Connexa(CNXA) - 2023 Q4 - Annual Report

PART I - FINANCIAL INFORMATION This part presents the company's unaudited financial statements, management's analysis, and key risk disclosures Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and notes for the periods ended January 31, 2023, and April 30, 2022 Consolidated Balance Sheets The balance sheet shows a significant decrease in total assets and a shift to a stockholders' deficit, indicating a worsening financial position Total Assets | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 19,507,622 | | Apr 30, 2022 | 74,862,946 | | Change | -55,355,324 (-73.95%) | Total Liabilities | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 31,212,005 | | Apr 30, 2022 | 42,351,014 | | Change | -11,139,009 (-26.30%) | Total Stockholders' Equity (Deficit) | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | (11,704,383) | | Apr 30, 2022 | 32,511,932 | | Change | -44,216,315 (-136.00%) | Consolidated Statements of Operations The company reported a significantly higher net loss for the nine months ended January 31, 2023, driven by a substantial loss on disposal of subsidiaries Net Sales (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 7,632,940 | | 2022 | 12,107,666 | | Change | -4,474,726 (-36.96%) | Gross Profit (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 2,378,159 | | 2022 | 3,805,745 | | Change | -1,427,586 (-37.51%) | Net Loss (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | (64,169,773) | | 2022 | (44,630,793) | | Change | -19,538,980 (-43.78%) | - Loss on Disposal of Subsidiaries (Nine Months Ended Jan 31, 2023): $41,413,892[86] Consolidated Statement of Changes in Shareholders' Equity (Deficit) Shareholders' equity shifted from a positive $32.51 million to a deficit of $(11.70) million, driven by a substantial net loss and stock conversions Total Stockholders' Equity (Deficit) | Period | Amount ($) | | :----- | :--------- | | May 1, 2022 | 32,511,932 | | Jan 31, 2023 | (11,704,383) | | Change | -44,216,315 (-136.00%) | - Net Loss for the Period (May 1, 2022 - Jan 31, 2023): $(48,879,775)[69] - Stock Issued for Conversion of Notes Payable: $14,046,300 (4,389,469 shares)[88] - Share-based Compensation (May 1, 2022 - Jan 31, 2023): $468,886[69][88] Consolidated Statements of Cash Flows Net cash from financing activities decreased significantly, while cash used in operating activities saw a slight improvement for the nine months ended January 31, 2023 Net Cash Used in Operating Activities (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | (6,845,810) | | 2022 | (7,795,944) | | Change | 950,134 (12.19% improvement) | Net Cash Used in Investing Activities (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 0 | | 2022 | (2,250,000) | | Change | 2,250,000 (100% improvement) | Net Cash Provided by Financing Activities (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 6,481,772 | | 2022 | 10,209,420 | | Change | -3,727,648 (-36.51%) | Cash and Restricted Cash - End of Period (Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 316,750 | | 2022 | 1,056,754 | | Change | -749,904 (-70.96%) | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on accounting policies, going concern, debt, equity, discontinued operations, and subsequent events Note 1: Organization and Nature of Business Details the company's name change, reverse stock split, recent divestitures, and current operational focus - Company changed name to Connexa Sports Technologies Inc and ticker symbol to "CNXA" on April 7, 2022[94] - Company effected a 1-for-10 reverse stock split on June 14, 2022, and listed on Nasdaq Capital Market[95] - Company sold PlaySight in November 2022 and 75% of Foundation Sports in December 2022, reclassifying them as discontinued operations[74][93][122] - Current operations focus on Slinger Launcher and Gameface AI[121] Note 2: Going Concern Highlights a substantial accumulated deficit and management's plans to address going concern doubts - Accumulated Deficit (Jan 31, 2023): $144,766,698[100] - Substantial doubt about the Company's ability to continue as a going concern[100] - Management plans to finance operations through existing cash, related party loans, and/or private placement of debt/common stock[101] - Company reduced operating expenses by selling PlaySight and 75% of Foundation Sports in late 2022[101] Note 3: Summary of Significant Accounting Policies Outlines key accounting methods for inventory, revenue recognition, business combinations, derivatives, goodwill, and share-based