SLINGER BAG INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
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, 2021. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See "Cautionary Statement Regarding Forward Looking Information'' elsewhere in this report. Because this discussion involves risks and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview and description of the activity
Lazex Inc.("Lazex") was incorporated under the laws of the State of Nevadaon July 12, 2015. On August 23, 2019, the majority owner of Lazex entered into a Stock Purchase Agreement with Slinger Bag Americas Inc., a Delawarecorporation ("Slinger Bag Americas"), which was 100% owned by Slinger Bag Ltd.("SBL"), an Israeli company. In connection with the Stock Purchase Agreement, Slinger Bag Americasacquired 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 Americasand the sole shareholder of SBL owned 20,000,000 shares of common stock (approximately 82%) of Lazex. Effective September 13, 2019, Lazex changed its name to Slinger Bag Inc.On October 31, 2019, Slinger Bag Americas acquired control of Slinger Bag Canada, Inc., ("Slinger Bag Canada") a Canadian company incorporated on November 3, 2017. There were no assets, liabilities or historical operational activity of Slinger Bag Canada at that time.
The operations of
Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Foundation Sportsare collectively referred to as the "Company" or "Slinger." The Company operates in the sporting and athletic goods business. The Company is the owner of the Slinger Launcher, a highly portable and affordable ball launcher built into an easy to transport wheeled trolley bag. The Slinger Launcher allows anyone to simply and easily control the speed, frequency and elevation of balls that are launched for practice, training or fitness purposes.
The company initially focused all of its energies on the global tennis market, but is in the early stages of developing ball launchers for other ball sports.
For the regular tennis player, the Slinger Launcher is much more than a tennis ball launcher. It also functions as a complete tennis bag with ample room for racquets, shoes, towels, water bottles and other accessories and can charge mobile phones and other devices. Tennis ball machines have been around since the 1950's when they were introduced by
Renne Lacoste. Improvements to performance were made in the 1970's when Princestarted 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 machine 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 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. The Slinger Launcher goes a long way to solving this issue. The global tennis market is regarded by industry experts, governing organizations, tennis brands and tennis-specific market research companies as having 100 million active players globally, with as many consumers again being avid fans of the sport. Of this 100 million tennis player market, 20 million players are regarded as frequent or avid players - players who play regularly - at least 1 time per month. These avid players drive the total tennis industry and account for 80% of all tennis revenues worldwide. 1
It is this market of avid players that the company aims to penetrate with its Slinger Launcher and associated tennis accessories.
The Company 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 frequency of use. The Slinger Launcher's convenience as a tennis bag combined with its ease of operation and overall performance as a tennis ball launcher is the basis that the Company will target direct sales
to these avid players. While the initial brand focus is clearly on tennis, the Company 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 (
U.S.), Soft Tennis ( Japan), and Paddle Tennis (International markets), all of which are currently in either development or testing and are planned for introduction
in calendar 2022. On
December 3, 2020, Slinger signed an exclusive agreement with Flixsense Pty Limitedd/b/a Gameface for the development of a tennis specific artificial intelligence (AI) application. The Company intends to introduce a market disrupting tennis app for players of all ages and abilities. This app will provide a wide range of analytics and other services and include practice and tennis fitness drills and activities, coaching tips and advice and a full suite of AI analytics. The Company will offer some services free of charge and will build a tiered subscription model for others. The app is expected to be ready to launch to the market in calendar 2022.
In the coming years, the company plans to enter new ball sports markets such as baseball, softball and cricket, which are currently scheduled to be introduced on the 2023 calendar.
The Company delivers Slinger Launchers directly from the final assembly facility in
Xiamen, Chinato customers either by direct shipment from the port in China, or to third party logistics facilities in Columbia, SC( U.S.) to support our U.S.business, Belleville, Ontario, Canada, Rotterdam, The Netherlandsto support smaller distributors in Canada, Europe, the Middle East, Africa, and Israel. Additionally, we ship full containers of our Slinger Triniti tennis balls from Wilson (our supplier) in Thailandto the United Statesand Belgiumfor 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, Czech Republic, Singapore, Morocco, Slovenia, Slovkian Republic, Hungary, Croatia, Germany, Austria, France, Italy, Spain, Portugal, Netherlands, Belgiumand Luxembourg, Russia, Middle East GCC markets, Egypt, Bangladesh, Pakistan, Malaysia, Greece, Panama, South Africa, Hong Kong, Macau, China, Indonesia, Philippines, Ecuadorand Polandand we are in various stages of negotiation with other potential market distribution companies across the globe.
