PROSPECTUS | File No. 333-279744 |
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Filed Pursuant to Rule 424(b)(3) |
Connexa
Sports Technologies, Inc.
1,925,000
Shares of Common Stock
This
prospectus relates to the offer and sale from time to time by the selling stockholders identified in this prospectus of up to an aggregate
of 1,925,000 shares of our common stock consisting of (a) 349,530 shares of our common stock, par value $0.001 per share (the “Common
Stock”), and (b) 1,575,470 shares of Common Stock issuable upon the exercise of pre-funded warrants (the “Pre-Funded Warrants”)
issued on January 19, 2024.
Our
registration of the shares of Common Stock covered by this prospectus does not mean that the selling stockholders will offer or sell
any of the shares. The selling stockholders may offer and sell or otherwise dispose of the shares of Common Stock described in this prospectus
from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or
at privately negotiated prices. See “Plan of Distribution”.
We
are not selling any shares of Common Stock and will not receive any of the proceeds from the sale by the selling stockholders of the
shares of Common Stock offered hereby. However, if the selling stockholders exercise all the Pre-Funded Warrants via a cash exercise,
we will receive aggregate gross proceeds of approximately $315.
The
selling stockholders will pay all underwriting discounts and selling commissions, if any, in connection with the sale of the shares of
Common Stock. We have agreed to pay certain expenses in connection with the registration statement of which this prospectus
forms a part and to indemnify the selling stockholders and certain related persons against certain liabilities. No underwriter or
other person has been engaged to facilitate the sale of shares of Common Stock in this prospectus.
Shares
of our Common Stock are listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “YYAI”, having undergone
a symbol change from “CNXA” that took effect prior to the market opening on April 15, 2024. On June 27, 2024, we effected
a 1-for-20 reverse stock split of our Common Stock. On August 21, 2024, the closing sale price of our Common Stock was $7.63
per share.
You
should carefully consider the risks that we have described in “Risk Factors” beginning on page 9 before deciding whether
to invest in the Common Stock.
We
face risks associated with potentially acquiring YYEM (as defined herein), which is based in the Hong Kong Special Administrative Region
(“Hong Kong”) of the People’s Republic of China (the “PRC”). As a special administrative region of the
PRC, Hong Kong enjoys separate governing and economic systems from that of mainland China under the principle of one country, two systems.
The Basic Law of the Hong Kong Special Administrative Region (the “Basic Law”) provides that PRC laws and regulations shall
not be applied in Hong Kong except for those listed in Annex III of the Basic Law, which is confined to laws relating to national defense,
foreign affairs, and other matters that are not within the scope of autonomy. YYEM therefore is not directly subject to PRC laws and
regulations regarding the general conduct of its business or regarding overseas listings. Nevertheless, Hong Kong is part of China, giving
rise to a number of regulatory, liquidity, and enforcement risks. For example, we may face risks and uncertainties regarding the enforcement
of laws and the fact that rules and regulations in the PRC can change quickly with little advance notice. In addition, the Chinese government
could intervene or influence our operations at any time, or could exert more control over offerings conducted overseas or foreign
investment in China-based issuers, which could result in a material change in our operations or the value of our Common Stock. Any actions
by the Chinese government to exert more oversight and control over offerings that are conducted overseas or over foreign investment in
China-based issuers, in particular any effort to extend such actions directly or indirectly to Hong Kong-based companies, could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless. See “Risk Factors — Risks Related to Doing Business in Hong Kong.”
Upon
completion of the Acquisition (as defined below), we will have direct ownership of YYEM and do not have or intend to have any contractual
arrangement to establish a variable interest entity (“VIE”) structure with any entity in mainland China. If we did have a
VIE structure, any action by the Chinese government to disallow such structures would likely result in a material change in our operations
and a material change in the value of the securities we are registering for sale, including the possibility that such development could
cause the value of our securities to significantly decline or become worthless. See “Risk Factors — Risks Related to Doing
Business in Hong Kong — In the future, YYEM may be subject to PRC laws and regulations, including those relating to corporate structure,
overseas listings, data security, and anti-monopoly concerns, which could result in a material negative impact on their operations and/or
the value of the securities we are registering for sale.”
In
the event that YYEM were to become subject to PRC laws and regulations, it could incur material costs to ensure compliance, and it might
be subject to fines, or no longer be permitted to continue business operations as presently conducted; and if the Acquisition is completed,
we could experience devaluation of our securities or delisting, or no longer be permitted to conduct offerings to foreign investors.
Being based in Hong Kong, YYEM faces risks and uncertainties associated with the complex and evolving PRC laws and regulations, in particular,
whether and how those laws and regulations, including recent PRC government statements and regulatory developments such as those relating
to corporate structure, overseas listings, data- and cyberspace security, and anti-monopoly concerns, might be applicable to Hong Kong-based
companies such as YYEM. If certain PRC laws and regulations were to become applicable to YYEM in the future, it could have a material
adverse impact on our business, financial condition, and results of operations and on our ability to offer or continue to offer securities
to investors, any of which could cause the value of our securities, including the shares that we are registering for sale, to significantly
decline or become worthless. See “Risk Factors — Risks
Related to Doing Business in Hong Kong.”
On
December 16, 2021, the PCAOB reported that it was unable to completely inspect or investigate registered public accounting firms headquartered
in mainland China or Hong Kong because of a position taken by one or more authorities in each of those jurisdictions. However, following
the signing of a Statement of Protocol with the China Securities Regulatory Commission (the “CSRC”) and the Ministry of Finance
of the PRC in August 2022, the PCAOB on December 15, 2022 vacated its previous determination and confirmed that it was now able to secure
complete access to inspect and investigate registered public accounting firms headquartered in those jurisdictions. Nevertheless, should
PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB may issue a new determination.
Our
auditor is not headquartered in mainland China or Hong Kong and was not identified as an accounting firm subject to the determinations
announced by the PCAOB in December 2021. Nevertheless, should our auditor in the future have any work papers in China or Hong Kong that
the PCAOB is unable to fully inspect, it will be difficult to evaluate the effectiveness of our auditor’s audit procedures or equity
control procedures and investors could consequently lose confidence in our reported financial information and procedures or the quality
of our financial statements, which could adversely affect us and our securities. Furthermore, if trading in our securities is prohibited
under the Holding Foreign Companies Accountable Act (“HFCAA”) in the future because the PCAOB determines that it cannot inspect
or fully investigate our auditor at such future time, an exchange will likely delist our securities. See
“Risk Factors — Risks Related to Doing Business in Hong Kong — A joint statement by the SEC and the PCAOB, rule
changes by Nasdaq, the HFCAA and AHFCAA, and the Consolidated Appropriations Act all call for additional and more stringent criteria
to be applied to emerging market companies upon assessing the qualification of their auditors, especially non-U.S. auditors who are not
inspected by the PCAOB. These developments could add uncertainty to our continued listing.”
We
anticipate that revenue will primarily be received by YYEM, where it will be used to pay operating expenses and be reinvested in outsourced
R&D, the purchase of additional patents and other intellectual property, and branding and other promotional activities, among other
things. If needed, management may decide to transfer cash between YYEM and the Company, or between one of these two entities and any
subsidiaries that we may establish or acquire in other jurisdictions. We do not intend to declare dividends or distribute earnings (if
any) in the near future. Any determination to declare dividends or distribute earnings (if any) in the future will be at the discretion
of our board of directors.
The
Company and YYEM are not subject to any significant restrictions on buying or selling foreign exchange or on transferring cash between
entities within our group, across borders, or to U.S. investors. Nor are there any significant restrictions or limitations on our ability
to distribute earnings (if any) from YYEM to the Company and U.S. investors or our ability to settle amounts owed. However, there can
be no assurance that the PRC government will not intervene or impose restrictions on the ability of YYEM to buy or sell foreign exchange
or transfer or distribute cash within our organization.
One
of YYEM’s licensees is based in Mainland China, which imposes various limitations, procedures, and formalities on payments out
of China. YYEM understands from this licensee that because the royalties due under the applicable licensing agreement constitute current
account payments, the payment of the royalties is permitted under PRC regulations, subject to certain routine requirements, but there
can be no assurance that China’s capital controls will not hinder the ability of the licensee to make the required royalty payments
on time or at all.
Neither
the Securities and Exchange Commission (the “Commission”) nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is August 21, 2024.
TABLE
OF CONTENTS
You
should read this prospectus carefully before you invest. It contains important information you should consider when making your investment
decision. You should rely only on the information provided in this prospectus. We have not authorized anyone to provide you with different
information.
The
information in this document may only be accurate on the date of this document. You should assume that the information appearing in this
prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations,
and prospects may have changed since that date.
We
have not authorized anyone to provide any information or to make any representations other than those contained in or incorporated by
reference in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We
take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This
prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to
do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus
or of any sale of shares of Common Stock.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some
of the documents referred to herein have been filed or will be filed, and you may obtain copies of those documents as described below
under “Where You Can Find More Information”.
Neither
we nor the selling stockholders have done anything that would permit this offering or possession or distribution of this prospectus in
any jurisdiction where action for that purpose is required, other than in the United States. Persons who come into possession of this
prospectus and any free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to
observe any restrictions as to this offering and the distribution of this prospectus and any free writing prospectus applicable to that
jurisdiction.
This
prospectus and the documents in this prospectus contain market data and industry statistics and forecasts that are based on independent
industry publications and other publicly available information. Although we believe that these sources are reliable, we do not guarantee
the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware of
any misstatements regarding the market and industry data presented in this prospectus, these estimates involve risks and uncertainties
and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and in any
related free writing prospectus. Accordingly, investors should not place undue reliance on this information.
Unless
otherwise stated, all share figures in this prospectus have been adjusted to reflect the 1-for-20 reverse stock split (the “Reverse
Stock Split”) effected by the Company on June 27, 2024.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,”
“may,” “should,” “could,” “will,” “plan,” “future,” “continue,”
and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify
forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can
be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which
are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document,
and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors
could cause or contribute to such differences and could adversely impact revenue, profitability, cash flow and capital needs. There can
be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. These
statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section
entitled “Risk Factors” in our Form 10-K for the fiscal year ended April 30, 2023, filed on September 14, 2023, that may
cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by any forward-looking statements.
Important
factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but
are not limited to, the following:
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the
risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure
controls and procedures; |
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the
risk that we fail to meet the requirements of the agreements under which we acquired our business interests, including any cash payments
to the business operations, which could result in the loss of our right to continue to operate or develop the specific businesses
described in the agreements; |
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the
risk that we will be unable to secure additional financing in the near future in order to commence and sustain our planned development
and growth plans; |
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the
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our
operations; |
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risks
and uncertainties relating to the various industries and operations we are currently engaged in; |
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results
of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future growth, development or expansion
will not be consistent with our expectations; |
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risks
related to the inherent uncertainty of business operations including profit, cost of goods, production costs and cost estimates and
the potential for unexpected costs and expenses; |
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risks
related to commodity price fluctuations; |
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the
uncertainty of profitability based upon our history of losses; |
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risks
related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned development projects; |
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risks
related to environmental regulation and liability; |
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risks
related to tax assessments; and |
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other
risks and uncertainties related to our prospects, properties and business strategy. |
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as
of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements
to conform these statements to actual results, whether as a result of new information, future events or otherwise. The identification
in this document of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative
and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
You
may rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that
contained in this prospectus. Neither the delivery of this prospectus nor the sale of shares of Common Stock means that the information
contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of
an offer to buy these securities in any circumstances under which the offer or solicitation is unlawful.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in the prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in the Common Stock. You should read and carefully consider this entire prospectus before making
an investment decision, especially the information presented under the headings “Risk Factors”, “Cautionary Note Regarding
Forward-Looking Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
as well as our consolidated financial statements and related notes included elsewhere in this prospectus.
Unless
otherwise indicated by the context, references to “Connexa,” “Company,” “we,” “us,” or
“our” and similar terms refer to the operations of Connexa Sports Technologies Inc., Slinger Bag Inc., Slinger Bag Americas,
Slinger Bag Canada, Slinger Bag UK, SBL and Gameface.
Our
fiscal year end is April 30 and our fiscal years ended April 30, 2023 and 2022 are sometimes referred to herein as fiscal years 2023
and 2022, respectively.
On
June 26, 2024, we filed a Certificate of Amendment to our Articles of Incorporation, as amended, to effect a 1-for-20 reverse stock split.
Our Common Stock began to trade on a reverse split adjusted basis on June 27, 2024. Unless otherwise stated, all share and per share
information in this prospectus has been adjusted to reflect this reverse stock split.
Our
Company
Overview
Following
the completion of the Acquisition, the Company will operate in the love and marriage industry. The effectiveness of the registration
statement of which this prospectus forms a part is not a condition to the closing of the Acquisition. For further details of the Acquisition,
see “—Recent Development”.
