Connexa(US:CNXA)2023-09-13 16:00PART I Item 1. Business The company operates in sports equipment and technology, focusing on ball launchers and AI analytics while undergoing significant corporate restructuring - Connexa Sports Technologies Inc, formerly Slinger Bag Inc, operates in the sports equipment and technology business, owning the Slinger Launcher and Gameface AI for performance analytics156254455 - The company completed a 1-for-10 reverse stock split and uplisted its common stock to the Nasdaq Capital Market on June 14, 2022115251389 - In late 2022, the company divested PlaySight and 75% of Foundation Sports to reduce cash burn, recording a total loss on disposal of $41,413,892 for the fiscal year117119123325387955956 - The company's strategy focuses on global racquet sports markets through a direct-to-consumer model in North America and an international distributor network162169171207 - Manufacturing of Slinger Bag Launchers is based in southern China with an estimated monthly capacity of 5,000 units across its product lines163164165 - The company faces intense competition in both sports equipment and AI-based sports technology markets, requiring continuous innovation227228229465466470 Item 1A. Risk Factors The company faces substantial risks including going concern uncertainty, operational challenges, and financial volatility - There is substantial doubt about the company's ability to continue as a going concern due to an accumulated deficit of $151,750,610 as of April 30, 2023124187259323326492493494496500501 - The company's stock price may be volatile due to variations in operating results, market conditions, and competitor actions252627 - The company has received delinquency notices from Nasdaq for failing to meet minimum bid price and stockholders' equity requirements, facing potential delisting4849505455152154155599603605632633 - Operations are susceptible to increasing costs for raw materials, labor, and freight, which could negatively affect gross margins332333343344345346347348399400485486487 - The business is exposed to risks from international operations, including foreign currency exchange rates and political instability98140258292334335336337338339340341342350351411462464489490491498499 - Failure to adequately protect intellectual property and combat counterfeit products could harm brand image and sales37230271537538 Item 1B. Unresolved Staff Comments This section is not applicable as the company is a smaller reporting company - This item is not applicable to smaller reporting companies65 Item 2. Properties The company does not own any properties and leases its principal office from a related party without rent - The company does not own any properties and its principal office is used without rent or fee from a company owned by a related party66288 Item 3. Legal Proceedings The company is defending against a lawsuit from Oasis Capital, LLC, alleging breach of a convertible note - Oasis Capital, LLC filed a complaint against the company and its CEO for alleged breach of a convertible note and securities law violations67 - The company believes the claims are without merit and is vigorously defending itself67 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company70 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, has experienced significant price volatility, and no cash dividends are anticipated - The company's common stock, ticker symbol 'CNXA', uplisted to the Nasdaq Capital Market on June 15, 202273 Common Stock Bid Price History (High/Low) | Quarter Ended | High Bid ($) | Low Bid ($) | |:--------------|:-------------|:------------| | April 30, 2023| 0.18 | 0.15 | | January 31, 2023| 0.25 | 0.22 | | October 31, 2022| 0.27 | 0.23 | | July 31, 2022 | 1.08 | 0.87 | | April 30, 2022| 13.50 | 13.50 | | January 31, 2022| 15.80 | 14.30 | | October 31, 2021| 30.80 | 29.00 | | July 31, 2021 | 33.90 | 30.80 | | April 30, 2021| 52.30 | 50.30 | - As of September 14, 2023, there were 239 holders of record of the company's common stock75 - The company has never declared or paid cash dividends and does not anticipate doing so, intending to retain earnings for operations303176 - The 2020 Global Share Incentive Plan reserves 1,500,000 shares for awards to key employees, directors, and consultants78111587 - Since May 1, 2022, the company issued 6,881,655 shares of common stock for various purposes, including a securities purchase agreement for approximately $5.0 