compensation - Inventory valued at lower of cost (FIFO) or net realizable value, with reserves for inventory sold below cost and shrink[104] - Revenue recognized at a point in time once products are shipped, based on ASC 606[106] - Business combinations accounted for using the acquisition method, recording assets/liabilities at fair value[110] - Derivative liabilities valued using Level 2 assumptions (Black-Scholes) and contingent consideration using Level 3 inputs[164][165] - Goodwill impairment tested annually by comparing fair value of reporting unit to its carrying value (one-step approach)[146] - Share-based compensation measured at fair value on grant date and expensed over the vesting period[148] - Company adopted ASU 2017-04 (Goodwill Impairment) effective May 1, 2021, with no material effect[192] Note 4: Concentration of Credit Risk and Other Risks and Uncertainties Reveals significant concentration in accounts receivable and accounts payable with a small number of customers and suppliers - Accounts Receivable Concentration (Jan 31, 2023): Two customers accounted for 46% of trade receivables[178] - Accounts Payable Concentration (Jan 31, 2023): Four suppliers accounted for 59% of trade payables[195] Note 5: Acquisitions and Business Combinations Details the acquisition of Gameface in FY2022 and the subsequent disposal of PlaySight and Foundation Sports - Acquired three entities in FY2022, including Gameface[155] - Sold 100% of PlaySight in November 2022[156] - Disposed of 75% of Foundation Sports in December 2022[179] Pro Forma Financial Information (Nine Months Ended Jan 31, 2022, as if Gameface acquired at beginning of period) | Metric | Amount ($) | | :----- | :--------- | | Revenues | 12,151,486 | | Net loss | (46,130,471) | | Basic and diluted earnings (loss) per share | (12.35) | Note 6: Intangible Assets Summarizes the carrying value of intangible assets and the schedule for future amortization expenses Intangible Assets (Jan 31, 2023) | Asset Type | Carrying Value ($) | Accumulated Amortization ($) | Net Carrying Value ($) | Weighted Average Amortization Period (years) | | :-------------------------- | :----------------- | :--------------------------- | :--------------------- | :------------------------------------------- | | Tradenames and patents | 385,582 | 15,829 | 369,753 | 15.26 | | Customer relationships | 3,930,000 | 84,102 | 3,845,898 | 9.92 | | Internally developed software | 580,000 | 27,410 | 552,590 | 4.91 | | Total | 4,895,582 | 127,341 | 4,768,241 | | Amortization Expense (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 74,615 | | 2022 | 4,335 | Estimated Future Amortization Expense | Fiscal Year | Amortization Expense ($) | | :---------- | :----------------------- | | 2024 | 544,781 | | 2025 | 544,781 | | 2026 | 544,781 | | 2027 | 544,781 | | 2028 | 426,815 | | Thereafter | 2,162,302 | | Total | 4,768,241 | Note 7: Accrued Expenses Provides a breakdown of accrued expenses, showing an increase primarily in accrued payroll and bonus Accrued Expenses | Category | Jan 31, 2023 ($) | Apr 30, 2022 ($) | | :-------------------- | :--------------- | :--------------- | | Accrued payroll | 1,545,123 | 921,759 | | Accrued bonus | 1,611,606 | 1,014,833 | | Accrued professional fees | 1,300,000 | 1,706,560 | | Other accrued expenses | 984,697 | 738,749 | | Total | 5,441,426 | 4,381,901 | Note 8: Note Payable - Related Party Details outstanding borrowings and accrued interest from related parties, with repayment dates extended to July 2024 Outstanding Borrowings from Related Parties | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 1,953,115 | | Apr 30, 2022 | 2,000,000 | Accrued Interest Due to Related Parties | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 999,257 | | Apr 30, 2022 | 908,756 | Interest Expense - Related Parties (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 177,773 | | 2022 | 106,895 | - Repayment date for two $1 million related party loan agreements extended to July 31, 2024[1] Note 9: Convertible Notes Payable Describes the issuance and subsequent conversion of $13.2 million in senior convertible notes into common stock - Issued $11,000,000 in 8% Senior Convertible Notes and warrants in August 2021[2] - Principal balance increased to $13,200,000 due to an amendment in December 2021[7] Outstanding Borrowings Related to Convertible Notes | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 0 | | Apr 30, 2022 | 13,200,000 | - 4,389,469 shares of common stock issued in June 2022 upon conversion of $13.2 million in convertible notes and $846,301 in accrued interest[8] - Recognized a $2,200,000 loss on issuance of convertible notes during the year ended April 30, 2022, related to the amendment[7] Note 10: Notes Payable Outlines various financing agreements, including merchant cash advances and a loan agreement that resulted in significant derivative expenses Derivative Liability Fair Value | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 1,429,620 | | Apr 30, 2022 | 1,061,550 | - Entered into two merchant cash advance agreements in July 2022, selling $2,248,500 in future receivables for $1,500,000 cash[20][22] - Entered into a loan and security agreement in January 2023 for up to $2,000,000, with an initial advance of $1,400,000 and warrants[24] - Recognized a derivative expense of $1,715,557 and a loss on change in fair value of derivative liability of $1,519,499 related to the January 2023 loan[24] - Company defaulted on the January 2023 note on July 6, 2023, with the interest rate increasing to 6.43% per annum[188] Note 11: Related Party Transactions Summarizes financial transactions with related parties, including outstanding notes payable and a significant decrease in net sales Outstanding Notes Payable to Related Parties | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 1,953,115 | | Apr 30, 2022 | 2,000,000 | Accrued Interest Due to Related Parties | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 999,257 | | Apr 30, 2022 | 908,756 | Net Sales to Related Parties (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 104,586 | | 2022 | 424,394 | | Change | -319,808 (-75.35%) | Note 12: Shareholders' Equity (Deficit) Details significant changes in shareholders' equity, driven by a large increase in common stock issued through conversions and private placements Common Stock Issued and Outstanding | Period | Shares | | :----- | :----- | | Jan 31, 2023 | 13,543,155 | | Apr 30, 2022 | 4,194,836 | | Change | 9,348,319 (222.85% increase) | - Issued 4,389,469 shares upon conversion of convertible notes in June 2022[28] - Issued 1,048,750 shares to investors in Nasdaq uplist round in June 2022[29] - Issued 1,018,510 shares of common stock and pre-funded warrants for 11,802,002 shares in a September 2022 private placement, raising approximately $5.0 million[12] - Recognized $32,381,309 of share-based compensation expense in FY2022 for warrants granted to key employees and officers[226] Note 13: Commitments and Contingencies Discloses contingent consideration from the Gameface acquisition and confirms no material legal proceedings are currently expected Contingent Consideration (Gameface acquisition) | Period | Amount ($) | | :----- | :--------- | | Jan 31, 2023 | 418,455 | | Apr 30, 2022 | 1,334,000 | - Issued 598,396 common shares to former Gameface shareholders in June 2022[189] - Total rent expense for nine months ended Jan 31, 2023 and 2022 was $2,800 and $6,550, respectively[229] - No current legal proceedings expected to have a material adverse effect on the company[230] Note 14: Income Taxes States that income taxes are accounted for under ASC 740 and no interest or penalties on uncertain tax positions were recognized - Income taxes accounted for under ASC 740[167] - No interest or penalties on uncertain tax positions recognized for the nine months ended January 31, 2023 and 2022[231] Note 15: Segments Confirms the company now operates in a single equipment segment following the disposal of Foundation Sports and PlaySight - Company now operates only in the equipment segment[232] - Ceased reporting two segments after disposing of Foundation Sports and PlaySight[232] Note 16: Discontinued Operations Provides details on the sale of PlaySight and Foundation Sports, resulting in a significant loss on disposal - PlaySight sold 100% in November 2022, releasing company from obligations and receiving a $2,000,000 promissory note[205] - 75% of Foundation Sports membership interest assigned in December 2022, with a right to purchase remaining 25% for $500,000[206] Loss from Discontinued Operations (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | (4,461,968) | | 2022 | (959,364) | - Loss on Disposal of Discontinued Operations: $(41,413,892)[236] Assets and Liabilities of Discontinued Operations (April 30, 2022) | Category | Current Assets ($) | Non-Current Assets ($) | Current Liabilities ($) | Non-Current Liabilities ($) | | :-------------------------- | :----------------- | :--------------------- | :---------------------- | :-------------------------- | | Cash