Our
mission is to empower global connections through innovative matchmaking technology and the facilitation of in-person initiatives. We
own advanced patents and other proprietary technology which we license out, and we are using this intellectual property to develop an
AI-powered matchmaking platform to license to partners worldwide, enabling them to create localized matchmaking experiences tailored
to their specific markets and cultures. We also intend to leverage our partners’ expertise in offline matchmaking to offer, alongside
our own technology tools, a range of best practices, empowering licensees to develop culturally relevant and highly effective in-person
matchmaking solutions to complement their online offerings. We believe our pioneering technology has the power to transform the matchmaking
industry, leading to greater success for our licensees and their clients, and ultimately leading to more people finding successful life
partnerships.
Established
in November 2021 and based in Hong Kong, our post-Acquisition subsidiary YYEM provides intellectual property, licensing, and technology
services in the emerging “love & marriage” industry. Through YYEM, we own proprietary intellectual property that we believe
is unique to this business sector, covering our licensees’ online presence and underpinning their matchmaker operations. We possess
six technologies related to the metaverse and five AI matchmaking patents, which together enable access to both Augmented Reality (AR)
and eXtended Reality (XR), enhancing our future revenue growth potential in the online matchmaking segment. Our AI technology is also
designed to integrate with existing Big Data models and other larger AI models, such as Huawei Pangu, Baidu 6 Wenxinyiyan, Alibaba Tongyi,
and Tencent Hunyuan. Through interrogating and analyzing available Big Data, our intellectual property aims to support the identification
of our licensees’ target subscriber base, while providing subscriber profile analysis and connecting to our AI matchmaker platform,
all with the goal of helping our licensees deliver effective matchmaking services both online and in person and helping their clients
find successful life partnerships.
In-person
matchmaking serves as an important complement to the online experience at some of our licensees. These licensees are able to leverage
our proprietary technology and know-how, including our AI-related patents, to facilitate a range of in-person events, from one-to-one
encounters to group gatherings with a curated guest list of potential matches. One licensee partner operates retail stores across 40
cities in China, where fees reaching up to $2,750 provide clients with a bespoke matchmaking service, delivered through face-to-face
interactions across the branded offline stores. Other licensees are based in the United Kingdom, the United States, and Hong Kong, covering
the use of our intellectual property in Europe, Sub-Saharan Africa, and various Asia Pacific countries (such as Japan and South Korea),
respectively. Our pioneering AI-powered technology can be used by our licensees to support their offline matchmaking activities, through
subscriber identification and acquisition and in matchmaking itself. Furthermore, by learning from each other’s experiences, our
licensee partners can refine their approaches and deliver superior matchmaking services tailored to their local markets.
We
are sensitive to cultural norms and recognize that, as we expand to new jurisdictions, the balance between the online and the offline,
and the approaches taken to each, need to be adjusted to suit prevailing local preferences. For this reason, we often partner with local
players as we enter new markets, and we are building our products and services with a view to customization based on local culture and
practices.
At
this stage of our development, we are primarily a technology company that facilitates matchmaking, while our licensees are more often
matchmaking companies that leverage technology. We believe this combination enables each company to focus on the aspect of the business
in which it is strongest.
At
Yuanyu, we are dedicated to supporting our licensees in delivering exceptional online and in-person matchmaking services. Through our
advanced patent portfolio, our customizable technology platform, the sharing of best practices in the context of in-person approaches,
and cultural adaptation of both online and in-person offerings, we believe we will be able to empower our partners to create meaningful
and lasting connections for their clients. Our commitment to innovation and excellence will help ensure that Yuanyu is a trusted name
in the matchmaking industry, providing exceptional value to our global network and, ultimately, to individuals looking for love and marriage.
YYEM
collected royalties of approximately $1.9 million in its fiscal year ended January 31, 2024 and approximately $3.3 million for the three-month
period ended April 30, 2024.
Brief
History
Lazex
Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. From 2019 through 2021, Lazex acquired
various entities related to the manufacture and distribution of the Slinger Bag Launcher, a portable tennis ball, padel tennis ball,
and pickleball launcher. In 2019, Lazex changed its name to Slinger Bag Inc., and in 2022 changed its name to Connexa Sports Technologies
Inc.
In 2021 and 2022, Connexa
acquired three companies: Foundation Sports Systems, LLC, Flixsense Pty, Ltd. (known as Gameface), and PlaySight Interactive Ltd. Over
the course of 2022 and 2023, the Company disposed of or fully impaired the goodwill and intangible assets related to all of these.
For further details of the
Company’s history, see the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Overview” and “Description of Business — History of our Company”.
Recent Development
On March 18, 2024, the Company
entered into a share purchase agreement (the “Purchase Agreement”) and a share exchange agreement (the “Exchange Agreement”)
to acquire 70% of Yuanyu Enterprise Management Co., Limited (“YYEM”) from Mr. Hongyu Zhou, the sole shareholder of YYEM (“YYEM
Seller”) for a combined $56 million (the “Acquisition”). $16.5 million of this amount was paid in cash pursuant to
the Purchase Agreement, and the balance will be paid in shares pursuant to the Exchange Agreement. As of August 13, 2024, the
Acquisition has not been completed. Such closing will result in a change of control of the Company, as the shareholders of
YYEM will become the owners of approximately 82.4% of the issued and outstanding shares of Common Stock and the board of directors of
Connexa (the “Board of Directors” or the “Board”) will comprise individuals designated by the YYEM Seller. As
part of this transaction, the Company agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity.
The effectiveness of the registration
statement of which this prospectus forms a part is not a condition to the closing of the Acquisition.
The
Acquisition Structure
Pursuant
to the Purchase Agreement, the Company agreed to purchase, and the YYEM Seller agreed to sell, 2,000 ordinary shares of YYEM, representing
20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”),
payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024. The $16.5 million
was paid in full as of April 3, 2024. As a result, the Company owns 20% of the capital stock of YYEM.
Pursuant
to the Exchange Agreement, the Company has agreed to purchase, and the YYEM Seller has agreed to sell, 5,000 ordinary shares of YYEM,
representing 50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock (the “Exchange
Shares”) to the YYEM Seller (the “Share Exchange Transaction”). The Exchange Shares are expected to represent 82.4%
of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction.
The
Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions
or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities”
within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly
unless they have been held for at least six months and subject to other conditions.
Separation
Agreement
In
connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing
Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business,
assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy
Business”) to J&M Sports LLC, a newly formed Florida entity (“NewCo”), and that after the Closing Date,
NewCo will have the sole right to and obligations of the Legacy Business and will be liable to the Company for any losses arising from
third-party claims against the Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo
is owned by Yonah Kalfa and Mike Ballardie.
On
a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.2 million, and the liabilities of the
Legacy Business were approximately $12.0 million.
Financial
Accommodations
As
an inducement to the Company to complete the Acquisition, the Agreements, as amended, provide that aggregate payments of $5 million shall
be made to the Company in cash by YYEM, as follows: (i) $800,000 payable within two business days of the date of the Agreements; (ii)
$1,200,000 payable within three business days of the Company changing its ticker symbol from “CNXA” to “YYAI”
or such other symbol as the parties may agree; (iii) $2,500,000 payable at the Closing to the Company; and (iv) $500,000 to be paid to
NewCo within 30 days of the Closing Date, provided that no claims relating to the period prior to the Separation have by then been made
against the Company.
Management
following the Acquisition
At
or after the Closing, the Board of Directors shall comprise those individuals designated by YYEM Seller, and all current members of the
Board of Directors shall resign with such resignation being effective on the later of the Closing or the appointment or election of the
new directors.
Closing
Conditions
The
Exchange Agreement, as amended, provides that:
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on
or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction
and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
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on
or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio
to be determined by the parties; |
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as
a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall
have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common
Stock will be delisted from Nasdaq; and |
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the
Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to
be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company
to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was
obtained on May 15, 2024, the reverse split was effected on June 27, 2024, and a new listing application was submitted to Nasdaq
in May 2024, which is currently under review by Nasdaq. |
We
cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the
date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing
Deliverables
At
the Closing, the Company shall deliver to YYEM Seller the following:
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copies
of all resolutions of the Board of Directors authorizing the execution, delivery, and performance of the Exchange Agreement and the
other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing
to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
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all
documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of
the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
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a
duly executed bought and sold note, as applicable; and |
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all
other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior
to the Closing pursuant to the Exchange Agreement. |
At
the Closing, YYEM Seller shall deliver to the Company the following:
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payment
of the Closing Cash Payment (as defined in the Exchange Agreement); |
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evidence
that the Closing Cash Deposit (as defined in the Exchange Agreement) has been deposited to the escrow account; |
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a
good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and
each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
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if
the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
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a
counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
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all
documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of
the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
|
● |
a
duly executed bought and sold note as may be required under the law of Hong Kong; and |
|
● |
all
other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM
at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The
Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by
either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the
date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange
Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement
is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company
shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with
the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited
to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Permission
or Approvals Required from the PRC Authorities with respect to the Operations of YYEM
YYEM
conducts business in Hong Kong and is required to obtain, and has obtained, a business license issued by the Hong Kong Companies Registry.
As a special administrative region of the PRC, Hong Kong enjoys separate governing and economic systems from that of mainland China under
the principle of one country, two systems. YYEM, as a Hong Kong-based company without operations in mainland China, is not directly subject
to PRC laws and regulations regarding the general conduct of its business or regarding overseas listings. As of the date of this prospectus,
YYEM has not received any notice of, and has not been subject to, any penalty or other disciplinary action from any PRC authority for
the failure to obtain or the insufficiency of any approval or permit in connection with the conduct or service of its business operations.
YYEM has not been denied by any PRC authority with respect to the application of any requisite permissions by YYEM.
However,
YYEM may be subject to additional licensing requirements, and our conclusion on the status of YYEM’s licensing compliance may prove
to be mistaken, due to uncertainties around the interpretation and implementation of relevant laws and regulations and the enforcement
practice by relevant governmental authorities, the PRC government’s ability to intervene in or influence YYEM’s operations,
and the rapid evolvement of PRC laws, regulations, and rules, sometimes with little or no advance notice. We cannot assure you that YYEM
is or will be in compliance with all licensing requirements applicable to it or will not be subject to any penalty in the future due
to the lack or insufficiency of approvals or permits. The failure of YYEM to obtain or to thereafter maintain any permit or license required
for its operations may result in the suspension or termination of, or otherwise give rise to a material adverse change to, its businesses,
which would materially and adversely affect our financial condition and results of operations and cause our Common Stock to significantly
decline in value. For more detailed information, see “Risk Factors — Risks Related to Doing Business in Hong Kong.”
We
believe that, as of the date of this prospectus, YYEM is not required to obtain any permission from the CSRC, the CAC, or any other PRC
authority in connection with this offering. As a result, it has not submitted any application to any such authority for the approval
of the offering. As of the date of this prospectus, it has not received any inquiry, notice, warning or official objection in relation
to this offering from the CSRC, the CAC or any other PRC authority. However, there remains uncertainty as to the enactment, interpretation
and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. We believe
that YYEM has received all requisite permissions and approvals to operate its business. If YYEM does not receive or maintain such permissions
or approvals or has inadvertently concluded that the approvals of the CSRC, the CAC or any other regulatory authority are not required
for this offering, or if applicable laws, regulations, or interpretations change and YYEM is required to obtain approvals in the future,
seeking such approvals could cause the value of our securities, including the Common Stock, to significantly decline or be worthless.
Any uncertainties or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price
of our securities. In addition, these regulatory agencies may impose fines and penalties on YYEM, limit its ability to pay dividends
outside of China, limit its operations in China, delay or restrict the repatriation of the proceeds from this offering into China or
take other actions that could have a material adverse effect on its business, financial condition, results of operations and prospects,
as well as the trading price of our securities. The CSRC, or other PRC regulatory agencies also may take actions requiring us, or making
it advisable for us, to halt this offering before settlement and delivery of our Common Stock. Consequently, if you engage in market
trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery
may not occur. See “Risk Factors — Risks Related to Doing Business in Hong Kong — Changes in the PRC’s
economic, political or social conditions or governmental policies could have a material adverse effect on our business and results of
operations.”
On
December 16, 2021, the PCAOB reported that it was unable to completely inspect or investigate registered public accounting firms headquartered
in mainland China or Hong Kong because of a position taken by one or more authorities in each of those jurisdictions. However, following
the signing of a Statement of Protocol with the China Securities Regulatory Commission (the “CSRC”) and the Ministry of Finance
of the PRC in August 2022, The PCAOB on December 15, 2022 vacated its previous determination and confirmed that it was NOW able to secure
complete access to inspect and investigate registered public accounting firms headquartered in those jurisdictions. Nevertheless, should
PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB may issue a new determination.