Strategic brand partnerships
The Company is actively working on securing a number of highly visible ground-breaking strategic partnerships across tennis. These partnerships will both provide the Company with co-branded products to supplement the core product offering and, at the same time, are expected to drive mutually beneficial marketing campaigns aimed at reaching avid tennis players globally. Details of such partners announced and active today include:
? Wilson Sporting Goods:
? Professional Tennis Registry (PTR): PTR is the most prestigious professional teaching organization in the world with over 40,000 members. The company has partnered with PTR to supply Slinger launchers to its members.
Peter Burwash International(PBI): A high profile organization providing coaching and tennis services to high level, high quality hotels, resorts and tennis facilities across the globe. The Company is the official supplier of Slinger Launchers to PBI, which will be used at each location and PBI will offer an affiliate marketing program promoting sales to its list of global clients. ? DSV Logistics USAand OSL Logistics: DSV is one of the world's leading suppliers of warehousing, freight forwarding and logistics. The Company will use DSV warehousing services in the U.S.to optimize logistical activities. OSL are currently providing all freight forwarding for the U.S.markets and Europeas well as 3rd party warehousing logistics in Rotterdamfor Europe. 2 Competition There are currently no competitors with products that are similar to the Slinger Launcher, based on its portability, affordability and tennis bag functionality. There are, however, other companies that make tennis ball machines, including the following: ? Spinshot ? Lobster Sports? Spinfire Pro 2 ? Match Mate Rookie ? Sports Tutor ? Silent Partner 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 U.S. market. The launcher housing, Oscillator and Telescopic Ball Tube parts are produced using an injection mold using poly propylene mixed with 30% glass fibers. The electronic motors, PCB boards and remote-control parts are all standard off-the-shelf items. Intellectual Property
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 the
U.S., China, Taiwan, India, Israeland EU markets and granted in Chinaand Israel. Trademarks have been applied for in all major markets around the globe. Trademark protection has been applied for and/or received in the following countries: ? U.S.? Chile? Taiwan? Mexico? EU ? Russia? Poland? Czech Republic? Australia? New Zealand? China? South Korea3 ? Vietnam? Singapore? India? Canada? Argentina? Brazil? United Arab Emirates* ? South Africa* ? Columbia* ? Israel* ? Japan* ? Switzerland* ? Indonesia* ? Malaysia* ? Thailand* ? Turkey* *Protection is pending.
The Company is engaged in ongoing efforts to register more trademarks on a growing list of products, services and applications, which are at various stages of the registration process.
Strategy The Company has an opportunity to disrupt the traditional tennis market globally. The Company expects to 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, Canadaand 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 Stateswill 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 other key potential distributor partners in other markets around the globe. The United Statesmarket will remain a direct to consumer market for Slinger. As the largest tennis market in the world with 17.4 million players of which 10.5 million are regular / avid players, the United Statesis a key market both to establish the Slinger brand and to drive demonstrable growth. Recently the industry reported a significant increase in U.S.tennis participation and overall number of tennis play occasions, something that has been replicated in other key tennis markets around the globe. Direct to consumer sales will be supplemented by one or more leading tennis wholesalers who manage large databases of coach, player, college, high school and club clients. This market will be serviced out of a third-party logistics facility in West Columbia, SCand operated by one of 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. 4 Ad Venture Media Groupis a New Yorkbased 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 Statesmarket, we have partnered with an organization called Team HQS who will manage an affiliate marketing program across U.S.based teaching professionals, players, juniors and events. These affiliates will be provided with unique affiliate marketing codes to share with their social media followers and other such communities that they are connected to and each will receive an affiliate marketing fee based on revenues generated by consumers purchasing Slinger products attributable to their unique code.
We continue to evaluate each support agency on a monthly basis and, at the same time, we continually explore new avenues to expand our reach to our core customers.