and restricted cash | 916,082 | | | | | Accounts receivable | 288,980 | | | | | Inventory | 323,307 | | | | | Right of use asset – operating leases | 239,689 | | | | | Prepaid expenses | 490,260 | | | | | Goodwill | | 25,862,000 | | | | Property and equipment, net | | 126,862 | | | | Intangible assets, net | | 19,473,646 | | | | Contract assets, net of current portion | | 209,363 | | | | Finished products used in operations, net | | 4,693,575 | | | | Accounts payable and accrued expenses | | | 2,432,818 | | | Lease liability – operating leases | | | 237,204 | | | Contract liabilities | | | 2,545,200 | 1,370,492 | | Total | 2,258,318 | 50,365,446 | 5,215,222 | 1,370,492 | Note 17: Subsequent Events Details multiple Nasdaq delinquency notices and the subsequent appeal granting continued listing under specific compliance conditions - Received Nasdaq delinquency notices for unfiled 10-K (FY2022) and 10-Qs (Q1, Q2, Q3 FY2023)[238] - Received Nasdaq delinquency notice for failing to meet the minimum $1.00 bid price requirement[238] - Received Nasdaq delinquency notice for Corporate Governance Deficiencies (lack of independent directors, audit/compensation committee requirements)[237] - Nasdaq granted appeal for continued listing, requiring filing of delinquent reports, corporate governance compliance by July 15, 2023, and bid price compliance by October 9, 2023[214][215][239][240] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, recent corporate events, liquidity, and capital resources Overview Outlines the company's focus on the global ball sport market with its Slinger and Gameface AI products - Company focuses on global ball sport market, with Slinger Bag Launcher as a leading product in tennis (over 60,000 units sold)[269] - Gameface AI technology to deliver performance insights in tennis, pickleball, padel, baseball, and cricket[243][269] - Slinger Tennis App, incorporating Gameface AI, to be launched as a free consumer app in late 2023[243] Recent Events Summarizes key corporate actions including a reverse stock split, auditor change, private placements, asset sales, and Nasdaq compliance issues - Reverse Stock Split: 1-for-10 reverse stock split on June 14, 2022[244] - Change in Auditor: Re-engaged Mac Accounting Group, LLP as independent auditor, dismissing WithumSmith + Brown, PC in August 2022[245] - September 2022 Private Placement: Issued 1,018,510 shares of common stock and pre-funded warrants for 11,802,002 shares, raising approximately $5.0 million[222] - Sale of PlaySight: Sold 100% of PlaySight in November 2022, receiving a $2 million promissory note and being released from PlaySight's obligations[249] - Sale of Foundation Sports: Assigned 75% of membership interest in December 2022, establishing a $500,000 reserve for the investment[278] - January 2023 Private Placement: Entered into a loan and security agreement for up to $2 million, with an initial advance of $1.4 million and warrants[279] - Nasdaq Delinquency Notices: Received notices for unfiled 10-K and 10-Qs, corporate governance deficiencies, and failure to meet minimum bid price[258][281][282] - Nasdaq Appeal Outcome: Granted continued listing subject to filing delinquent reports, achieving corporate governance compliance by July 15, 2023, and bid price compliance by October 9, 2023[285][286] Results of Operations for the Three Months Ended January 31, 2023 and 2022 Quarterly results show a sharp decline in net sales but an increase in gross profit, alongside a massive increase in other expenses Net Sales (Three Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 1,605,783 | -62% | | 2022 | 4,188,774 | | Gross Profit (Three Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 1,069,826 | 12% | | 2022 | 954,809 | | Total Operating Expenses (Three Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 2,110,443 | -43.22% | | 2022 | 3,715,834 | | Total Other Expense (Three Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | (5,790,155) | 823% (increase in expense) | | 2022 | 801,131 | | - Decrease in R&D costs by 99% due to reduction in development and maintenance costs for PlaySight and Gameface brands[265] Results of Operations for the Nine Months Ended January 31, 2023 and 2022 Nine-month results show decreased net sales and a dramatic reduction in operating expenses, primarily due to lower share-based compensation Net Sales (Nine Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 7,632,940 | -37% | | 2022 | 12,107,666 | | Gross Income (Nine Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 