordable and player-enhancing ball launching machines
and associated game improvement products for all Ball Sports. Following a successful launch of its tennis ball launcher, Slinger
is currently field testing its new Pickleball launcher due to be introduced in mid 2021 and is in final prototype stage of its
new Padel Tennis Launcher planned for late 2021 introduction and provided that the Company achieves certain performance targets,
Slinger Bag plans to introduce similar transportable, versatile and affordable ball launchers for Baseball, Softball, Cricket
and other high participation ball sports over the course of the next 3 years. In this connection, on September 10, 2020, Slinger
bag entered into an agreement with Igloo Design, which is the same company that designed the Slinger Bag ball launcher for tennis,
for a Slinger Bag ball launcher for baseball and softball. This development has commenced within the three months ended October
31, 2020 and initial design ideas and further direction have been provided.
Slinger
Bag retains outside consultants to provide research and product design services and each consultant has a specific expertise (molding
technology, electronics, product design, bag design as examples). We also are working with a select group of highly qualified
and resourceful third-party suppliers in Asia. We are continually striving to identify product enhancements, new concepts and
improvement to the production process on an on-going daily basis. In respect of any new project, management provides detailed
briefs, market data, product cost targets, competitive analysis, timelines and project cost goals to either the product consultants
or vendors and manages them to agreed key performance indicators (“KPIs”). These KPI’s include but are not limited
to (i) manufacturing to target costs; (ii) agreed development timelines; (iii) established quality criteria; (iv) defined performance
criteria.
Outside
of this we retain specialist trademark and patent attorneys and bring them in to the projects as needed.
Government
Regulation
Both
Slinger Launcher and Slinger Oscillator meet all the United States government requirements for electrical, radio wave and battery
standards as well as having all necessary and required certification to facilitate global marketing and sales of these products.
Employees
We
have six people providing us services on a full-time basis – our chief executive officer, our chief marketing officer and
our chief operating officer together with 2 people in global customer service and a global marketing coordinator. Our chief financial
officer and general counsel are also employed pursuant to service agreements, but are not providing us services on a full-time
basis.
Advisory
Board
In
October 2020, we appointed our first three representatives to join the newly formed Slinger Bag Advisory Board. George Mackin
joins the advisory board as a Media and Smart technology expert having previously owned the Indian Wells Tennis event and Tennis.com
media and most recently led Playsight to a high level of success within the tennis industry, Rodney Rapson joins as an experienced
smart technology expert and Jeff Angus joins to add support and experience to our marketing team.
Results
of Operations for the Three Months Ended October 31, 2020 and 2019
The
following are the results of our operations for the three months ended October 31, 2020 as compared to 2019:
|
|
For the Three Months Ended
|
|
|
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,620,068
|
|
|
$
|
-
|
|
|
$
|
2,620,068
|
|
Cost of sales
|
|
|
1,579,750
|
|
|
|
-
|
|
|
|
1,579,750
|
|
Gross profit
|
|
|
1,040,318
|
|
|
|
-
|
|
|
|
1,040,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
397,922
|
|
|
|
106,545
|
|
|
|
291,377
|
|
General and administrative expenses
|
|
|
711,491
|
|
|
|
503,027
|
|
|
|
208,464
|
|
Stock-based compensation
|
|
|
118,019
|
|
|
|
-
|
|
|
|
118,019
|
|
Research and development costs
|
|
|
15,439
|
|
|
|
84,769
|
|
|
|
(69,330
|
)
|
Total operating expenses
|
|
|
1,242,871
|
|
|
|
694,341
|
|
|
|
548,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(202,553
|
)
|
|
|
(694,341
|
)
|
|
|
491,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
52,543
|
|
|
|
321,970
|
|
|
|
(269,427
|
)
|
Loss on extinguishment of debt
|
|
|
1,999,487
|
|
|
|
-
|
|
|
|
1,999,487
|
|
Induced conversion loss
|
|
|
51,412
|
|
|
|
-
|
|
|
|
51,412
|
|
Interest expense - related party
|
|
|
144,085
|
|
|
|
5,000
|
|
|
|
139,085
|
|
Interest expense
|
|
|
74,046
|
|
|
|
428,855
|
|
|
|
(354,809
|
)
|
Total other expense (income)
|
|
|
2,321,573
|
|
|
|
755,825
|
|
|
|
1,565,748
|
|
Loss before income taxes
|
|
|
(2,524,126
|
)
|
|
|
(1,450,166
|
)
|
|
|
(1,073,960
|
)
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(2,524,126
|
)
|
|
$
|
(1,450,166
|
)
|
|
$
|
(1,073,960
|
)
|
Net
sales
Our
net sales during the three months ended October 31, 2020 amounted to $2,620,068. As of October 31, 2020, we had deferred revenue
of $809,514 representing amounts received for units that have not been shipped to customers. We expect these orders to be fulfilled
and the sales to be recognized in the year ended April 30, 2021. We had no sales during the three months ended October 31, 2019.