Each of our distributor partners around the world are establishing their Slinger distribution business as Slinger itself would do if it was establishing a Slinger subsidiary in each market. As such, each distributor will also adopt all forms of Slinger brand marketing programs as well as initiating new local concepts of their own - all aimed at reaching the avid/regular tennis player directly and ensuring that the Slinger brand message is consistent around the globe. Slinger 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 distributor's purchase objectives. Each distributor will execute local grassroots programs including demonstration days, local teaching pro partnerships, specialist tennis network communications, seeding of Slinger product locally as necessary to local key market tennis influencers to further increase the intensity of the influencer effort. Marketing dollars will also be allocated to Google, Facebook, YouTube and other social media advertising spend and, where appropriate, approved and overseen by
Ad Venture Media Group. Distribution Agreements
Slinger Bag Americas has entered into exclusive distribution agreements for Slinger's line of products, including, but not limited to, tennis ball launcher devices, tennis ball launcher accessories, sports bags, tennis balls, tennis court accessories and other tennis related products in the following markets and with the following distributors: Minimum Purchase Requirement of Slinger Bag Tennis Ball Territory Distributor Launchers 32,500 through the Japan Globeride Inc. end of January 2025 Framework Sports & 9,000 through the United Kingdom and Ireland Marketing Ltd end of May 2025 3,000 through the Switzerland Ace Distribution end of May 2025 Frihavnskompagniet 6,500 through the Denmark, Finland, Norway and Sweden ApS end of December 2025 1,000 through the Morocco Planet Sport Sarl end of December 2025 Sportsman Warehouse 2,500 through the Australia t/a Tennis Only end of 2025 Sporting Goods 100 through the end New Zealand Specialists of 2025 950 through the end Bulgaria Ark Dream EOOD of 2025 165 through the end Chile Sporting Brands Ltda of 2025 380 through the end Croatia, Hungary and Slovenia Go 4 d.o.o. of 2025
Austria, Belgium, France, Germany, Italy, Luxembourg, Portugal, Spain Dunlop International 120,000 through the and The Netherlands Europe Ltd end of 2025 950 through the end Singapore Tennis Bot Pte Ltd of 2025 10,000 through the India Racquets4U end of 2025 2,050 through the Israel Eran Shine end of 2025 Bahrain, Bangladesh, Egypt, Kuwait, Maldives, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Tunisia 3,000 through
the and United Arab Emirates Color Sports Inc end of 2025 380 through the end Greece Elsol of 2025 50 through the end Panama Orange Pro of 2021 1,900 through the Russia Neva Sport end of 2025 500 through the end Malaysia Tennis Bot of 2025 3,000 through the Czech and Slovak Republics RaketSport s.r.o end of 2025 5,000 through the South Africa Golf Racket Pty Ltd end of 2025 750 through the end Hong Kong and Macau Tennis Bot of 2025 650 through the end Indonesia and Philippines Tennis Bot of 2026 Xiamen Powerway 17,500 through the China Sports Co. Ltd end of 2026 Frameworks Sports 1,850 through the Poland Poland end of 2026 Brandsinc SA / Siati 240 through the end Ecuador Express of 2026 Total 223,915 5 Brand Endorsements
We have entered into agreements with several world-renowned tennis players and coaches to become brand ambassadors.
Tommy Haas(former ATP #2 Player) has been appointed the Slinger BagChief Ambassador. In this role Tommy will support Slinger in building out its global ambassador team focused on identifying ambassadors in our key global business markets of the U.S., Japan, Europe, Australia, China, Braziland India. Tommy will also be very active supporting and promoting Slinger across the globe with personal appearances at Slinger events and via online training and drill videos. Mike and Bob Bryan(aka the Bryan Brothers - the foremost doubles team in the tennis world) have extended their ambassador agreements and will continue to feature prominently in our marketing activities and messaging.