2,378,159 | -37.51% | | 2022 | 3,805,745 | | Total Operating Expenses (Nine Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | 11,000,270 | -74.77% | | 2022 | 43,612,436 | | Total Other Expense (Nine Months Ended Jan 31) | Period | Amount ($) | Change (%) | | :----- | :--------- | :--------- | | 2023 | (9,671,802) | 150% (increase in expense) | | 2022 | (3,864,738) | | - General and administrative expenses decreased by $31.10 million (-76.49%) due to reduced share-based compensation and shares issued for services[266][319] - Research and development costs decreased by $0.48 million (-88%) due to reductions in Slinger Bag new project development and PlaySight/Gameface maintenance costs[320] Liquidity and Capital Resources The company's significant accumulated deficit raises substantial doubt about its ability to continue as a going concern - Accumulated Deficit (Jan 31, 2023): $144,766,698, raising substantial doubt about going concern[322] Net Cash Used in Operating Activities (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | (6,845,810) | | 2022 | (7,795,944) | Net Cash Provided by Financing Activities (Nine Months Ended Jan 31) | Period | Amount ($) | | :----- | :--------- | | 2023 | 6,481,772 | | 2022 | 10,209,420 | - Cash and Cash Equivalents (Jan 31, 2023): $316,750[323] Future Debt Obligations (Jan 31, 2023) | Category | Total ($) | Less than 1 year ($) | 1-3 years ($) | | :-------------------- | :-------- | :------------------- | :------------ | | Notes payable | 1,400,000 | 1,400,000 | 0 | | Notes payable – related party | 1,953,115 | 0 | 1,953,115 | | Total | 3,353,115 | 1,400,000 | 1,953,115 | - Company has no off-balance sheet arrangements[344] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, detailed market risk disclosures are not required and inflation is not expected to have a material effect - Company is a smaller reporting company and not required to provide detailed market risk disclosures[345] - Management does not expect inflation and price changes to materially affect operations[308] Item 4. Controls and Procedures Management concluded that internal control over financial reporting was not effective due to several identified material weaknesses - Internal control over financial reporting was not effective as of January 31, 2023[311] - Material Weaknesses Identified: Lack of adequate segregation of duties and independent Board/Audit Committee oversight[312] - Material Weaknesses Identified: Lack of accounting resources and controls to prevent/detect material misstatements, specifically over inventory and timely reconciliations[347] - Remediation efforts are in process, but material weaknesses remain as of January 31, 2023[335] PART II - OTHER INFORMATION This part contains information on legal proceedings, risk factors, unregistered securities sales, and filed exhibits Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that would be expected to have a material adverse effect - No current legal proceedings expected to have a material adverse effect on the company[230] - No pending proceedings involve directors, senior management, or affiliates adverse to the company[349] Item 1A. Risk Factors There have been no material changes to the company's risk factors as previously disclosed in its Form 10-K - No material changes to risk factors since the Annual Report on Form 10-K for FY2022[350] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details an unregistered offering of common stock and warrants to an institutional investor for approximately $5.0 million in September 2022 September 2022 Unregistered Offering | Item | Details | | :----- | :------ | | Common Stock Issued | 1,018,510 shares | | Pre-Funded Warrants Issued | To purchase 11,802,002 shares | | Common Stock Warrants Issued | 5-Year Warrants to purchase 12,820,512 shares; 7.5-Year Warrants to purchase 25,641,024 shares | | Aggregate Amount | Approximately $5.0 million | | Investor | Single institutional investor | Item 6. Exhibits This section lists the exhibits filed with the report, including agreements, certifications, and XBRL data - Exhibits include Certificate of Incorporation, Bylaws, Loan and Security Agreement, Note, Warrant, Pledge and Security Agreement, Certifications (CEO, CFO), and XBRL documents[353] SIGNATURES Confirms the report's authorization and signing by the CEO on July 24, 2023 - Report signed by Mike Ballardie as President and CEO, and Principal Financial and Accounting Officer[343] - Date of signing: July 24, 2023[343]