Cost
of sales
Our
cost of sales during the three months ended October 31, 2020 amounted to $1,579,750, which represent the cost of units shipped
during the period, and resulted in a gross profit of $1,040,318, or 39.7%. In previous quarters, we experienced gross losses on
units shipped due primarily to discounted pricing and higher costs associated with initial crowdfunding orders placed. The initial
crowdfunding orders had substantially been fulfilled as of the beginning of the current quarter. As a result, the sales generated
during the quarter ended October 31, 2020 represented new orders placed and fulfilled during the current period, which resulted
in a positive gross profit. We expect our sales going forward to generate similar gross profit percentages. We had no sales or
cost of sales during the three months ended October 31, 2019.
Operating
expenses
During
the three months ended October 31, 2020, we incurred total operating expenses of $1,242,871 compared with $694,341 during the
three months ended October 31, 2019. The increase is due primarily to expenses related to an increase in the volume of activity
during the three months ended October 31, 2020 related to marketing and development activities, as well as an increase in general
and administrative expense associated with our public filings in 2020, which did not exist during the same period in 2019. During
the three months ended October 31, 2019, we were in the process of building our business infrastructure to be in a position to
commence sales activities and as a result had lower operating expenses.
Other
expenses (income)
Other
expenses during the three months ended October 31, 2020 were $2,321,573, which consisted of $52,543 for the amortization of debt
discounts, $1,999,487 of loss on extinguishment of debt relating to the modification of related party loans outstanding, $51,412
of induced conversion loss relating to an inducement offer extended to and accepted by a convertible debtholder, and $218,131
of interest expense. During the same period in 2019, other expenses amounted to $755,825, which consisted of $321,970 for the
amortization of debt discounts and $433,855 of interest expense. Interest expense was higher during the three months ended October
31, 2019 as compared to the same period in 2020 due to non-cash interest expense of $358,855 related to the beneficial conversion
option associated with our outstanding Montsaic note.