Additionally, we have brand endorsements with the following athletes and coaches:
Eugenie Bouchard? Luke and Murphy Jensen(aka the Jensen Brothers) ? Darren Cahill? Nick Bollettieri? Patrick Mouratoglou? Dustin Brown
Each of the foregoing athletes and coaches is or was either a world-ranked singles or doubles tennis player or, in the case of
Nick Bollettieriand Patrick Mouratoglou, the coach of a number of world-ranked tennis players, has a large following of fans and supporters and is active across many aspects of tennis today. The Professional Tennis Registry (PTR) - a United States-based teaching 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. Peter Burwash International(PBI) - a United States-based, highly respected, global tennis services company set up by Peter Burwash some 35 years ago. PBI provides tennis programs and other tennis services to as many as 56 of the globes leading hotels and resorts. Slinger Launchers will be available to use at each resort and the PBI team will be actively promoting Slinger as part of
our affiliate marketing activity.
PTCA Central Europe – a leading European professional coach coach organization and they, like others, will undertake an affiliate marketing approach.
Tie Break 10s - a global organization that owns and operates Tie Break 10 events both independently and in partnership with major global tour events, e.g., Indian Wells. These events involve top players playing 'tie-break' matches with the event fully completed in one evening and with a significant cash prize for the winner. Slinger will be promoted at each of these events and will be available for fans to test out as well as the Slinger brand name being prominently used on Tie Break 10s social media. Tennis One App - a
United States-based company that has developed and successfully marketed an all-inclusive tennis app for players across the globe. Slinger has engaged with Tennis One to support its coaches corner segment - a weekly podcast series and in doing so benefits from the brand exposure available through the reach of the consumers using the app on a regular basis.
Functional tennis – one
We are currently in discussions with other top organisations, events, coaches and players and have to date distributed Slinger products to 12 of the ATP Top 20 Male Players, 5 of the WTA Top 20 Female Players, as well as many other high-level tours and teaching. professionals.
Throughout 2020 we sponsored several top tennis events eg Battle of the Brits, Tie Break 10s (all broadcast 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, paddle and soft tennis launchers, which are expected to be introduced to the market in calendar 2022. Slinger plans to introduce similar transportable, versatile and affordable ball launchers for baseball, softball, cricket, badminton and other high participation ball sports over the course of the next 3 years. In this connection, on
September 10, 2020, Slinger entered into an agreement with Igloo Design, which is the same company that designed the Slinger Launcher for tennis, for a Slinger ball launcher for baseball and softball. This development commenced in the second half of 2020 and initial design ideas and further direction have been provided. We retain outside consultants to provide research and product design services and each consultant has a specific expertise (e.g., molding technology, electronics, product design, bag design, 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 upon key performance indicators ("KPIs"). These KPI's include, but are not limited to: (i) manufacturing to target costs; (ii) agreed development timelines; (iii) established quality criteria; and (iv) defined performance criteria.
We also retain trademark and patent lawyers and work with these lawyers on projects as needed.
Slinger Launcher and Slinger Oscillator meet all requirements
Results of Operations for the Three Months Ended
January 31, 2022and 2021
Here are the results of our operations for the three months ended
For the Three Months Ended January 31, January 31, 2022 2021 Change (Unaudited) (Unaudited) Net sales
$ 4,201,745 $ 4,123,648 $ 78,097Cost of sales 3,234,430 3,245,493 (11,063 ) Gross income 967,315 878,155 89,160 Operating expenses:
Selling and marketing expenses 920,161 351,845
General and administrative expenses 2,942,501 1,385,626
Research and development costs 275,908 137,156
138,752 Total operating expenses 4,138,570 1,874,627 2,263,943 Loss from operations (3,171,255 ) (996,472 ) (2,174,783 ) Other expense (income):
Amortization of debt discounts 2,750,000 39,175
Loss on extinguishment of debt - 95,760 (95,760 ) Induced conversion loss - - - Gain on change in fair value of derivatives (5,943,967 ) - (5,943,967 ) Loss on issuance of convertible notes 2,200,000 -
Interest expense - related party 28,167 137,480
(109,313 ) Interest expense, net 164,669 22,199 142,470 Total other expense (income) (801,131 ) 294,614 (1,095,745 ) Loss before income taxes (2,370,124 ) (1,291,086 ) (1,079,038 ) Provision for income taxes - - - Net loss
$ (2,370,124 ) $ (1,291,086 ) $ (1,079,038 )Net sales Net sales increased $78,097, or 2%, during the three months ended January 31, 2022as compared to the three months ended January 31, 2021. The increase is due to an increase in the number of new orders placed on the Company's website and from its international distributors and fulfilled during the three months ended January 31, 2022as compared to the three months ended January 31, 2021when the product was still relatively new to the market. As of January 31, 2022, we had deferred revenue of $18,508representing amounts received for units that have not been shipped to customers. We expect these orders to be fulfilled and the sales to be recognized in the Company's next fiscal quarter.