million818283848689103104105614615616617618619637638639640641642691 - The company used net proceeds from a registered offering ($4,195,000) for working capital and debt repayment92106 Item 6. Selected Financial Data This section is not applicable as the company is a smaller reporting company - This item is not applicable to smaller reporting companies107 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation Financial performance shows a significant reduction in net sales and a substantial net loss, with ongoing liquidity concerns - The company's history includes multiple name changes, acquisitions, and recent divestitures to focus on its core business109110111113114117119245246247248249250251 - Critical accounting policies include revenue recognition, inventory valuation, business combinations, and fair value of financial instruments1113141516262264265266268299300301303304305306307308309311312313412413456457458459460461 Consolidated Statements of Operations (Continuing Operations) | Metric | Year Ended April 30, 2023 ($) | Year Ended April 30, 2022 ($) | Change ($) | Change (%) | |:-----------------------------------------|:------------------------------|:------------------------------|:-----------|:-----------| | Net sales | 9,922,799 | 16,102,672 | (6,179,873)| -38% | | Cost of sales | 7,144,335 | 11,878,010 | (4,733,675)| -40% | | Gross profit | 2,778,464 | 4,224,662 | (1,446,198)| -34% | | Selling and marketing expenses | 1,928,198 | 3,447,570 | (1,549,372)| -45% | | General and administrative expenses | 22,743,877 | 46,718,986 | (23,975,109)| -49% | | Research and development costs | 65,164 | 736,141 | (670,977) | -91% | | Total operating expenses | 24,737,239 | 50,932,697 | (26,195,458)| -49% | | Loss from operations | (21,958,775) | (46,708,035) | 24,749,260 | -53% | | Total other (income) expense | (3,319,050) | (182,060) | (3,501,110)| -1,923% | | Net loss from Continuing Operations | (25,227,825) | (46,525,975) | 21,248,150 | -46% | | Loss from discontinued operations | (45,875,860) | (5,247,677) | (40,628,183)| 774% | | NET LOSS | (71,153,685) | (51,773,652) | (19,380,033)| 37% | - Net sales decreased by 38% YoY to $9,922,799 in 2023, while gross profit margin improved to 28.00% from 26.24%430431 - Operating expenses decreased significantly, with general and administrative expenses down 49% and R&D costs down 91%99100432433 Cash Flow Summary | Activity | Year Ended April 30, 2023 ($) | Year Ended April 30, 2022 ($) | |:------------------------------------|:------------------------------|:------------------------------| | Net cash used in operating activities | (6,365,389) | (12,366,700) | | Net cash used in investing activities | 0 | (1,618,341) | | Net cash provided by financing activities | 5,821,178 | 13,734,286 | | Cash and cash equivalents (end of period) | 202,095 | 665,002 | - Net cash used in operating activities decreased by 48.5% to $6,365,389 in 2023, while net cash from financing activities decreased by 57.6% to $5,821,178127130 - The company entered into several merchant cash advance agreements to secure working capital by selling future receivables132133134135174660662687688959960961 - Outstanding borrowings from related parties were $1,953,842 as of April 30, 2023, with accrued interest of $917,957137175176385663681689 Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, these disclosures are not required - As a smaller reporting company, Connexa Sports Technologies Inc is not required to provide quantitative and qualitative disclosures about market risk180 Item 8. Financial Statements and Supplementary Data. Audited financial statements are presented, with the independent auditor's report highlighting a going concern uncertainty - The independent auditor's report expresses a going concern uncertainty due to an accumulated deficit of $(151,750,610) and negative working capital of $(18,775,991)187 - A critical audit matter involved the complex debt and equity transactions related to the disposal of PlaySight193194 Consolidated Balance Sheets (Summary) | Metric | April 30, 2023 ($) | April 30, 2022 ($) | |:-----------------------------------|:-------------------|:-------------------| | Total Current Assets | 4,991,500 | 12,826,096 | | Total Non-Current Assets | 2,116,072 | 62,036,850 | | TOTAL ASSETS | 7,107,572 | 74,862,946 | | Total Current Liabilities | 23,767,491 | 38,980,522 | | Total Long-Term Liabilities | 1,953,842 | 3,370,492 | | Total Liabilities | 