Our
auditor, Olayinka Oyebola & Co., an independent public accounting firm registered with the PCAOB, and an auditor of publicly traded
companies in the United States, is subject to U.S. laws pursuant to which the PCAOB conducts regular inspections to assess its compliance
with applicable professional standards. Our auditor has been inspected by the PCAOB on a regular basis, with the last inspection in November
2023. Our auditor is not headquartered in mainland China or Hong Kong and was not identified as an accounting firm subject to the determinations
announced by the PCAOB on December 16, 2021. Nevertheless, should our auditor in the future have any work papers in China or Hong Kong
that the PCAOB is unable to fully inspect, it will be difficult to evaluate the effectiveness of our auditor’s audit procedures
or equity control procedures. Investors could consequently lose confidence in our reported financial information and procedures or the
quality of our financial statements, which would adversely affect us and our securities.
Moreover,
if trading in our securities is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully
investigate our auditor at such future time, an exchange would in all likelihood delist our securities. On June 22, 2021, the U.S. Senate
passed the AHFCAA, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained,
among other things, an identical provision to the AHFCAA and amended the HFCAA by requiring the SEC to prohibit an issuer’s securities
from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three,
thus reducing the time period for triggering the delisting of our Company and the prohibition of trading in our securities if the PCAOB
is unable to inspect our accounting firm at such future time. See “Risk Factors — Risks Related to Doing Business in Hong
Kong — A joint statement by the SEC and the PCAOB, rule changes by Nasdaq, the HFCAA and AHFCAA, and the Consolidated Appropriations
Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of
their auditors, especially non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainty to our continued
listing.”
Following
the Acquisition, our corporate organization will initially consist of the Company and YYEM. We anticipate that revenue will
primarily be received by YYEM, where it will be used to pay operating expenses and be reinvested in outsourced research and
development, the purchase of additional patents and other intellectual property, and branding and other promotional activities,
among other things. If needed, management may decide to transfer cash between YYEM and the Company, or between one of these two
entities and any subsidiaries that we may establish or acquire in other jurisdictions. This could take the form of intercompany fund
advances or capital contributions. Under our cash management policy, the amount of intercompany transfers will be determined by our
management based on the working capital needs of the entities within our group, and intercompany transactions will be subject to our
internal approval process and funding arrangements.
We
have not declared or paid dividends or made any distribution of earnings as of the date of this prospectus. We do not intend to declare
dividends or distribute earnings (if any) in the near future. Any determination to declare dividends or distribute earnings (if any)
in the future will be at the discretion of our board of directors.
The
Company and YYEM are not subject to any significant restrictions on buying or selling foreign exchange or on transferring cash between
entities within our group, across borders, or to U.S. investors. There are no significant restrictions or limitations on our ability
to distribute earnings (if any) from YYEM to the Company and U.S. investors or our ability to settle amounts owed. However, there can
be no assurance that the PRC government will not intervene or impose restrictions on the ability of YYEM to buy or sell foreign exchange
or transfer or distribute cash within our organization, which could result in an inability or prohibition on making transfers or distributions
to entities outside of Hong Kong and adversely affect our business.
One
of YYEM’s licensees is based in Mainland China, which imposes various limitations, procedures, and formalities on payments out
of China. Capital account transactions, which relate to the purchase and sale of foreign assets and liabilities and include such
transactions as investments and loans, are subject to review by the State Administration of Foreign Exchange (“SAFE”).
Current account payments, including royalty payments, should generally not be restricted, but SAFE has a significant degree of
administrative discretion in implementing laws and regulations and has on occasion used this discretion to limit the convertibility
of current account payments out of China. YYEM understands from its Mainland China licensee that because the royalties due to YYEM
under the applicable licensing agreement constitute current account payments, the payment of such royalties is permitted under PRC
regulations, provided the sending and receiving banks can show that the transactions are legitimate. However, there can be no
assurance that the distinction between restrictions on capital account transactions and restrictions on current account transactions
will be consistently interpreted by SAFE and China’s other regulatory agencies, nor can there be any assurance that the legal
analysis of the licensee is correct or that the PRC government will not intervene or impose other restrictions on the ability of the
licensee to make the required payments to YYEM outside of Mainland China. We expect that the immediate financial impact of any such
development in the coming months, while adversely affecting our business prospects, would be limited by the fact that, to date, YYEM
has not received any revenue from, and is therefore not financially dependent on, such licensee.
Reverse
Stock Split
On
June 26, 2024, we filed a Certificate of Amendment to our Articles of Incorporation, as amended, to effect a 1-for-20 reverse stock split.
Our common stock began to trade on a reverse split adjusted basis on June 27, 2024. Unless otherwise stated, all share and per share
information in this prospectus has been adjusted to reflect the Reverse Stock Split.
Amendment
to Bylaws
On
October 12, 2023, the Board of Directors of the Company approved an amendment to the Bylaws of the Company to reduce the percentage of
shares of stock, issued and outstanding and entitled to vote, to be present in person or represented by proxy in order to constitute
a quorum for the transaction of any business from a majority to thirty-three and one third percent (33 1/3%).
Nasdaq
Compliance
On
December 12, 2023, the Company received a letter from Nasdaq informing the Company that because, for 30 consecutive trading days, the
bid price of the Common Stock had closed below the minimum of $1.00 per share, it was not in compliance with the minimum bid price requirement
for continued listing as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Nasdaq notice
indicated that, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company would be provided 180 calendar days, or until June
10, 2024, to regain compliance. On June 11, 2024, the Company was notified by Nasdaq that its securities were subject to delisting because
the Company had not regained compliance with the rule within the prescribed time period but the Company could appeal the delisting determination
and request a hearing before a new Nasdaq Hearings Panel. The Company’s request for a new panel was timely made and a hearing was
scheduled for July 23, 2024, and any further suspension or delisting action was stayed. On July 18, 2024, Nasdaq informed us that the
Company had regained compliance with the Minimum Bid Price Requirement. Consequently, the scheduled hearing before the new panel on July
23, 2024 was canceled.
On
May 1, 2024, the Company received a letter from Nasdaq indicating that, due to the Company’s failure, in violation of Listing Rules
5620(a) and 5810(c)(2)G), to hold an annual meeting of shareholders within twelve months of the end of the Company’s fiscal year
end of April 30, 2023, it no longer complied with Nasdaq’s Listing Rules for continued listing. On May 17, 2024, Nasdaq notified
the Company that based on the Company’s current report on Form 8-K filed on May 17, 2024, the Company’s proxy distributed
on May 2, 2024, and the annual meeting of the stockholders held on May 15, 2024, it had regained compliance with the Nasdaq Listing Rules
for continued listing.
On January 30, 2024, the
Company received a letter from the staff of the Nasdaq Stock Market confirming that following the receipt of an investment of $16.5 million
as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company had regained compliance with
the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as required by the Nasdaq Hearing
Panel’s (“Panel”) decision dated April 12, 2023, as amended, and (ii) in application of Listing Rule 5815(d)(4)(B),
the Company would be subject to a mandatory panel monitor for a period of one year from the date of such letter. If, within that one-year
monitoring period, the Nasdaq Listing Qualifications staff (the “Staff”) finds that the Company is no longer in compliance
with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to provide the Staff with a plan of compliance
with respect to such deficiency and the Staff will not be permitted to grant additional time for the Company to regain compliance with
respect to such deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead,
the Staff will issue a Delisting Determination Letter and the Company will have an opportunity to request a new hearing with the initial
Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will have the opportunity to present to the
Hearings Panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities may at that time be delisted from Nasdaq.
Pursuant to Listing Rule
5815(d)(4)(B), the Company is also subject to a mandatory panel monitor in respect of its periodic filing requirements in Listing Rule
5250(c)(1) (the “Periodic Filing Rule”) for a period of one year from October 11, 2023. If, within that one-year monitoring
period, the Staff finds the Company again out of compliance with the Periodic Filing Rule, notwithstanding Rule 5810(c)(2), the Company
will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and the Staff will not be permitted
to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable
cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delisting Determination Letter and the Company
will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable.
The Company will have the opportunity to present to the hearing panel as provided by Listing Rule 5815(d)(4)(C), and the Company’s
securities may at that time be delisted from Nasdaq.
The
January 2024 Offering
On
January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three
investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock
and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $4 per
share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002
per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing
exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of
Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
From
April 2024 through May 2024, the Company acknowledged and agreed to the entrance into certain warrant purchase agreements pursuant to
which the January 2024 Investors sold all of the 3,775,470 Pre-Funded Warrants to and 10 purchasers (the “Pre-Funded Warrants Purchasers”)
for an aggregate amount of $18,877,350 in cash.
Our
Corporate Information
The
Company was incorporated under the laws of the State of Nevada on July 12, 2015 and redomiciled in the State of Delaware on April 7,
2022 under the name Connexa Sports Technologies Inc. Following the Acquisition, the name of the Company was changed to Yuanyu, Inc. Please
refer to our brief history described above. Our corporate offices are located at 2709 North Rolling Road, Suite 138, Windsor Mill, Maryland,
21244. Our telephone number is (443) 407-7564. Our website is www.yuanyuenterprise.com. None of the information on our website or any
other website identified herein is part of this prospectus or the registration statement of which it forms a part.
The
Offering
Issuer |
|
Connexa
Sports Technologies, Inc. |
|
|
|
Common
Stock offered by the selling stockholders |
|
Up
to an aggregate of 1,925,000 shares of Common Stock consisting of 349,530 shares of our common stock, par value $0.001 per share
(the “Common Stock”), and (b) 1,575,470 shares of Common Stock issuable upon the exercise of pre-funded warrants (the
“Pre-Funded Warrants”) issued on January 19, 2024. |
|
|
|
Common
Stock issued and outstanding after this offering (1) |
|
4,584,984 shares
of Common Stock |
|
|
|
Use
of proceeds |
|
We
will not receive any of the proceeds from the sale by the selling stockholders of the securities. If the selling stockholders exercise
their Pre-Funded Warrants in full via a cash exercise, however, we will receive aggregate gross proceeds of approximately $315. See
section entitled “Use of Proceeds”. |
|
|
|
Common
Stock Nasdaq Symbol |
|
YYAI |
|
|
|
Risk
factors |
|
You
should read the section entitled “Risk Factors” beginning on page 9 for a discussion of some of the risks and uncertainties
you should carefully consider before deciding to invest in our securities. |
(1) |
The
number of shares of Common Stock outstanding after this offering is based on 2,659,984 shares of Common Stock outstanding
as of August 9, 2024 and excludes the following: |
|
● |
2,024 shares
of Common Stock underlying other outstanding warrants; and |
|
● |
2,333
shares of Common Stock issuable upon exercise of outstanding stock options by the members of our board of directors and third parties;
and |
Except
as otherwise indicated herein, all information in this prospectus assumes sale of all shares available for sale under this prospectus
and no further acquisitions of shares by the selling stockholders.
Risk
Factors Summary
Investing
in shares of our Common Stock involves a high degree of risk. See section entitled “Risk Factors” beginning on page 9 of
this prospectus for a discussion of factors you should carefully consider before investing in the Common Stock. If any of these risks
actually occurs, our business, financial condition, results of operations, cash flow, and prospects would likely be materially and adversely
affected. As a result, the trading price of our Common Stock would likely decline, and you could lose all or part of your investment.
Listed below is a summary of some of the principal risks related to our business:
Risks
Related to the Acquisition
| ● | The
market price of our Common Stock will continue to fluctuate after the Acquisition. |
| ● | Failure
to complete the Acquisition, which includes the Share Exchange, could negatively impact Connexa’s
stock price, and we may not be able to avoid dissolution. |
| ● | Following
the Acquisition, our stockholders will have a significantly lower ownership and voting interest
in us than they currently have in Connexa and will exercise less influence over management
and the policies of Connexa. |
| ● | Obtaining
required approvals and satisfying closing conditions may prevent or delay completion of the
Acquisition. |
| ● | Except
in specified circumstances, if the Closing has not occurred by the Termination Date, either
Connexa or YYEM Seller may choose not to proceed with the transaction. |
| ● | Failure
to attract, motivate, and retain executives and other key employees could diminish the anticipated
benefits of the Acquisition. |
| ● | Whether
or not the Acquisition is completed, the announcement and pendency of the Acquisition could
cause disruptions in the business of Connexa, which could have an adverse effect on its business
and financial results. |
| ● | Although
we expect that our Common Stock will remain listed on Nasdaq after the Acquisition, there
can be no assurance that we will be able to comply with the continued listing standards of
Nasdaq. |
| ● | Following
the Acquisition, the price of our Common Stock may be especially volatile, and if the Acquisition’s
benefits do not meet the expectations of investors, stockholders, or financial analysts,
the market price of our Common Stock may decline. |
| ● | YYEM
may not realize anticipated growth opportunities. |
Risks
Related to Our Business, Operations, Industry, Legal, and Regulatory Requirements
|
● |
We
are dependent on third parties for a significant portion of our revenue through intellectual property licensing agreements, and we
may not realize the expected benefits of such arrangements. |
|
● |
The
love and marriage market sector, including matchmaking apps, is competitive, with low switching costs and a consistent stream of
new services and entrants, and innovation by competitors may disrupt our business. |
|
● |
The
limited operating history and geographic reach of YYEM’s brands and services makes it difficult to evaluate our current business
and future prospects. |
|
● |
As
we develop our own offerings for end users, our growth and profitability will rely, in significant part, on our ability to attract
and retain users through cost-effective marketing efforts. Any failure in those efforts could adversely affect YYEM’s business,
financial condition, and results of operations. |
|
● |
Distribution
and marketing of, and access to, the online services offered by us and our licensees may rely, in significant part, on a variety
of third-party platforms, in particular, mobile app stores. If these third parties limit, prohibit, or otherwise interfere with features
or services or change their policies in any material way, it could adversely affect our business, financial condition, and results
of operations. |
|
● |
The
success of our services for end users will depend, in part, on our ability to access, collect, and use personal data about our users
and subscribers. |
|
● |
Challenges
properly managing the use of artificial intelligence could result in reputational harm, competitive harm, and legal liability. |
|
● |
Foreign
currency exchange rate fluctuations may adversely affect our results of operations. |
|
● |
We depend on our key personnel. |
|
● |
We
may not be able to protect our systems and infrastructure from cyberattacks and may be adversely affected by cyberattacks experienced
by third parties. |
|
● |
Our
business is subject to complex and evolving laws and regulations, including with respect to data privacy and platform liability.