Cost of sales and gross income
Cost of sales decreased
$11,063during the three months ended January 31, 2022as compared to the three months ended January 31, 2021, which is primarily due to increased shipping costs in the prior year. Gross income increased $89,160, or 10%, during the three months ended January 31, 2022as compared to the three months ended January 31, 2021due to the increased sales and lower cost of
Sales and marketing expenses
Selling and marketing expenses increased
$568,316, or 162%, during the three months ended January 31, 2022as compared to the three months ended January 31, 2021. This increase is largely driven by an increase in social media advertising, sponsorships, and other investments in our public relations presence in the current year in order to drive sales and build brand awareness.
General and administrative expenses
General and administrative expenses, which primarily consist of compensation (including share-based compensation) and other employee-related costs, as well as legal fees and fees for professional services, increased
$1,556,875during the three months ended January 31, 2022as compared to the three months ended January 31, 2021. This increase is primarily driven by a $504,093increase in legal fees related to closing costs incurred as part of the acquisitions of PlaySight Interactive Ltd.and Flixsense Pty Ltd.d/b/a Gameface during the three months ended January 31, 2022and filing fees related to our S-1 that was filed in January 2022and other SECfilings. The remainder of the increase is largely due to an increase in compensation expense due to increased headcount to support the continued growth of the business as well as the acquisition of Foundation Sportsin 2021.
Research and development costs
Research and development costs increased
$138,752during the three months ended January 31, 2022as compared to the three months ended January 31, 2021. This increase is primarily driven by our investment in a new platform and app that will integrate artificial intelligence (AI) technology to offer more value to our customers, as well as the continued development and testing of launchers for new ball sports that are expected to be brought to market in the future. 8 Other expense Total other expense decreased $1,095,745during the three months ended January 31, 2022as compared to the three months ended January 31, 2021. The decrease in expense was primarily due to the increased gain on the change in fair value of derivatives as well as a decrease in the loss on extinguishment of debt and related party interest expense as a result of lower related party debt balances year over year. These decreases were partially offset by the loss on the issuance of the Convertible Notes as well as an increase in amortization of debt discounts and interest expense, net due to the issuance of the Convertible
Notes during the current year.
Results of operations for the nine months ended
Here are the results of our operations for the nine months ended
For the Nine Months Ended January 31, January 31, 2022 2021 Change (Unaudited) (Unaudited) Net sales
$ 12,139,860 $ 7,308,701 $ 4,831,159Cost of sales 8,302,386 5,762,143 2,540,243 Gross income 3,837,474 1,546,558 2,290,916 Operating expenses:
Selling and marketing expenses 2,515,067 1,051,785
General and administrative expenses 41,535,188 2,974,404
Research and development costs 553,274 180,705
372,569 Total operating expenses 44,603,529 4,206,894 40,396,635 Loss from operations (40,766,055 ) (2,660,336 ) (38,105,719 ) Other expense (income):
Amortization of debt discounts 5,400,285 325,426
Loss on extinguishment of debt 7,096,730 1,528,580
Induced conversion loss - 51,412 (51,412 ) Gain on change in fair value of derivatives (15,074,880 ) - (15,074,880 ) Loss on issuance of convertible notes 5,889,369 -
Interest expense - related party 106,895 454,029
(347,134 ) Interest expense, net 446,339 169,455 276,884 Total other expense 3,864,738 2,528,902 1,335,836 Loss before income taxes (44,630,793 ) (5,189,238 ) (39,441,555 ) Provision for income taxes - - - Net loss
$ (44,630,793 ) $ (5,189,238 ) $ (39,441,555 )Net sales Net sales increased $4,831,159, or 66%, during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. The increase is due to an increase in the number of new orders placed on the Company's website and from its international distributors and fulfilled during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021when a large portion of the orders during the first three months of the year were related to the Kickstarter and Indiegogocrowdfunding campaigns initiated in fiscal year 2019.