25,721,333 | 42,351,014 | | Total Stockholders' Equity (Deficit)| (18,613,761) | 32,511,932 | Consolidated Statements of Operations and Comprehensive Loss (Summary) | Metric | Year Ended April 30, 2023 ($) | Year Ended April 30, 2022 ($) | |:-----------------------------------|:------------------------------|:------------------------------| | NET SALES | 9,922,799 | 16,102,672 | | GROSS PROFIT | 2,778,464 | 4,224,662 | | Total Operating Expenses | 24,737,239 | 50,932,697 | | OPERATING LOSS | (21,958,775) | (46,708,035) | | NET LOSS | (71,153,685) | (51,773,652) | | Comprehensive income (loss) | (71,066,135) | (51,698,520) | | Net loss per share - basic and diluted | (6.36) | (13.46) | Consolidated Statements of Cash Flows (Summary) | Activity | Year Ended April 30, 2023 ($) | Year Ended April 30, 2022 ($) | |:------------------------------------|:------------------------------|:------------------------------| | Net cash used in operating activities | (6,365,389) | (12,366,700) | | Net cash used in investing activities | 0 | (1,618,341) | | Net cash provided by financing activities | 5,821,187 | 13,734,286 | | NET DECREASE IN CASH AND RESTRICTED CASH | (462,907) | (250,948) | | CASH AND RESTRICTED CASH - END OF PERIOD | 202,095 | 665,002 | - The company reclassified PlaySight and Foundation Sports as discontinued operations, recording a total loss on disposal of $41,413,892 in 2023123235255613630 Intangible Assets (Continuing Operations) | Asset Category | Carrying Value (April 30, 2023) ($) | Carrying Value (April 30, 2022) ($) | |:-----------------------------------|:------------------------------------|:------------------------------------| | Tradenames and patents | 101,281 | 376,104 | | Customer relationships | - | 3,896,251 | | Internally developed software | - | 570,501 | | Total intangible assets | 101,281 | 4,842,856 | - Goodwill related to Gameface was fully impaired as of April 30, 2023, resulting in an impairment loss of $11,421,817415453 Accrued Expenses | Category | April 30, 2023 ($) | April 30, 2022 ($) | |:--------------------------|:-------------------|:-------------------| | Accrued payroll | 1,535,186 | 921,759 | | Accrued bonus | 1,720,606 | 1,014,833 | | Accrued professional fees | 490,442 | 1,706,560 | | Other accrued expenses | 1,165,623 | 738,749 | | Total | 4,911,839 | 4,381,901 | Deferred Tax Assets (US Operations) | Category | 2023 ($) | 2022 ($) | |:-----------------------------------|:---------|:---------| | Loss carryforwards | 3,049,000| 2,166,000| | Stock options | 8,454,000| 8,259,000| | Capital loss carryforward/Disposal | 11,039,000| — | | Related party accruals | 1,001,000| 799,000 | | Inventory reserve | 133,000 | 100,000 | | Interest deferral | 221,000 | 191,000 | | Start-up costs | 81,000 | 84,000 | | Other | 131,000 | 57,000 | | Valuation allowance | (24,109,000)| (11,656,000)| | Net deferred tax assets | — | — | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company changed its independent registered public accounting firm twice during the fiscal year with no reported disagreements - On August 28, 2022, the company re-engaged Mac Accounting Group, LLP, replacing WithumSmith + Brown, PC626 - On March 21, 2023, the company engaged Olayinka Oyebola & Co, replacing Mac Accounting Group, LLP668 - There were no disagreements on accounting principles or reportable events during the engagements of the former accountants667693 Item 9A. Controls and Procedures Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting - The company's disclosure controls and procedures were not effective as of April 30, 2023670 - Management concluded that internal control over financial reporting was not effective as of April 30, 2023, due to material weaknesses673 - Identified material weaknesses include a lack of a CFO and public company accounting expertise, inadequate segregation of duties, and insufficient accounting resources673697725 - The company is implementing compensating controls and enhancing existing controls to remediate these material weaknesses698 Item 9B. Other Information This section refers to acquisitions detailed elsewhere in the report - This section refers to acquisitions, which are detailed in other parts of the report726 PART III Item 10. Directors, Executive Officers and Corporate Governance This section outlines the company's leadership, board composition, committee structure, and corporate governance framework - The executive officers and directors