These laws and regulations are subject to change and uncertain interpretation and could result in changes to our business practices,
increased cost of operations, declines in user growth or engagement, legal claims, monetary penalties, or other harm to our business. |
|
● |
Inappropriate
actions by certain of our users could be attributed to us and damage our reputation, which in turn could adversely affect our business. |
|
● |
We
may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights
of third parties. |
|
● |
We
intend to expand to various international markets, including markets in which we have limited experience, and as a result, we face
additional risks in connection with those operations. |
|
● |
Our
operations are subject to volatile global economic conditions, particularly those that adversely impact consumer confidence and spending
behavior. |
|
● |
Our
financial results may be adversely affected if substantial investments in businesses and operations fail to produce the expected
returns. |
|
● |
We
will need additional capital in the future to finance our planned growth, which we may not be able to raise or which may only be
available on terms unfavorable to us or our stockholders, and this may result in our inability to fund our working capital requirements
and harm our operational results. |
| ● | Our
internal controls may be inadequate, which could cause our financial reporting to be unreliable
and lead to misinformation being disseminated to the public. |
| ● | The
costs of being a public company could result in us being unable to continue as a going concern. |
| ● | For
as long as we are a “smaller reporting company,” we will not be required to comply
with certain reporting requirements that apply to other publicly reporting companies. We
cannot predict whether the reduced disclosure requirements applicable to smaller reporting
companies will make our Common Stock less attractive to investors. |
Risks
Relating to Connexa following the Acquisition
| ● | Connexa
may be exposed to increased litigation, which could have an adverse effect on its business
and operations following the Acquisition. |
| ● | After
the Acquisition, holders of Connexa’s Common Stock will have no equity or other ownership
interest in its current business, as Connexa will sell, transfer, and assign its existing
business to a newly formed entity. Investors will therefore have a continuing equity interest
only in the business of YYEM. |
| ● | The
separation of the Legacy Business is dependent on the Acquisition and will not result in
monetization, and holders of Common Stock of Connexa will not receive any consideration in
connection with the separation of the Legacy Business. |
| ● | Declaration,
payment, and amounts of dividends, if any, to stockholders of Connexa post-Acquisition will
be uncertain. |
Risks
Related to Doing Business in Hong Kong
| ● | A
joint statement by the SEC and the PCAOB, rule changes by Nasdaq, the HFCAA and AHFCAA, and
the Consolidated Appropriations Act all call for additional and more stringent criteria to
be applied to emerging market companies upon assessing the qualification of their auditors,
especially non-U.S. auditors who are not inspected by the PCAOB. These developments could
add uncertainty to our continued listing. |
| ● | The
Chinese government, in general, could exercise significant oversight and discretion over
the conduct of our business and has made statements indicating an intent to exert more oversight
and control over offerings that are conducted overseas and over foreign investment in China-based
issuers. |
| ● | Greater
oversight by the CAC over data security, particularly for companies seeking to list on a
foreign exchange, could adversely impact our business and our offering. |
| ● | We
are subject to risks relating to economic, political, legal, and social conditions in Hong
Kong. |
| ● | The
Hong Kong National Security Law could impact YYEM’s operations in Hong Kong. |
Risks
Related to Ownership of Our Shares
| ● | Our
stock price may be volatile, or may decline regardless of our operating performance, and
you could lose all or part of your investment as a result. |
| ● | We
do not intend to pay dividends on shares of our Common Stock. |
| ● | Our
stockholders may not be able to enforce judgments entered by U.S.
courts against our officers
and directors. |
| ● | Future
sales of shares of Common Stock may result in a decrease in the market price of our Common
Stock, even if our business is doing well. |
| ● | If
securities or industry analysts do not publish research, or they publish inaccurate or unfavorable
research about our business, our stock price and trading volume could decline. |
| ● | Holders
of our Common Stock may be diluted by the future issuance of additional shares of Common
Stock or preferred stock, or securities convertible into shares of Common Stock or preferred
stock, in connection with incentive plans, acquisitions, or otherwise; future sales of such
shares in the public market or the expectation that such sales may occur may decrease the
market price of our Common Stock. |
We face
risks associated with YYEM being based in and operating in Hong Kong. These include regulatory, liquidity, and enforcement risks. For
example, we face risks and uncertainties arising from the legal system in the PRC, including in relation to the enforcement of laws and
the fact that rules and regulations in the PRC can change with little advance notice. In addition, the Chinese government could intervene
or influence our operations at any time, which could result in a material change in our operations or the value of our Common
Stock. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas or over foreign
investment in China-based issuers, in particular any effort to extend such actions directly or indirectly to Hong Kong-based companies,
could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value
of such securities to significantly decline or be worthless. See “Risk Factors — Risks Related to Doing Business in Hong
Kong.”
RISK
FACTORS
You
should carefully consider the risks described below and other information in this prospectus, including the financial statements and
related notes that appear at the end of this report, before deciding to invest in our securities. These risks should be considered in
conjunction with any other information included herein, including in conjunction with forward-looking statements made herein. If any
of the following risks actually occur, they could materially adversely affect our business, financial condition and operating results.
Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business, financial
condition and operating results. The following discussion of risks is not all-inclusive but is designed to highlight what we believe
are the material factors to consider when evaluating our business and expectations. These factors could cause our future results to differ
materially from our historical results and from expectations reflected in forward-looking statements.
Risks
Related to the Acquisition
The
market price of our Common Stock will continue to fluctuate.
The
market price of our Common Stock will continue to fluctuate, potentially significantly, as a result of a variety of factors, including,
among others, general market and economic conditions, and changes in our business, operations and prospects, in interest rates, in general
market, industry and economic conditions and in other factors generally affecting stock prices, federal, state and local legislation,
governmental regulation and legal developments in the industry segments in which we will operate. Our market capitalization and trading
volume may contribute to greater volatility. In addition, any significant price or volume fluctuations in the stock market generally
could have a material adverse effect on the market for, or liquidity of, our Common Stock, regardless of our actual operating performance.
Failure
to complete the Acquisition, which includes the Share Exchange, could negatively impact Connexa’s stock price and we may not be
able to avoid dissolution.
If
the Acquisition is not completed for any reason, it is likely that our Common Stock would be delisted from Nasdaq, with all the attendant
risks described below in this section. Furthermore, if the Acquisition is not completed, the price of our Common Stock may decline significantly.
If that were to occur, it is uncertain when, if ever, the price of our Common Stock would reach the price implied in the Acquisition
or at which it traded as of the date we announced the Purchase Agreement and the Exchange Agreement or the date of this prospectus. Accordingly,
if the Acquisition is not completed, there can be no assurance as to the effect on the future value of your shares of our Common Stock.
Following
the Acquisition, our stockholders will have a significantly lower ownership and voting interest in us than they currently have in Connexa
and will exercise less influence over management and policies of Connexa.
Based
on the number of shares of our Common Stock outstanding as of the close of business on August 9, 2024, stockholders of the Company
are expected to own approximately 17.6% of the outstanding shares of our Common Stock and the YYEM shareholder is expected to own approximately
82.4% of the outstanding shares of our Common Stock. Consequently, the YYEM Seller will be able to exert significant influence over certain
matters, including matters that must be resolved by a general meeting of shareholders, such as the election of members to the board of
directors or the declaration of dividends or other distributions. To the extent that the interest of this shareholder may differ from
the interests of the Company’s other shareholders, the Company’s other shareholders may be disadvantaged by any actions that
this shareholder may seek to pursue. Additionally, stockholders may not realize a benefit from the Acquisition commensurate with the
ownership dilution they experienced in connection with that transaction.
Obtaining
required approvals and satisfying closing conditions may prevent or delay completion of the Acquisition.
The
Acquisition is subject to a number of conditions to Closing as specified in the Exchange Agreement. No assurance can be given that the
required governmental and regulatory consents and approvals will be obtained or that the required conditions to Closing will be satisfied.
Additionally, if all required consents and approvals are obtained and the required conditions are satisfied, no assurance can be given
as to the terms, conditions and timing of such consents and approvals. Any delay in completing the Acquisition could cause Connexa not
to realize, or to be delayed in realizing, some or all of the benefits that Connexa and YYEM expect to achieve if the Acquisition is
successfully completed within its expected time frame.
Except
in specified circumstances, if the Closing has not occurred by the Termination Date, either Connexa or YYEM Seller may choose not to
proceed with the transaction.
Either
Connexa or YYEM Seller may terminate the Exchange Agreement if the Acquisition has not been consummated by the date that is 180 days
from the date of the Exchange Agreement, the Termination Date. However, this right to terminate the Exchange Agreement will not be available
to Connexa or YYEM Seller if such party has materially breached any of its representations, warranties, covenants or agreements under
the Exchange Agreement and such breach has been a contributing factor that resulted in the failure of the Acquisition to be consummated
by the Termination Date.
Failure
to attract, motivate and retain executives and other key employees could diminish the anticipated benefits of the Acquisition.
Our
success will depend in part on our ability to retain the talents and dedication of key professionals currently employed by us. It is
possible that these employees may decide not to remain with us post-Acquisition. If key employees terminate their employment, or if an
insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and
management’s attention may be directed to hiring suitable replacements, all of which may cause our business to suffer. In addition,
we may be unable to locate suitable replacements for any key employees that leave or unable to offer employment to potential replacements
on reasonable terms. No assurance can be given that we will be able to attract or retain key employees to the same extent that we have
been able to do so in the past.
Whether
or not the Acquisition is completed, the announcement and pendency of the Acquisition could cause disruptions in the business of Connexa,
which could have an adverse effect on its business and financial results.
Regardless
of whether the Acquisition is completed, the announcement and pendency of the Acquisition could cause disruptions in the business of
Connexa, including by diverting the attention of Connexa’s management toward the completion of the Acquisition. In addition, Connexa
has diverted significant management resources in an effort to complete the Acquisition and is subject to restrictions contained in the
Exchange Agreement on the conduct of its business. If the Acquisition is not completed, Connexa will have incurred significant costs,
including the diversion of management resources, for which it will have received little or no benefit.
A
market for our Common Stock may not continue, which would adversely affect the liquidity and price of our Common Stock.
Following
the Acquisition, the market price of our Common Stock may fluctuate significantly due to the market’s reaction to the Acquisition
and general market and economic conditions. An active trading market for our Common Stock following the Acquisition may never develop
or, if developed, it may not be sustained. In addition, the market price of our Common Stock after the Acquisition may vary due to general
economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our Common
Stock becomes delisted from Nasdaq for any reason and is relegated to the OTC Bulletin Board (an inter-dealer automated quotation system
for equity securities that is not a national securities exchange), the liquidity and price of our Common Stock will be more limited than
if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your shares of Common Stock
unless a market for our Common Stock can be established or sustained.
Although
we expect that our Common Stock will remain listed on Nasdaq, there can be no assurance that we will be able to comply with the continued
listing standards of Nasdaq.
On
several occasions in the past, we have failed to comply with Nasdaq’s listing rules. See “Prospectus Summary— Nasdaq
Compliance”. We cannot assure you that we will be able to meet Nasdaq’s continued listing standards, and we can provide
no assurance that we will be able to satisfy the initial listing requirements.
If
Nasdaq delists our Common Stock due to our failure to meet its continued listing standards, we and our stockholders could face significant
material adverse consequences including:
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determination that our Common Stock is a “penny stock,” which will require brokers trading in our shares to adhere to
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limited amount of analyst coverage and more limited universe of potential investors in our securities; and |
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Following
the Acquisition, the price of our Common Stock may be especially volatile, and if the Acquisition’s benefits do not meet the expectations
of investors, stockholders, or financial analysts, the market price of our Common Stock may decline.