Cost of sales and gross income
Cost of sales increased
$2,540,243, or 44%, during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021, which was primarily due to the increase in net sales. Gross income increased $2,290,916, or 148%, during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. 9 The increase in gross margin is largely due to the first quarter of the prior year resulting in a gross loss on net sales due to (1) discounted pricing on the initial crowdfunding orders, (2) as fulfillment was later than initially scheduled we fulfilled orders with the "deluxe" version of launcher (including all features), as well as tennis balls, both of which increased cost of sales, and (3) due to sanctions by the U.S.against Chinese sourced products, the import duty was raised on all launchers brought into the U.S.increasing our cost of sales. As a result, our cost of sales exceeded initial sales values raised in our crowdfunding campaigns. As of the beginning of the third quarter in the prior year, substantially all of the initial crowdfunding orders had
Sales and marketing expenses
Selling and marketing expenses increased
$1,463,282, or 139%, during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. This increase is largely driven by an increase in social media advertising, sponsorships, and other investments in our public relations presence in the current year in order to drive sales and build brand awareness.
General and administrative expenses
General and administrative expenses, which primarily consist of compensation (including share-based compensation) and other employee-related costs, as well as legal fees and fees for professional services, increased
$38,560,784during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. This increase is primarily driven by an increase of $32,569,112of share-based compensation related to warrants granted to employees, a $1,264,590increase in expense related to shares and warrants issued in connection with services the majority of which relate to the warrants issued to the lead placement agent as part of the issuance of the Convertible Notes and shares and warrants issued to brand ambassadors, and a $1,000,000increase in legal fees related to closing costs incurred as part of the acquisitions of PlaySight Interactive Ltd.and Flixsense Pty Ltd.d/b/a Gameface during the nine months ended January 31, 2022. The remainder of the increase is largely due to an increase in compensation expense due to increased headcount to support the continued growth of the business as well as the acquisition of Foundation Sportsin 2021.
Research and development costs
Research and development costs increased
$372,569during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. This increase is primarily driven by our investment in a new platform and app that will integrate artificial intelligence (AI) technology to offer more value to our customers, which we began developing in December 2020, as well as the continued development and testing of launchers for new ball sports that are expected to be brought to market in the future. Other expense Total other expense increased $1,335,836during the nine months ended January 31, 2022as compared to the nine months ended January 31, 2021. The increase was primarily due to the loss on the issuance of the Convertible Notes, an increase in loss on extinguishment of debt as a result of the conversion of the notes payable - related party, and increases in amortization of debt discounts and interest expense, net due to the issuance of the Convertible Notes during the nine months ended January 31, 2022. These increases were partially offset by an increased gain on the change in fair value of derivatives as well as a decrease in induced conversion loss and related party interest expense as a result of lower related party debt balances year over year.
Cash 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
$73,454,066as of January 31, 2022, and more losses are anticipated in the development of the business. Accordingly, there is substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. 10
The ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or being able to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from related parties, and/or private placement of debt and/or common stock. In respect to additional financing, refer to Notes 5, 6, 7, and 12. In the event that the Company is unable to successfully raise capital and/or generate revenues, the Company will likely reduce general and administrative expenses, and cease or delay its development plan until it is able to obtain sufficient financing. There can be no assurance that additional funds will be available on terms acceptable to the Company, or at all.