Results
of Operations for the Six Months Ended October 31, 2020 and 2019
The
following are the results of our operations for the six months ended October 31, 2020 as compared to 2019:
|
|
For the Six Months Ended
|
|
|
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,185,053
|
|
|
$
|
-
|
|
|
$
|
3,185,053
|
|
Cost of sales
|
|
|
2,516,650
|
|
|
|
-
|
|
|
|
2,516,650
|
|
Gross profit
|
|
|
668,403
|
|
|
|
-
|
|
|
|
668,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
699,940
|
|
|
|
132,740
|
|
|
|
567,200
|
|
General and administrative expenses
|
|
|
1,404,933
|
|
|
|
675,599
|
|
|
|
729,334
|
|
Stock-based compensation
|
|
|
183,845
|
|
|
|
-
|
|
|
|
183,845
|
|
Research and development costs
|
|
|
43,549
|
|
|
|
133,569
|
|
|
|
(90,020
|
)
|
Total operating expenses
|
|
|
2,332,267
|
|
|
|
941,908
|
|
|
|
1,390,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,663,864
|
)
|
|
|
(941,908
|
)
|
|
|
(721,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
286,251
|
|
|
|
321,970
|
|
|
|
(35,719
|
)
|
Change in value of derivatives
|
|
|
(566,667
|
)
|
|
|
-
|
|
|
|
(566,667
|
)
|
Loss on extinguishment of debt
|
|
|
1,999,487
|
|
|
|
-
|
|
|
|
1,999,487
|
|
Induced conversion loss
|
|
|
51,412
|
|
|
|
-
|
|
|
|
51,412
|
|
Interest expense - related party
|
|
|
316,549
|
|
|
|
5,000
|
|
|
|
311,549
|
|
Interest expense
|
|
|
147,256
|
|
|
|
446,355
|
|
|
|
(299,099
|
)
|
Total other expense (income)
|
|
|
2,234,288
|
|
|
|
773,325
|
|
|
|
1,460,963
|
|
Loss before income taxes
|
|
|
(3,898,152
|
)
|
|
|
(1,715,233
|
)
|
|
|
(2,182,919
|
)
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(3,898,152
|
)
|
|
$
|
(1,715,233
|
)
|
|
$
|
(2,182,919
|
)
|
Net
sales
Our
net sales during the six months ended October 31, 2020 amounted to $3,185,053 which consisted partially of shipped orders related
to our Kickstarter and Indiegogo crowdfunding campaigns initiated in 2019, as well as new orders placed and fulfilled during the
six months ended October 31, 2020. As of October 31, 2020, we had deferred revenue of $809,514 representing amounts received for
units that have not been shipped to customers. We expect these orders to be fulfilled and the sales to be recognized in the year
ended April 30, 2021. We had no sales during the six months ended October 31, 2019.
Cost
of sales
Our
cost of sales during the six months ended October 31, 2020 amounted to $2,516,650, which represent the cost of units shipped during
the period, and resulted in a gross profit of $668,403, or 21.0%. During the first quarter of the current year, we experienced
a gross loss as the bulk of our sales in that period related to the shipment of initial crowdfunding orders. The loss on these
shipments was due to (1) discounted pricing on the initial crowdfunding orders, (2) as fulfillment was later than initial scheduled,
we fulfilled orders with the “deluxe” version of launcher (including all features), as well as tennis balls, both
of which increased costs, and (3) due to sanctions by the US against Chinese sourced products, the import duty was raised on all
launchers brought into USA increasing cost of sales. As a result, our cost of sales exceeded initial sales values raised in our
crowdfunding campaigns. As of the beginning of the current quarter, substantially all of the initial crowdfunding orders had been
fulfilled. Sales generated during the quarter ended October 31, 2020 represented new orders placed and fulfilled during the current
period, which resulted in a positive gross profit. We expect our sales going forward to generate positive gross profits. We had
no sales or cost of sales during the six months ended October 31, 2019.
Operating
expenses
During
the six months ended October 31, 2020, we incurred total operating expenses of $2,332,267 compared with $941,908 during the six
months ended October 31, 2019. The increase is due primarily to expenses related to an increase in the volume of activity during
the six months ended October 31, 2020 related to marketing and development activities, as well as an increase in general and administrative
expense associated with our public filings in 2020, which did not exist during the same period in 2019. During the six months
ended October 31, 2019, we were in the process of building our business infrastructure to be in a position to commence sales activities
and as a result had lower operating expenses.
Other
expenses (income)
Other
expenses, net during the six months ended October 31, 2020 was $2,234,288, which consisted of $286,251 for the amortization of
debt discounts, $1,999,487 of loss on extinguishment of debt relating to the modification of related party loans outstanding,
$51,412 of induced conversion loss relating to an inducement offer extended to and accepted by a convertible debtholder, and $463,805
of interest expense. These amounts were offset by a gain on the change in value of derivatives of $566,667. During the same period
in 2019, other expenses, net amounted to $773,325, which consisted of $321,970 for the amortization of debt discounts and $451,355
of interest expense.