Prior
to the Acquisition, there was no public market for YYEM’s securities. Accordingly, the valuation ascribed to YYEM and our Common
Stock in the Acquisition might not have been indicative of the price that will prevail in the trading market following the Acquisition.
If an active market for our Common Stock continues, the trading price could be especially volatile, and fluctuations in the price of
our Common Stock could contribute to the loss of all or part of your investment. For the period following the Acquisition and beyond,
our stock price may be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the
factors listed below, among others, could have a material adverse effect on your investment, and our Common Stock may trade at prices
significantly below the price you paid for them. In such circumstances, the trading price of our Common Stock may not recover and may
experience a further decline.
If
the benefits of the Acquisition, and the performance of the Company more broadly, do not meet the expectations of investors or securities
analysts, the market price of our Common Stock may decline. Broad market and industry factors may materially harm the market price of
our securities irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected.
The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the
market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price
regardless of our business, prospects, financial condition, or results of operations. A decline in the market price of our securities
also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
YYEM
may not realize anticipated growth opportunities.
We
expect that YYEM will realize growth opportunities and other financial and operating benefits as a result of the Acquisition, although
we cannot predict with certainty if or when these growth opportunities and benefits will occur, or the extent to which they actually
will be achieved. For example, the benefits from the Acquisition may be offset by costs incurred in connection with the Acquisition,
or as a result of being part of a public company. See “Risks Related to Our Business and Industry” for a fuller discussion
of the risks in the post-Acquisition period.
Risks
Related to Our Business, Operations, Industry, Legal and Regulatory Requirements
References
in this section to “we,” “us,” “our,” “YYEM” and the “company” refer to YYEM
and its subsidiaries. We expect the Acquisition will close before the Commission declares the registration statement of which this prospectus
forms a part effective.
We
are dependent on third parties for a significant portion of our revenue through intellectual property licensing agreements, and we may
not realize the expected benefits of such arrangements.
We
have in the past entered into, and may continue to enter into, licensing arrangements with third parties that we believe will commercialize
our intellectual property and bolster our revenue.
Our
revenue from licensing agreements increased significantly in the year ended January 31, 2024 and increased further in the three-month
period ended April 30, 2024, constituting substantially all of our revenue, and our results of operations have been, and may continue
to be, affected by such arrangements. Licensing agreements involving our intellectual property are subject to various risks. Our licensees
may fail to comply with their obligations set out in the respective agreements. If the licensees generate insufficient revenue from their
operations, they may be unable to meet the minimum payments required under the agreements. Our licensees may elect to cease the licensing
arrangements due to a change in their strategic focus, the availability of funding, or other external factors. Termination of any licensing
arrangements may result in a reduction in our revenue and the need for replacement arrangements with other licensees.
Our
licensees have significant discretion in determining the efforts and resources that they will apply to their own operations, potentially
resulting in less revenue than we anticipate at the outset of the relationship. Such licensees may independently develop intellectual
property that could substitute for ours or may partner with competitors offering different technology.
Our
licensees may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information
in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property rights or our
rights over our proprietary information or could expose us to potential liability.
Disputes
may arise between us and our licensees that interfere with the licensing arrangements or lead to the termination of the licensing agreements.
Such disputes could result in costly litigation or arbitration that diverts management attention and resources.
As
we expand to new jurisdictions, if we fail to enter into licensing arrangements for a particular territory with a suitable strategic
partner and do not have sufficient funds or local expertise to undertake the necessary commercialization activities ourselves, we may
not be able to generate revenue from such territory.
For
these and other reasons, we may not achieve the outcomes expected from our licensing arrangements. These arrangements are subject to
significant business, economic, and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond
our control. We may face operational and financial risks including increases in near- and long-term expenditure, exposure to unknown
liabilities, disruption of our business, and diversion of our management’s time and attention. Even if we achieve the expected
benefits, we may not be able to do so within the anticipated time frame. Any of the foregoing could materially adversely affect our business,
financial condition, results of operations, and prospects.
The
love and marriage market sector, including matchmaking apps, is competitive, with low switching costs and a consistent stream of new
services and entrants, and innovation by competitors may disrupt our business.
The
love and marriage market sector, including matchmaking apps, is competitive, with a consistent stream of new services and entrants. Some
of our competitors may enjoy better competitive positions in certain geographical regions, user demographics, or other key areas that
we currently serve or may serve in the future. These advantages could enable such competitors to offer services that are more appealing
to users and potential users than our services or to respond more quickly or cost-effectively than us to new or changing opportunities.
In
addition, within the love and marriage market sector generally, costs for consumers to switch between services are low, and consumers
have a propensity to try new approaches to connecting with people and to use multiple services at the same time. As a result, new services,
entrants, and business models are likely to continue to emerge. If we become established as a dominant player in any particular market,
it is possible that a new service could gain rapid scale at the expense of existing brands by harnessing a new technology, such as generative
AI, or a new or existing distribution channel, creating a new or different approach to connecting people, or some other means. We may
need to respond by introducing new services or features, and we may not be successful in that. If we do not sufficiently innovate to
provide new services, or improve upon existing services, that our users or prospective users find appealing, we may be unable to continue
to attract new users or continue to appeal to existing users.
Potential
competitors include larger companies that could devote greater resources to the promotion or marketing of their services, take advantage
of acquisitions or other opportunities more readily, or develop and expand their services more quickly than we do. Potential competitors
also include established social media companies that may develop features or services that compete with ours or operators of mobile operating
systems and app stores. For example, Facebook offers a dating feature on its platform, which it rolled out globally several years ago
and has grown dramatically in size supported by Facebook’s massive worldwide user footprint. These social media and mobile platform
competitors could use strong or dominant positions in one or more markets, coupled with ready access to existing large pools of potential
users and personal information regarding those users, to gain competitive advantages over us, including by offering different features
or services that users may prefer or offering their services to users at no charge, which may enable them to acquire and engage users
at the expense of our user growth or engagement.
If
we are not able to compete effectively against current or future competitors as well as other services that may emerge, or if our decisions
regarding where to focus our investments are not successful in the long term, the size and level of engagement of our user base may decrease,
which could have an adverse effect on our business, financial condition, and results of operations. If, similarly, our licensees are
unable to compete effectively or are unsuccessful in this regard, the size and level of engagement of their user base may decrease, which
could impact their payments to us and therefore have an adverse effect on our business, financial condition, and results of operations.
The
limited operating history and geographic reach of YYEM’s brands and services makes it difficult to evaluate our current business
and future prospects.
We
seek to tailor our services to meet the preferences of specific geographies, demographics, and other communities of users. Building a
given brand or service is generally an iterative process that occurs over a meaningful period of time and involves considerable resources
and expenditure. The historical growth rate of any brand or service may not be indicative of future growth rates for the brand or service
or for brands and services that we may launch in other jurisdictions. We may encounter risks and difficulties as we build our brands
and services. The failure to successfully scale these brands and services and address these risks and difficulties could adversely affect
our business, financial condition, and results of operations.
If
we fail to add users, our revenue, financial results, and business may be significantly harmed.
Our
financial performance will be significantly determined by our success in adding and retaining users of our services. The size of our
user base is impacted by a number of factors, including competing products and services and global and regional business, macroeconomic,
and geopolitical conditions.
If
people do not perceive our services to be useful, we may not be able to attract or retain users. With each new generation of users, expectations
of our services change and user behaviors and priorities shift. As a result, we may need to further leverage our existing capabilities
or advances in technologies such as artificial intelligence (“AI”) and those relating to the metaverse, or adopt new technologies,
to improve our existing services or introduce new services in order to better satisfy existing users and to expand our penetration of
what continues to be a large available new-user market. However, there can be no assurance that further implementation of technologies
such as AI and those relating to the metaverse will enhance our services or be beneficial to our business, and the introduction of new
features or services to our existing services may have unintended consequences for our ecosystem, which could lead to fluctuations in
the size of our user base.
If
we are unable to maintain or increase the size of our user base (or if our licensees are unable to do so), our revenue and other financial
results may be adversely affected. Furthermore, as the size of our user base fluctuates in one or more markets from time to time, we
may become increasingly dependent on our ability to maintain or increase levels of monetization in order to grow our revenue. Any significant
decrease in user retention or growth could render our services less attractive to users, which would likely have a material and adverse
impact on our business, financial condition, and results of operations.
As
we develop our own offerings for end users, our growth and profitability will rely, in significant part, on our ability to attract and
retain users through cost-effective marketing efforts. Any failure in those efforts could adversely affect our business, financial condition,
and results of operations.
Attracting
and retaining users for our services will involve considerable expenditure for online and offline marketing, likely requiring higher
marketing outlays over time in order to sustain our growth. This also applies to our licensees, whose success is a key component of our
own. Evolving consumer behavior can affect the availability of profitable marketing opportunities. Offline campaigns may diminish in
effectiveness as consumers move increasingly online. Online campaigns may become less fruitful as large tech platforms, such as Apple
and Google, increasingly limit advertisers’ ability to access and use unique advertising identifiers, cookies, and other information
to acquire potential users (such as Apple’s rules regarding the collection and use of identifiers for advertising, often referred
to as IDFA). This is especially important for us, given that our offline storefronts are an important component of our business model
and identifying which users are most likely to be amenable to in-person services is therefore also key to our success. To continue to
reach potential users and grow our businesses, we will likely be required to identify and devote more of our overall marketing expenditure
to newer advertising channels, such as social media and online video platforms. We could have less success using these newer advertising
channels and methods to identify potential customers. There can be no assurance that we will be able to appropriately manage our marketing
efforts in response to these and other trends in the advertising industry. Any failure to do so could adversely affect our business,
financial condition, and results of operations.
Distribution
and marketing of, and access to, the online services offered by us and our licensees may rely, in significant part, on a variety of third-party
platforms, in particular, mobile app stores. If these third parties limit, prohibit, or otherwise interfere with features or services
or change their policies in any material way, it could adversely affect our business, financial condition, and results of operations.
We
will market and distribute our online services (including our AI matchmaker application) through a variety of third-party distribution
channels, some of which may limit or prohibit advertisements for services such as ours, whether because they decide to launch competing
offerings in the same industry or because they are reacting to poor behavior by other industry participants, or for some other reason.
Furthermore, certain platforms on which we market our services may not properly monitor or ensure the quality of content located adjacent
to or near our advertisements on such platforms, which may have a negative effect on consumers’ perceptions of our company. Any
of these developments could rise to a level where our business, financial condition, and results of operations is adversely affected.
Additionally,
our mobile applications will be most often accessed through the Apple App Store and Google Play Store. Both Apple and Google have broad
discretion to change their policies regarding their mobile operating systems and app stores in ways that may limit, eliminate, or otherwise
interfere with our ability to distribute or promote our applications through their stores, our ability to update our applications, and
our ability to access information that they collect about our users. To the extent either of them does so, our business, financial condition,
and results of operations could be adversely affected.
The
success of our services for end users will depend, in part, on our ability to access, collect, and use personal data about our users
and subscribers.
We
will rely extensively on the Apple App Store and Google Play Store, as well as other technology platforms, to distribute and monetize
our mobile applications. Our users and subscribers will pay through these platforms, which will prevent us from accessing key user data
that we would otherwise receive if we transacted with our users and subscribers directly. This could negatively impact our customer relationship
management efforts, our ability to reach new segments of our user and subscriber bases and the population generally, the efficiency of
our paid marketing efforts, the rates we are able to charge advertisers seeking to reach users and subscribers of our services, our ability
to comply with applicable law, and our ability to identify and exclude users and subscribers whose access would violate applicable terms
and conditions, including underage individuals and bad actors, all of which could cause our business, financial condition, and results
of operations to be adversely affected.
As
the distribution of our online services through app stores increases, in order to maintain our profit margins, we may need to take steps
to offset increasing app store fees by decreasing traditional marketing expenditure, increasing user volume or monetization per user,
or consolidating back-office and technical functions, or by engaging in other efforts to increase revenue or decrease costs generally.
While
we expect that our mobile applications will be free to download from intermediary platforms like the Apple App Store and the Google Play
Store, we intend to offer our users the opportunity to purchase subscriptions and features within the applications. These purchases are
in most cases required to be processed through the in-app payment systems provided by the intermediary, thus requiring us to pay them
a meaningful share of the revenue we receive from these transactions.
While
we are constantly innovating and developing our own payment systems and methods, given the expected increase in fees relating to these
intermediary platforms, we may in the future need to offset these increased fees by decreasing traditional marketing expenditure as a
percentage of revenue, increasing user volume or monetization per user, or consolidating back-office or technical functions, or by engaging
in other efforts to increase revenue or decrease costs generally.