Here is a summary of our cash flows from operating, investing and financing activities for the nine months ended
For the Nine Months Ended
January 31, January 31, 20222021
Net cash used in operating activities
$ (7,783,098 ) $ (3,139,286 )Net cash used in investing activities (2,250,000 ) (30,000 ) Net cash provided by financing activities 10,209,420 3,420,000
We had cash and cash equivalents of
Net cash used in operating activities was
$7,783,098during the nine months ended January 31, 2022, as compared to $3,139,286during the same period in 2021. Our net cash used in operating activities during the nine months ended January 31, 2022was primarily the result of our net loss of $44,630,793for the period as well as increases in inventory, prepaid expenses and other current assets, and accounts receivable as well as decreases in deferred revenue during the period, which was partially offset by net non-cash expenses of $37,815,432and increases in accounts payable and accrued expenses, accrued payroll and bonuses and accrued interest - related party during the period. Our net cash used in operating activities during the nine months ended January 31, 2021was primarily the result of our net loss of $5,189,238for the period as well as increases in inventory and accounts receivable as well as decreases in deferred revenue during the period, which was partially offset by net non-cash expenses of $2,354,195, increases in accounts payable and accrued expenses, accrued payroll and bonuses, and accrued interest - related party as well as a decrease in prepaid expenses and other current assets during the period. Net cash used in investing activities was $2,250,000and $30,000for the nine months ended January 31, 2022and 2021, respectively. Our net cash used in investing activities during the nine months ended January 31, 2022consisted of $2,250,000in issuances related to a note receivable while our net cash used in investing activities during the nine months ended January 31, 2021related to our purchase of the Slinger trademark Net cash provided by financing activities was $10,209,420for the nine months ended January 31, 2022, as compared to $3,420,000for the same period in 2021. Cash provided by financing activities for the nine months ended January 31, 2022primarily consisted of proceeds of $11,000,000from convertible notes payable and proceeds of $3,000,000from notes payable with a related party, which was partially offset by a $2,000,000repayment of a note payable, a $1,000,000repayment of related party notes payable and $800,251in debt issuance costs related to the convertible notes payable. Cash provided by financing activities for the nine months ended January 31, 2021consisted of proceeds of $2,300,000from notes payable with a related party and proceeds of $1,120,000from a note payable. 11 Description of Indebtedness Notes Payable - Related PartyOn January 14, 2022, the Company entered into two loan agreements with Yonah Kalfaand Naftali Kalfa, each for $1,000,000, pursuant to which the Company received a total amount of $2,000,000. The loans bear interest at a rate of 8% per annum and are required to be repaid in full by April 30, 2022or such other date as may be accepted by the lenders. The Company is not permitted to make any distribution or pay any dividends unless or until the loans are repaid in full.
See Note 5 to the condensed consolidated financial statements for additional information.
Convertible Notes Payable On
August 6, 2021, the Company consummated the closing (the "Closing") of a private placement offering (the "Offering") pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of August 6, 2021(the "Purchase Agreement"), between the Company and certain accredited investors (the "Purchasers"). At the Closing, the Company sold to the Purchasers (i) 8% Senior Convertible Notes (the "Convertible Notes") in an aggregate principal amount of $11,000,000and (ii) warrants to purchase up to 7,333,334 shares of common stock of the Company (the "Warrants" and together with the Convertible Notes, the "Securities"). The Company received an aggregate of $11,000,000in gross proceeds from the Offering, before deducting offering expenses and commissions. On December 31, 2021, the Purchase Agreement and Convertible Notes were amended in an Omnibus Amendment Agreement pursuant to which the holders of the Convertible Notes agreed to make certain changes to the terms of the Purchase Agreement and Convertible Notes in exchange for an increase in the principal amount of the Convertible Notes from $11,000,000to $13,200,000and such increased principal balance is reflected on the replacement note issued to each note holder. The full terms of the Omnibus Amendment Agreement were disclosed in our current report on Form 8-K dated January 5, 2022.
Total outstanding borrowings related to Convertible Bonds as of
See Note 6 to the condensed consolidated financial statements for additional information.
August 6, 2021, the Company used the net proceeds from the issuance of the Convertible Notes to pay 100% of the outstanding principal and accrued interest of the Note.
See Note 7 to the condensed consolidated financial statements for additional information.
Future amounts due from
Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Convertible notes payable
$ 13,200,000 $ 13,200,000$ - $ - $ -
Notes payable - related party 2,000,000 2,000,000
- - - Total
$ 15,200,000 $ 15,200,000$ - $ - $ -
We anticipate that working capital requirements will continue to be funded by a combination of our existing funds, cash flow from operations and other debt and/or securities issuances. Our working capital requirements are expected to increase as our business grows.
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 of private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to the (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) 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.
Effect of inflation and price changes
We do not believe that inflation and price changes will have a material effect on our business.
Going Concern Our independent registered public accounting firm auditors' report accompanying our
April 30, 2021financial 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 our liabilities and commitments in the ordinary course of business.
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