Liquidity
and Capital Resources
Our
financial statements have been prepared on a going concern basis which assumes we will be able to realize our assets and discharge
our liabilities in the normal course of business for the foreseeable future. We had an accumulated deficit of $14,126,665 as of
October 31, 2020 and more losses are anticipated in the development of the business. Accordingly, there is substantial doubt about
our ability to continue as a going concern. Our financial statements do not include any adjustments related to the recoverability
and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue
as a going concern.
The
ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or being able
to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when
they become due. Management intends to finance operating costs over the next twelve months with existing cash on hands, loans
from related parties, and/or private placement of common stock.
The
following is a summary of our cash flows from operating, investing and financing activities for the six months ended October 31,
2020 and 2019.
|
|
For the Six Months Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows used in operating activities
|
|
$
|
(1,544,039
|
)
|
|
$
|
(1,577,160
|
)
|
Cash flows provided by investing activities
|
|
$
|
-
|
|
|
$
|
73,400
|
|
Cash flows provided by financing activities
|
|
$
|
2,120,000
|
|
|
$
|
1,867,761
|
|
We
had cash of $652,871 as of October 31, 2020, as compared to $79,847 as of April 30, 2020.
Net
cash used in operating activities was $1,544,039 during the six months ended October 31, 2020, compared with $1,577,160 during
the same period in 2019. Our cash used in operating activities during the six months ended October 31, 2020 was primarily the
result of our net loss of $3,898,152 for the period, offset by non-cash net expenses of $1,954,328 and increases in deferred revenue
as well as amounts due to related parties for accrued interest and for accrued salaries. Our net cash used in operating activities
during the six months ended October 31, 2019 was primarily the result of our net loss of $1,715,233 during the period, offset
by non-cash net expenses of $681,475, as well as additional spending for prepaid assets relating to inventory.
Net
cash provided from investing activities was $0 for the six months ended October 31, 2020, compared with $73,400 for the same period
in 2019. Investing activities during the period in 2019 were the result of $73,400 in cash we acquired from the contribution of
the net assets of Slinger Bag Limited.
Net
cash provided by financing activities was $2,120,000 for the six months ended October 31, 2020, compared with $1,867,761 for the
same period in 2019. Cash provided by financing activities in 2020 consisted of proceeds of $2,000,000 from notes payable with
a related party, as well as proceeds of $120,000 from a note payable with Montsaic Investments. Cash provided by financing activities
in 2019 consisted of proceeds of $500,000 from notes payable with a related party, as well as proceeds of $1,700,000 received
from a note payable with Montsaic Investments, offset by a distribution to the majority shareholder for $332,239.
Description
of Indebtedness
Notes
Payable – Related Party
On
October 3, 2019, the Company entered into a loan agreement with a related party entity controlled by the former shareholder of
Slinger Bag Canada for borrowings of $500,000 bearing interest at 12% per annum. All principal and accrued interest were due on
demand under the original agreement. On December 13, 2019, the Company entered into an Amended and Restated Loan Agreement making
the all principal and accrued interest due on July 15, 2020.
On
December 3, 2019, the Company entered into a loan agreement with the same related party for borrowings of $500,000 bearing interest
at 12% per annum. All principal and accrued interest were due on demand under the original agreement. On December 13, 2019, the
Company entered into an Amended and Restated Loan Agreement increasing the interest rate earned from 12% to 24% per annum and
making the all principal and accrued interest due on July 15, 2020.
On
December 11, 2019, the Company entered into a loan agreement with the same related party for borrowings of $700,000 bearing interest
at 24% per annum. All principal and accrued interest were due on July 15, 2020.
On
January 6, 2019, the Company entered into a loan agreement with the same related party for borrowings of $200,000 bearing interest
at 24% per annum. All principal and accrued interest are due on January 8, 2021.