Challenges
properly managing the use of artificial intelligence could result in reputational harm, competitive harm, and legal liability.
We
and our licensees are working to integrate AI technologies into our services, which integrations may become important to our operations
over time. Our competitors or other third parties may incorporate AI into their services more quickly or more successfully than us, which
could impair our ability to compete effectively and adversely affect our results of operations. Additionally, AI algorithms and training
methodologies may be flawed. If the content or recommendations that AI applications assist in producing are or are alleged to be deficient,
inaccurate, offensive, biased, or otherwise improper or harmful, we may face reputational consequences or legal liability, and our business,
financial condition, and results of operations may be adversely affected. Furthermore, the use of AI has been known to result in, and
may in the future result in, cybersecurity incidents that implicate the personal data of end users of AI-enhanced services. Any such
cybersecurity incidents related to our use of AI could adversely affect our reputation and results of operations. AI also presents emerging
ethical issues, and if our use of AI becomes controversial, we may experience reputational harm, competitive harm, or legal liability.
The rapid evolution of AI will require the dedication of significant resources to develop, test, and maintain AI technologies, including
to further implement AI ethically in order to minimize unintended harmful impact. While we will aim to deploy AI responsibly and attempt
to identify and mitigate ethical and legal issues presented by its use, we may be unsuccessful in identifying or resolving issues before
they arise.
The
legal and regulatory landscape surrounding generative AI technologies is rapidly evolving and uncertain, including in the areas of intellectual
property, discrimination, cybersecurity, and privacy and data protection. Compliance with existing, new, and changing laws, regulations,
and industry standards relating to AI may limit some uses of AI, impose significant operational costs, and limit our ability to develop,
deploy, or use AI technologies. Furthermore, the integration of AI technologies into our services may result in new or enhanced governmental
or regulatory scrutiny. Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory action,
or reputational harm.
Foreign
currency exchange rate fluctuations may adversely affect our results of operations.
Because
our reporting currency is the U.S. dollar but our revenue may be received in various other currencies due to our international operations,
our revenue could be reduced when translated into U.S. dollars during periods of a strengthening U.S. dollar. In addition, as foreign
currency exchange rates fluctuate, the translation of our international revenue into U.S. dollar-denominated operating results affects
the period-to-period comparability of such results and could also result in foreign currency exchange gains and losses.
We
depend on our key personnel.
Our
future success will depend on our continued ability to identify, hire, develop, motivate, and retain highly skilled individuals across
the markets where we operate, with the continued contributions of our management, our sales teams, and our technology teams being especially
critical to our success. Competition for well-qualified employees is intense, and our continued ability to compete effectively depends,
in part, on our ability to attract new employees.
Effective
succession planning is also important to our future success. If we fail to ensure the effective transfer of management or other institutional
knowledge, our ability to execute short- and long-term strategic, financial, and operating goals, as well as our business, financial
condition, and results of operations generally, could be adversely affected.
In
addition to intense competition for talent, workforce dynamics are constantly evolving, such as recent broad shifts to hybrid work models.
If we do not manage changing workforce dynamics effectively, it could materially adversely affect our culture, reputation, and operational
flexibility going forward.
Our
success depends, in part, on the integrity of our systems and infrastructure and on our ability to enhance, expand, and adapt these in
a timely and cost-effective manner.
To
succeed, our systems and infrastructure must perform well on a consistent basis. We may from time to time experience system interruptions
that make some or all of our systems or data unavailable and prevent our services from functioning properly for our users. Any such interruption
could arise for any number of reasons, including as a result of our own actions, actions by government agencies, cyberattacks, fire,
power loss, telecommunications failures, computer viruses, software bugs, acts of God, and similar events. While we have backup systems
in place for certain aspects of our operations, not all of our systems and infrastructure are fully redundant, disaster recovery planning
is not sufficient for all eventualities, and our property and business interruption insurance coverage may not be adequate to fully compensate
us for any losses that we may suffer. Any interruptions or outages, regardless of the cause, could negatively impact our users’
experiences, tarnish our reputation, and decrease demand for our services, any or all of which could adversely affect our business, financial
condition, and results of operations.
We
will work on our technology and network to improve the experience of our users, accommodate substantial increases in the volume of traffic
to our various platforms, and ensure acceptable load times for our services, and keep up with changes in technology and user preferences.
Any failure to do so in a timely and cost-effective manner could adversely affect our users’ experience with our various services,
thereby negatively impacting the demand for our services, and could increase our costs, either of which could adversely affect our business,
financial condition, and results of operations.
From
time to time, we may augment and enhance, or transition to other, enterprise resource planning, human resources, financial, or other
systems. Such actions may cause us to experience difficulties in managing our systems and processes, which could disrupt our operations,
the management of our finances, and the reporting of our financial results, which, in turn, may result in our inability to manage the
growth of our business and to accurately forecast and report our results, each of which could adversely affect our business, financial
condition, and results of operations.
We
may not be able to protect our systems and infrastructure from cyberattacks and may be adversely affected by cyberattacks experienced
by third parties.
As
we build out our online offerings, we may find ourselves targeted by cyberattacks, computer viruses, worms, bot attacks or other destructive
or disruptive software, distributed denial of service attacks, and attempts to misappropriate customer information, including personal
user data, credit card information, and account login credentials. While we continue to invest in the protection of our systems and infrastructure,
in related personnel and training, and in employing a data minimization strategy where appropriate, there can be no assurance that our
efforts will prevent significant breaches in our systems or other such events from occurring. Any cyber or similar attack that we are
unable to protect ourselves against could damage our systems and infrastructure, prevent us from providing our services, tarnish our
reputation, result in the disclosure of confidential or sensitive information of our users, and be costly to remedy, as well as subject
us to investigation by regulatory authorities or to litigation that could result in liability to third parties.
The
impact of cyber or similar attacks experienced by any third parties who provide services to us or might otherwise process data on our
behalf could have a similar effect on us. Even cyber or similar attacks that do not directly affect us or our third-party service providers
or data processors may result in widespread access to user data, for instance through account login credentials that such users might
have used across multiple internet sites, including our sites, or directly through access to user data that these third-party service
providers could process in the context of the services they provide to us. These events can lead to government enforcement actions, fines,
and litigation, as well as a loss of consumer confidence generally, which could make users less likely to use or continue to use our
services. The occurrence of any of these events could have an adverse effect on our business, financial condition, and results of operations.
Our
success depends, in part, on the integrity of third-party systems and infrastructure.
We
may rely on third parties, primarily data centers and cloud-based, hosted web service providers, as well as third-party computer systems,
service providers, and broadband and other communications systems, in connection with the provision of our services generally, as well
as to facilitate and process certain transactions with our users. We will have no control over any of these third parties or their operations,
and such third-party systems are increasingly complex. Any changes in service levels at our data centers or hosted web service providers
or any interruptions, outages, or delays in our systems or those of our third-party providers, deterioration in the performance of these
systems, or cyber or similar attacks on these systems could impair our ability to provide our services or process transactions with our
users, which would adversely impact our business, financial condition, and results of operations.
If
the security of personal and confidential or sensitive user information that we maintain and store is breached or otherwise accessed
by unauthorized persons, it may be costly to mitigate the impact of such an event and our reputation could be harmed.
We
receive, process, store, and transmit a significant amount of personal user and other confidential or sensitive information, including,
without limitation, credit card information and user-to-user communications. We also enable our users to share their personal information
with each other. In some cases, we may engage third-party service providers to store or process this information. We work to protect
the security, integrity, and confidentiality of this information, but we cannot guarantee that inadvertent or unauthorized use or disclosure
will not occur in the future or that third parties will not gain unauthorized access to, or will not use for unauthorized purposes, this
information despite our efforts. When such events occur, we may not be able to remedy them, and we may be required by an increasing number
of laws to notify regulators and individuals whose personal information was processed, used, or disclosed without authorization. We may
also be subject to claims against us, including government enforcement actions, fines, and litigation, and have to expend significant
capital and other resources to mitigate the impact of such events, including by developing and implementing protections to prevent future
events of this nature from occurring. When breaches of security (or the security of our service providers) occur, the perception of the
effectiveness of our security measures, the security measures of our service providers, and our reputation may be harmed, we may lose
current and potential users, and our reputation and competitive position may be tarnished, any or all of which might adversely affect
our business, financial condition, and results of operations.
Our
business is subject to complex and evolving laws and regulations, including with respect to data privacy and platform liability. These
laws and regulations are subject to change and uncertain interpretation and could result in changes to our business practices, increased
cost of operations, declines in user growth or engagement, legal claims, monetary penalties, or other harm to our business.
As
we plan on expanding our footprint internationally, we will be subject to a variety of laws and regulations that involve matters that
are important to or may otherwise impact our business. We are indirectly affected by laws and regulations in jurisdictions where we do
not operate but our licensees do. Some laws and regulations can be enforced by private parties in addition to governmental entities and
are constantly evolving and subject to change. As a result, the application, interpretation, and enforcement of these laws and regulations
are often uncertain, particularly in the rapidly evolving industry in which we and our licensees operate, and such laws and regulations
may be interpreted and applied inconsistently from jurisdiction to jurisdiction. These laws and regulations, as well as any associated
inquiries, investigations, or other government actions, may be costly to comply with and may delay or impede the development of new services,
require changes to or cessation of certain business practices, result in negative publicity, increase our operating costs, require significant
management time and attention, and subject us to remedies that may harm our business, including fines or modifications to existing business
practices.
Tax
laws, in particular, are subject to interpretation by the relevant taxing authorities. While we endeavor to comply with applicable law,
there can be no assurance that the relevant taxing authorities will not take a position contrary to us, and if so, that such position
will not adversely affect us, directly or indirectly. Any events of this nature could adversely affect our business, financial condition,
and results of operations.
Proposed
or new legislation and regulations could also adversely affect our business. To the extent new or more stringent measures are required
to be implemented, impose new liability, or limit or remove existing protections, our business, financial condition, and results of operations
could be adversely affected.
The
adoption of any laws or regulations that adversely affect the popularity or growth in use of the internet or our services, including
laws or regulations that undermine open and neutrally administered internet access, could decrease user demand for our service offerings
and increase our cost of doing business, thereby negatively impacting our business, financial condition, and results of operations.
We
are subject to a number of risks related to credit card payments, including data security breaches and fraud that we or third parties
experience, any of which could adversely affect our business, financial condition, and results of operations.
We
will accept payment from our users primarily through credit card transactions and certain online payment service providers. When we or
a third party experiences a data security breach involving credit card information, affected cardholders will often cancel their credit
cards. In the case of a breach experienced by a third party, the more sizable the third party’s customer base and the greater the
number of credit card accounts impacted, the more likely it is that our users would be impacted by the breach. To the extent our users
are affected by such a breach experienced by us or a third party, we would need to contact such users to obtain new credit card information
and process any pending transactions. It is likely that we would not be able to reach all affected users, and even if we could, some
users’ new credit card information may not be obtained and some pending transactions may not be processed, which could adversely
affect our business, financial condition, and results of operations.
Even
if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers
to protect their personal information generally, which could cause them to stop using their credit cards online or choose alternative
payment methods that are less convenient or more costly for us or otherwise restrict our ability to process payments without significant
effort on the part of the user or us, or both.
Additionally,
if we fail to adequately prevent fraudulent credit card transactions, we may face litigation, fines, governmental enforcement action,
civil liability, diminished public perception of our security measures, significantly higher credit card-related and remediation costs,
or refusal by credit card processors to continue to process payments on our behalf, any of which could adversely affect our business,
financial condition, and results of operations.
Inappropriate
actions by certain of our users could be attributed to us and damage our reputation, which in turn could adversely affect our business.
Users
of our services may in the future be physically, financially, emotionally, or otherwise harmed by individuals that such users meet through
one of our services. If any users suffer or allege to have suffered any such harm, we could experience negative publicity or legal action
that could damage our reputation. Similar events affecting users of our competitors’ services could result in negative publicity
for our industry generally, which could in turn negatively affect our business.
In
addition, our reputation may be adversely affected by actions of our users that are deemed to be hostile, offensive, defamatory, inappropriate,
untrue, or unlawful. While our focus to date on offline matchmaking has helped to avoid such incidents, and while we intend to develop
systems and processes that aim to monitor and review the appropriateness of content accessible through our online services, together
with policies regarding illegal, offensive, or inappropriate use of our services, our users could nonetheless engage in activities that
violate our policies. Such bad actors may also use emerging technologies, such as AI, to engage in such activities, making it more difficult
for us to detect and prevent such negative behavior. Our safeguards may not be sufficient to avoid harm to our reputation, especially
if such hostile, offensive, or inappropriate use is well-publicized.
We
may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third
parties.
We
currently rely exclusively on patents that we license out, and we expect, in the future, that we will rely heavily on our trademarks
and related domain names and logos for marketing and to build and maintain brand loyalty and recognition. We also expect to rely on other
patented and patent-pending proprietary technologies and trade secrets, such as our own app, relating to our services.