include Mike Ballardie (CEO), Juda Honickman (CMO), Mark Radom (General Counsel), and Yonah Kalfa (CIO)700 - The board of directors is composed of five members, with three identified as independent directors under Nasdaq rules714715 - The company has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee738739740741 - The Board oversees a company-wide approach to risk management, with committees overseeing specific risk areas575745 - A Code of Business Conduct and Ethics has been adopted for directors, officers, and employees766 - Jalaluddin Shaik, President of Gameface, is identified as a significant employee577747 Item 11. Executive Compensation Details compensation for executive officers and directors, including salaries, bonuses, awards, and service agreements Summary Compensation Table for Executive Officers | Name and Principal Position | Year Ended April 30 | Salary ($) | Bonus ($) | Share Awards ($) | Non-Equity Incentive Plan Compensation ($) | All other compensation ($) | Total ($) | |:----------------------------|:--------------------|:-----------|:----------|:-----------------|:-------------------------------------------|:---------------------------|:----------| | Mike Ballardie | 2023 | 570,169 | 300,000 | - | 285,000 | 105,318 | 1,260,487 | | | 2022 | 571,123 | 277,500 | 16,100,000 | | 375,748 | 17,324,371| | Judah Honickman | 2023 | 179,502 | 87,400 | | | 27,144 | 294,046 | | | 2022 | 179,312 | 72,150 | 190,000 | | 10,454 | 451,916 | | Paul McKeown | 2023 | 366,023 | 77,411 | | | | 443,434 | | | 2022 | 344,048 | 83,250 | | | - | 427,298 | | Tom Dye | 2023 | 160,000 | 40,000 | | | 16,902 | 216,902 | | | 2022 | 160,000 | 37,000 | 25,647 | | - | 222,647 | | Mark Radom | 2023 | 150,000 | 28,500 | | | | 178,500 | | | 2022 | 114,000 | 23,241 | | | | 137,241 | | Yonah Kalfa | 2023 | | - | | | 495,000 | 495,000 | | | 2022 | - | - | 16,100,000 | | 593,250 | 16,693,250| | Jason Seifert | 2023 | 35,833 | | | | 8,442 | 44,275 | - Executive officers have service agreements outlining base salaries, bonus payments, and termination clauses108580581724750751770772 - Non-employee directors are expected to receive 150,000 shares of common stock annually as compensation582718 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details the beneficial ownership of common stock by principal shareholders, directors, and executive officers Beneficial Ownership of Common Stock (as of September 14, 2023) | Name | of Shares (1) | % of Class (1) | |:-----------------------------------|:----------------|:---------------| | Yonah Kalfa | 2,289,470 | 2.16% | | 2672237 Ontario Ltd. | 1,252,471 | 1.18% | | Mike Ballardie | 790,000 | 0.74% | | Judah Honickman | 350,000 | 0.33% | | Paul McKeown | 275,000 | 0.25% | | Tom Dye | 275,000 | 0.25% | | Mark Radom | 277,603 | 0.25% | | All current officers and directors as a group (6 persons) | 5,509,544 | 5.19% | - Beneficial ownership percentages are based on 24,148,532 common shares outstanding as of September 14, 2023584755 - The 2020 Global Share Incentive Plan has 15,000,000 shares reserved for issuance, with 1,500,000 shares remaining available111587756757 Item 13. Certain Relationships and Related Transactions and Director Independence This section primarily presents the fees incurred to the principal independent accountants - This section primarily presents the fees incurred to the principal independent accountants779 Item 14. Principal Accountant Fees and Services The company's audit fees decreased significantly in fiscal year 2023 compared to the prior year Principal Accountant Fees and Services | Category | Fiscal 2023 ($) | Fiscal 2022 ($) | |:-------------------|:----------------|:----------------| | Audit Fees | 34,000 | 331,690 | | Tax Fees | - | - | | All Other Fees | - | - | | Total | 34,000 | 331,690 | PART IV Item 15. Exhibit and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the annual report - The section includes a list of exhibits such as loan agreements, warrants, securities purchase agreements, and corporate bylaws591592760 - The financial statements required by Item 8 are incorporated by reference781 SIGNATURES The report is duly signed by authorized representatives affirming compliance with the Securities Exchange Act of 1934 - The report is signed by the Principal Executive Officer, Principal Financial Officer, and other directors761785 - Signatures confirm compliance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934593762