On
March 1, 2020, the Company entered into a loan agreement with the same related party for borrowings of $200,000 bearing interest
at 24% per annum. All outstanding borrowings and accrued interest under all agreements are due on January 8, 2021.
On
May 12, 2020, the Company borrowed an additional $1,000,000 from this same related party. On July 3, 2020, the Company borrowed
an additional $500,000 from this same related party. The borrowings bear interest at a rate of 24% per annum and are due on January
8, 2021.
On
July 8, 2020, the Company entered into a Purchase Order Financing Agreement (“PO Financing Agreement”) whereby $1,900,000
of the total $3,600,000 in outstanding debt due to the related party has been labeled as inventory financing (“PO Financing
Amount”). The PO Financing Amount, along with any accrued interest, is due in full no later than six months from the effective
date of the PO Financing Agreement, or January 8, 2021. The outstanding balance of the PO Financing Amount bears interest at a
rate of 2% per month. The Company has agreed to repay the PO Financing Amount together with any accrued, but unpaid, interest
thereon out proceeds from the sale of its products, licensing activities, revenue to be generated from operations and/or amounts
received by the Company from investors, lenders, financiers, financing sources or other persons before making payments of any
other nature (including dividends and distributions) except for payments required to finance the Company’s operations. On
August 10, 2020, the Company borrowed an additional $250,000 subject to the PO Financing Agreement. On September 15, 2020, the
Company borrowed an additional $250,000 subject to the PO Financing Agreement.
On
September 7, 2020, the terms of the outstanding debt were amended to reduce the interest rate on all outstanding borrowings from
this related party to 9.5% per annum, and on September 8, 2020, the debt holder agreed to extend the due date on all outstanding
borrowings to September 1, 2021.
Total
outstanding borrowings from this related party as of October 31, 2020 amounted to $4,100,000.
Additional
borrowings are expected from this related party in order to fund operations over the next year.
Note
Payable
On
June 1, 2019, the Company entered into a note payable agreement with Montsaic Investments (“Montsaic”) which provided
for borrowings of $1,700,000 bearing interest at a rate of 12.6% per annum. All outstanding amounts are due on the maturity date
360 days after the loan issue date. The Company may repay up to 50% of the outstanding balance on the loan prior to the maturity
date at their discretion. The outstanding principal and accrued interest are convertible into shares of the Company’s common
stock at any time at the option of the debtholder at a conversion price equal to 75% of the lowest closing price of the common
stock as defined in the agreement. Effective June 1, 2020, the Company and Montsaic amended the terms of the note payable agreement
to remove the conversion rights described above and to extend the maturity date to June 1, 2021. On June 30, 2020, the Company
borrowed an additional $120,000 from Montsaic, bearing interest at 12.6% per annum and due in full on June 30, 2021.
On
March 16, 2020, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 12%
per annum. Interest on the note is payable monthly and outstanding principal on the note is due in full on March 16, 2022.
Future
amounts due as of October 31, 2020 are summarized as follows.
|
|
Payments due by period
|
|
|
|
Total
|
|
|
Less than 1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable - Related Party
|
|
$
|
4,100,000
|
|
|
$
|
4,100,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note Payable
|
|
$
|
2,320,000
|
|
|
$
|
1,820,000
|
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
6,420,000
|
|
|
$
|
5,920,000
|
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
We
expect that working capital requirements will continue to be funded through a combination of our existing funds, cash flows from
operations and further issuances of securities. Our working capital requirements are expected to increase in line with the growth
of our business.
Existing
working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations
over the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations
to date through the proceeds from debt instruments. In connection with our business plan, management anticipates additional increases
in operating expenses and capital expenditures relating to acquisition of inventory and marketing expenses. We intend to finance
these expenses with further issuances of securities and debt issuances. Thereafter, we expect we will need to raise additional
capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities
will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior
to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available
or not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Going
Concern
Our
independent registered public accounting firm auditors’ report accompanying our April 30, 2020 financial statements contained
an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements
have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy
out liabilities and commitments in the ordinary course of business.