We
will continue to rely on a combination of laws and contractual restrictions to establish and protect our intellectual property rights.
For example, we continue to apply to register, or secure by contract where appropriate, trademarks and service marks as they are developed
and used, and we are reserving, registering, and renewing domain names as we deem appropriate. Effective trademark protection may not
be available or sought in every country in which our services are made available, and contractual disputes may affect the use of marks
governed by private contract. Similarly, not every variation of a domain name may be available or registered by us, even if available.
We
generally will seek to apply for patents or other similar statutory protections as and when we deem appropriate, based on then-current
facts and circumstances. No assurance can be given that any patent application we have filed or will file will result in a patent being
issued, or that any existing or future patents will afford adequate protection against competitors and similar technologies. In addition,
no assurance can be given that third parties will not create new products or methods that achieve similar results without infringing
upon patents we own.
Despite
these measures, our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights
could arise, third parties could copy or otherwise obtain and use our intellectual property without authorization, our existing trademarks,
patents, or trade secrets could be determined to be invalid or unenforceable, or laws and interpretations of laws regarding the enforceability
of existing intellectual property rights could change over time in a manner that provides less protection. The occurrence of any of these
events could tarnish our reputation, limit our marketing ability, or impede our ability to effectively compete against competitors with
similar technologies, any of which could adversely affect our business, financial condition, and results of operations.
We
may also occasionally be subject to legal proceedings and claims regarding intellectual property, including claims of alleged infringement
of trademarks, copyrights, patents, and other intellectual property rights held by third parties and of invalidity of our own rights.
In addition, we may decide we should engage in litigation to enforce our intellectual property rights, to protect our trade secrets and
patents, or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of
outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely
affect our business, financial condition, and results of operations.
We
intend to expand to various international markets, including markets in which we have limited experience, and as a result, we face additional
risks in connection with those operations.
Operating
internationally, particularly in countries in which we have limited experience, exposes us to a number of additional risks, such as:
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operational
and compliance challenges caused by distance, language, and cultural differences; |
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difficulties
in staffing and managing international operations; |
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differing
levels of social and technological acceptance of our services or lack of acceptance of them generally; |
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differing
and potentially adverse tax laws; |
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compliance
challenges due to different laws and regulatory environments, particularly in the case of privacy, data security, intermediary or
platform liability, and consumer protection; |
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competitive
environments that favor local businesses or local knowledge of such environments; |
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limitations
on the level of intellectual property protection; and |
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trade
sanctions, political unrest, terrorism, war, and epidemics, or the threat of any of these events. |
These
risks could adversely affect our business, financial condition, and results of operations.
We
are subject to litigation, and adverse outcomes in such litigation could have an adverse effect on our financial condition.
From
time to time, we may become subject to litigation, and to various legal proceedings relating to employment matters, intellectual property
matters, and privacy and consumer protection laws, as well as stockholder derivative suits, class action lawsuits, mass arbitrations,
and other matters. Such litigation and proceedings may involve claims for substantial amounts of money or for other relief, may result
in significant costs for legal representation, arbitration fees, or other legal or related services, or might necessitate changes to
our business or operations. The defense of these actions is likely to be time consuming and expensive. We will evaluate these litigation
claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential loss.
Based on these assessments and estimates, we may establish reserves or disclose the relevant litigation claims or legal proceedings as
and when required or appropriate. These assessments and estimates will be based on information available to our management at the time
of such assessment or estimation and will involve a significant amount of judgment. As a result, actual outcomes or losses could differ
materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these
litigation claims or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse
effect on our business, financial condition, and results of operations.
Our
operations are subject to volatile global economic conditions, particularly those that adversely impact consumer confidence and spending
behavior.
Adverse
macroeconomic conditions, including lower consumer confidence, changes to fiscal and monetary policy, the availability and cost of credit,
and weakness in the economies in which we and our users are located may continue to adversely affect our business, financial condition,
and results of operations. In recent years, the United States, Europe and other key global markets have experienced historically high
levels of inflation, which have impacted, among other things, employee compensation expenses. If inflation rates rise again or continue
to remain historically high or further increase in those locations where inflation rates remain elevated, it will likely affect our expenses,
and may reduce consumer discretionary spending, which could affect the buying power of our users and lead to a reduction in demand for
our services. Other events and trends that could result in decreased levels of consumer confidence and discretionary spending include
a general economic downturn, recessionary concerns, high unemployment levels, and increased interest rates, as well as any sudden disruption
in business conditions. Economic growth in Mainland China has declined notably in recent years, affecting us through the impact on Hong
Kong’s economy and potentially through our China-based licensee. Additionally, geopolitical developments, such as wars in Ukraine
and the Middle East, tensions between the United States and China, climate change, and the responses by central banking authorities to
control inflation (in some economies of the West) or boost growth (in China), can increase levels of political and economic unpredictability
globally and increase the volatility of global financial markets.
Our
financial results may be adversely affected if substantial investments in businesses and operations fail to produce the expected returns.
From
time to time, we may invest in technology, business infrastructure, new businesses, product offering and manufacturing innovation and
expansion of existing businesses, such as our digital commerce operations, which require substantial cash investments and management
attention. We believe cost-effective investments are essential to business growth and profitability; however, significant investments
are subject to typical risks and uncertainties inherent in developing a new business or expanding an existing business. The failure of
any significant investment to provide expected returns or profitability could have a material adverse effect on our financial results
and divert management attention from more profitable business operations.
We
have limited financial resources. Our independent registered auditors’ report includes an explanatory paragraph stating that there
is substantial doubt about our ability to continue as a going concern.
As
a result of our deficiency in working capital on April 30, 2024 and other factors, our auditors have included a paragraph in their audit
report regarding substantial doubt about our ability to continue as a going concern. To address this issue, we plan on completing the
Acquisition, or increasing product sales, increasing production, obtaining inventory financing, seeking strategic alternatives and seeking
additional capital through future equity private placements or debt facilities if the Acquisition is terminated.
We
have recorded net losses since inception and have significant accumulated deficits. We have relied upon loans and equity financings for
operating capital. Total revenues will be insufficient to pay off existing debt and fund operations. We may be required to rely on further
debt financing, further loans from related parties, and private placements of shares of Common Stock for our additional cash needs. Such
funding sources may not be available, or the terms of such funding sources may not be acceptable to the Company.
We
will need additional capital in the future to finance our planned growth, which we may not be able to raise or which may only be available
on terms unfavorable to us or our stockholders, and this may result in our inability to fund our working capital requirements and harm
our operational results.
We
have and expect to continue to have substantial working capital needs. Our cash on hand, together with cash generated from product sales,
services, cash equivalents, and short-term investments will not meet our working capital and capital expenditure requirements for the
next twelve months. If the Acquisition does not complete, we will be required to raise additional funds throughout 2024 or we will need
to limit operations until such time as we can raise substantial funds to meet our working capital needs. In addition, we will need to
raise additional funds to fund our operations and implement our growth strategy, or to respond to competitive pressures or perceived
opportunities, such as investment, acquisition, marketing, and development activities.
If
we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenue or cash flow from operations,
if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, marketing, and growth
programs. We require additional financing, in addition to the anticipated cash generated from our operations, to fund our working capital
requirements. Additional financing might not be available on terms favorable to us, or at all. If adequate funds are not available or
are not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or
enhance our business or otherwise respond to competitive pressures may be significantly limited. In such a capital restricted situation,
we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable
basis.
Our
internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated
to the public.
Our management is responsible
for establishing and maintaining adequate internal controls over our financial reporting. As defined in Exchange Act Rule 13a-15(f),
internal controls over financial reporting involves a process designed by, or under the supervision of, the principal executive and principal
financial officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
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pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets
of the Company; |
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provide
reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance
with generally accepted accounting principles and to ensure that receipts and expenditures of the Company are being made only in
accordance with authorizations of management or directors of the Company; and |
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provide
reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. |
Our
internal controls may be inadequate or ineffective, which could cause financial reporting to be unreliable and lead to misinformation
being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Failure
to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to
lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business,
financial condition, results of operations, and future prospects.
Our
auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section
404 until we are no longer a “smaller reporting company”.
The
costs of being a public company could result in us being unable to continue as a going concern.
As
a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits
and internal controls. The costs of maintaining public company reporting requirements could be significant and may preclude us from seeking
financing or equity investments on terms acceptable to us and our shareholders. We estimate these costs to be in excess of $500,000 per
year, and they may be higher if our business volume or business activity increases significantly. Our current estimate of costs does
not include the necessary expenses associated with compliance, documentation, and specific reporting requirements of Section 404 as we
will not be subject to the full reporting requirements of Section 404 until we no longer qualify as a “smaller reporting company”.
If
our revenue is insufficient or non-existent, or we cannot satisfy many of these costs through the issuance of shares or debt, we may
be unable to satisfy these costs in the normal course of business. This would result in our being unable to continue as a going concern.
If
we fail to maintain effective internal controls over financial reporting, then the price of the Common Stock may be adversely affected.
Our
internal controls over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure
of which may have an adverse impact on the price of the Common Stock. We are required to establish and maintain appropriate internal
controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely
affect our public disclosures regarding our business, prospects, financial condition, or results of operations. In addition, management’s
assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions
that need to be addressed in our internal controls over financial reporting or any disclosure of management’s critical assessment
of our internal controls over financial reporting may have an adverse impact on the price of the Common Stock.
Any
acquisitions we make could disrupt our business and seriously harm our financial condition.
We
have in the past made (and may, from time to time, consider) acquisitions of complementary companies, products or technologies. A primary
component of our growth strategy has been to acquire complementary businesses to grow our Company. For example, we acquired the business
of Foundation Sports Systems, LLC, in our fiscal year ended April 30, 2021, and the acquisitions of PlaySight and Gameface closed in
the fiscal year ended April 30, 2022. In the Company’s fiscal quarter ended January 31, 2023, the Company divested PlaySight and
75% of its interest in Foundation Sports as the required monthly cash burn became increasingly difficult to manage as inflation rose
and the cost of manufacturing the Company’s non-technological products grew. As a result, the Company sold PlaySight back to its
original owners in November 2022, and the Company sold most of Foundation Sports back to their original owners, with an option to purchase
any remaining interests. We intend to continue to pursue acquisitions of complementary technologies, products and businesses as a primary
component of our growth strategy to enhance the features and functionality of our applications, expand our customer base, and provide
access to new markets and increase benefits of scale, even after the Acquisition is completed. Acquisitions involve numerous risks, including
difficulties in the assimilation of the acquired businesses, the diversion of our management’s attention from other business concerns,
and potential adverse effects on existing business relationships, all of which could cause our actual growth or operating results to
differ from our expectations. In addition, any acquisitions could involve the incurrence of substantial additional indebtedness. We cannot
assure you that we will be able to successfully integrate any acquisitions that we pursue or that such acquisitions will perform as planned
or prove to be beneficial to our operations and cash flow. Any such failure could seriously harm our business, financial condition, and
results of operations. In addition, there might be potential inability or failure to achieve additional sales and enhance our customer
base through cross-marketing of the products to new and existing customers.
Fluctuations
in our tax obligations and effective tax rate may have a negative effect on our operating results.
We
may be subject to income taxes in multiple jurisdictions. We record tax expense based on our estimates of future payments, which include
reserves for uncertain tax provisions in multiple tax jurisdictions. At any one time, many tax years may be subject to audit by various
taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these
issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur
and exposures are evaluated. Further, our effective tax rate in a given financial period may be materially impacted by changes in mix
and level of earnings or by changes to existing accounting rules or regulations. In addition, tax legislation enacted in the future could
negatively impact our current or future tax structure and effective tax rates.
We
could be subject to changes in tax rates, adoption of new tax laws, additional tax liabilities, or increased volatility in our effective
tax rate.
We
are subject to the tax laws in the U.S. and numerous foreign jurisdictions. Current economic and political conditions make tax laws and
regulations, or their interpretation and application, in any jurisdiction subject to significant change. On December 22, 2017, the U.S.
enacted the Tax Cuts and Jobs Act (the “Tax Act”), which includes a number of significant changes to previous U.S. tax laws
that impact us, including provisions for a one-time transition tax on deemed repatriation of undistributed foreign earnings, and a reduction
in the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, among other changes. The Tax Act also transitions
U.S. international taxation from a worldwide system to a modified territorial system and includes base erosion prevention measures on
non-U.S. earnings, which has the effect of subjecting certain earnings of our foreign subsidiaries to U.S. taxation.
We
earn a substantial portion of our income in foreign countries and are subject to the tax laws of those jurisdictions. There have been
proposals to reform foreign tax laws that could significantly impact how U.S. multinational corporations are taxed on foreign earnings.
Although we cannot predict whether or in what form these proposals will pass, several of the proposals considered, if enacted into law,
could have an adverse impact on our income tax expense and cash flows.
Portions
of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and rulings. We also utilize tax rulings
and other agreements to obtain certainty in the treatment of certain tax matters. These holidays and rulings expire in whole or in part
from time to time and may be extended when certain conditions are met or terminated if certain conditions are not met. The impact of
any changes in conditions would be the loss of certainty in treatment thus potentially impacting our effective income tax rate.
We
may also be subject to the examination of our tax returns by the U.S. Internal Revenue Service (“IRS”) and other tax authorities.
We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision
for income taxes. Although we believe our tax provisions are adequate, the final determination of tax audits and any related disputes
could be materially different from our historical income tax provisions and accruals. The results of audits or related disputes could
have an adverse effect on our financial statements for the period or periods for which the applicable final determinations are made.
For example, we and our subsidiaries are also engaged in a number of intercompany transactions across multiple tax jurisdictions. Although
we believe we have clearly reflected the economics of these transactions and the proper local transfer pricing documentation is in place,
tax authorities may propose and sustain adjustments that could result in changes that may impact our mix of earnings in countries with
differing statutory tax rates.
For
as long as we are a “smaller reporting company,” we will not be required to comply with certain reporting requirements that
apply to other publicly reporting companies. We cannot predict whether the reduced disclosure requirements applicable to smaller reporting
companies will make our Common Stock less attractive to investors.
We
are currently a “smaller reporting company.” For as long as we continue to be a smaller reporting company, we may choose
to take advantage of certain exemptions from reporting requirements applicable to other publicly reporting companies that are not smaller
reporting companies. These include not being required to comply with the auditor attestation requirements for the assessment of our internal
controls over financial reporting provided by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and not being
required to provide certain disclosure regarding executive compensation required of larger publicly reporting companies. We cannot predict
if investors will find our common shares less attractive if we choose to rely on these exemptions. If some investors find our common
shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our shares
and our share price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited
than that of other publicly reporting companies and you may not have the same protections afforded to shareholders of such companies.
We
are subject to the periodic reporting requirements of the Exchange Act, requiring us to incur audit fees and legal fees in connection
with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We
are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder.
In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements
on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist
in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined
at this time and will affect the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will
be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit.
If
we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of the Common Stock, could drop significantly.
Risks
Relating to Connexa following the Acquisition
Connexa
may be exposed to increased litigation, which could have an adverse effect on its business and operations following the Acquisition.
Connexa
may be exposed to increased litigation from stockholders, customers, suppliers, distributors, consumers, and other third parties following
the Acquisition. Such litigation may have an adverse impact on Connexa’s business and results of operations or may cause disruptions
to Connexa’s operations.
After
the Acquisition, holders of Connexa’s Common Stock will have no equity or other ownership interest in its current business, as
Connexa will sell, transfer, and assign its existing business to a newly formed entity. Investors will therefore have a continuing equity
interest only in the business of YYEM.
Pursuant
to a Separation Agreement to be entered into per the Exchange Agreement, after the consummation of the Acquisition, Connexa will
sell, transfer, and assign all its existing business to NewCo, a newly formed entity be owned by Yonah Kalfa and Mike Ballardie. After
such sale, transfer, assignment, or divestiture, the Common Stock of Connexa will represent equity interests solely in the business of
YYEM and not any equity interest in the current business of Connexa.
The
separation of the Legacy Business is dependent on the Acquisition and will not result in monetization, and holders of Common Stock of
Connexa will not receive any consideration in connection with the separation of the Legacy Business.
The
separation of the Legacy Business will not involve a monetization transaction, and the consummation of such sale, transfer, assignment,
or other divesture may be completed at a discount to the fair market value or on terms less favorable to Connexa and its stockholders
than might otherwise have been obtainable under other circumstances. In connection with the separation of the Legacy Business, holders
of the Common Stock of Connexa will not receive any consideration related to the Legacy Business.
On
a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.2 million, and the liabilities of the
Legacy Business were approximately $12.0 million.
Declaration,
payment, and amounts of dividends, if any, to stockholders of Connexa following the Acquisition will be uncertain.
Connexa
has not historically paid cash dividends on its capital stock. Whether any dividends are declared or paid to stockholders of Connexa
following the Acquisition, and the amounts of any such dividends that are declared or paid, are uncertain and depend on a number of factors.
The Board of Directors following the Acquisition will have the discretion to determine the dividend policy of Connexa, including the
amount and timing of dividends, if any, that Connexa may declare from time to time, which may be impacted by any of the following factors:
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Connexa
may not have enough cash to pay such dividends or to repurchase shares due to its cash requirements, capital spending plans, cash
flow, or financial position; |
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decisions
on whether, when, and in what amounts to make any future distributions will remain at all times entirely at the discretion of the
Connexa Board of Directors following the Acquisition, which could change its dividend practices at any time and for any reason; |
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the
amount of dividends that Connexa may distribute to its stockholders is subject to restrictions under law and is potentially limited
by the terms of any future indebtedness that Connexa may incur; and |
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certain
limitations on the amount of dividends subsidiaries of Connexa can distribute to Connexa, as imposed by law, regulators, or agreements. |
Stockholders
should be aware that they have no contractual or other legal right to dividends that have not been declared.
Risks
Related to Doing Business in Hong Kong
A
joint statement by the SEC and the PCAOB, rule changes by Nasdaq, the HFCAA and AHFCAA, and the Consolidated Appropriations Act all call
for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors,
especially non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainty to our continued listing.
On
April 21, 2020, the SEC and the PCAOB released a joint statement highlighting the risks associated with investing in companies based
in or having substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack
of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On
December 18, 2020, the HFCAA was signed and became law. This legislation requires certain issuers of securities to establish that they
are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit
specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore,
under the HFCAA, if the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s
securities will be banned from trading on a national exchange or through other methods. On December 29, 2022, the AHFCAA was enacted,
which amended the HFCAA by decreasing the number of non-inspection years from three years to two, thus reducing the time period before
our Common Stock could be prohibited from trading, and therefore delisted, if the PCAOB were to determine that it could not inspect our
auditor.
On
December 2, 2021, the SEC issued amendments to finalize interim final rules previously adopted in March 2021 to implement the submission
and disclosure requirements of the HFCAA. These rules apply to registrants that the SEC identifies as having filed an annual report with
an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable
to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction.
On
December 16, 2021, the PCAOB, pursuant to the HFCAA, issued a Determination Report which found that the PCAOB was then unable to completely
inspect or investigate registered public accounting firms headquartered in mainland China or Hong Kong because of a position taken by
one or more authorities in each of those jurisdictions. Pursuant to each annual determination by the PCAOB, the SEC would, on an annual
basis, identify issuers that had used non-inspected audit firms and thus were at risk of delisting in the future.
On
August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol (the “Protocol”),
governing inspections and investigations of audit firms based in China and Hong Kong. Pursuant to the Protocol, the PCAOB has independent
discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the
SEC. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered
public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
However, should any PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB would
consider the need to issue a new determination.
Our
auditor, Olayinka Oyebola & Co., an independent public accounting firm registered with the PCAOB, and an auditor of publicly traded
companies in the United States, is subject to U.S. laws pursuant to which the PCAOB conducts regular inspections to assess its compliance
with applicable professional standards. Our auditor has been inspected by the PCAOB on a regular basis, with the last inspection in November
2023. Our auditor is not headquartered in mainland China or Hong Kong and was not identified as an accounting firm subject to the determinations
announced by the PCAOB on December 16, 2021. Nevertheless, should our auditor in the future have any work papers in China or Hong Kong
that the PCAOB is unable to fully inspect, it will be difficult to evaluate the effectiveness of our auditor’s audit procedures
or equity control procedures. Investors could consequently lose confidence in our reported financial information and procedures or in
the quality of our financial statements, which would adversely affect us and our securities. Moreover, if trading in our securities is
prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such
future time, an exchange will likely delist our securities.
The
Chinese government, in general, could exercise significant oversight and discretion over the conduct of our business and has made statements
indicating an intent to exert more oversight and control over offerings that are conducted overseas and over foreign investment in China-based
issuers.
Although
our subsidiary YYEM is based in a special administrative region of the PRC, which enjoys separate governing and economic systems from
that of mainland China under the principle of one country, two systems, Hong Kong is part of China and, as such, the Chinese government
could intervene or influence our operations at any time, which could result in a material change in YYEM’s operations and
the value of our Common Stock. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted
overseas or over foreign investment in China-based issuers, in particular any effort to extend such actions directly or indirectly to
Hong Kong-based companies, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors
and cause the value of such securities to significantly decline or be worthless.
Greater
oversight by CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business
and our offering.
Over
the years, the PRC has enacted a number of laws and regulations aimed at governing the collection and security of personal data. These
include the Cybersecurity Review Measures, which took effect on February 15, 2022 and require a government review of critical information
infrastructure operators (“CIIOs”) and of internet operators that possesses the personal information of at least one
million users or meet certain other criteria; the Network Data Security Administration (Draft for Comments), published in 2021 and not
yet enacted, which provides that companies engaging in data processing activities that may affect national security must apply for a
cybersecurity review by the CAC under certain circumstances; the PRC Data Security Law, promulgated in 2021, which imposes certain requirements
for the collection and processing of data in order to protect its security; the Personal Information Protection Law, promulgated in 2021,
which integrates various scattered rules with respect to personal information rights and privacy protection; the Rules on the Scope of
Necessary Personal Information for Common Types of Mobile Internet Applications, which came into effect in 2021 and prohibits the operators
of mobile apps from denying users access to the apps just because they do not consent to the collection of unnecessary personal information;
and the Measures for the Security Assessment of Data Cross-border Transfer, effective in 2022, which require data processors to apply
for a cross-border security assessment coordinated by the CAC under certain circumstances, including where they transfer personal information
overseas and have already transferred personal information of more than 100,000 people, or sensitive personal information of more than
10,000 people, overseas since the start of the previous year. (See also the discussion of the Confidentiality and Archives Administration
Provisions, below.)
We
do not believe YYEM is subject to cybersecurity review by the CAC, or to any of the other personal data-related laws and regulations
described above, since YYEM is a Hong Kong company without subsidiaries or operations in the PRC. In addition, it does not currently
have, and does not anticipate that it will be collecting, over one million users’ personal information in the foreseeable future,
which might otherwise subject it to the Cybersecurity Review Measures. YYEM has not received any notice from any authorities identifying
it as a CIIO or otherwise requiring it to undergo a cybersecurity review or network data security review by the CAC.
There
remains uncertainty as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented
and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation
related to the Cybersecurity Review Measures and the Security Administration Draft. There is no assurance that YYEM will be able to fully
or timely comply with any of the personal data and data security laws should they be deemed to be applicable to its operations. There
is no certainty as to how any review or other actions would impact YYEM’s operations, and we cannot guarantee that any clearance
could be obtained or maintained if approved.
In
the future, YYEM may be subject to PRC laws and regulations, including those regarding corporate structure, overseas listings, data-
and cybersecurity, and anti-monopoly concerns, which could result in a material negative impact on its operations and the value of the
securities we are registering for sale.
YYEM
is incorporated and registered under the laws of Hong Kong. YYEM does not have, nor does it intend to have, any subsidiary, VIE structure
or direct operations in mainland China. All of YYEM’s revenue and profit is currently generated by operations in Hong Kong. The
Basic Law of the Hong Kong Special Administrative Region (the “Basic Law”), provides that PRC laws and regulations shall
not be applied in Hong Kong except for those listed in Annex III of the Basic Law, which is confined to laws relating to national defense,
foreign affairs, and other matters that are not within the scope of autonomy. YYEM therefore is not directly subject to PRC laws and
regulations regarding the general conduct of its business or regarding overseas listings.
Nevertheless,
with its headquarters and substantial operations in Hong Kong, YYEM faces risks and uncertainties associated with the complex and evolving
PRC laws and regulations, including whether and how PRC government statements and regulatory developments, such as those relating to
corporate structure, overseas listings, data- and cybersecurity, and anti-monopoly concerns, would be applicable to Hong Kong companies
such as YYEM, and whether and when the Chinese government might exercise significant oversight over the conduct of business in Hong Kong.
If YYEM were to become subject to PRC laws and regulations, it could incur material costs to ensure compliance, and it might be subject
to fines, no longer be permitted to conduct offerings to foreign investors, or no longer be permitted to continue business operations
as presently conducted.
The
uncertainties regarding the enforcement of laws and the fact that rules and regulations in China can change quickly with little advance
notice, along with the risk that the Chinese government may intervene in or influence YYEM’s operations, could result in a material
change in its operations and the value of the securities we are registering, including the possibility that the value of such securities
could become worthless.
In
recent years, the PRC government initiated, with little advance notice, a series of regulatory actions and statements to regulate certain
types of business operations in mainland China, including cracking down on illegal activities in the securities market, enhancing supervision
over mainland China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope
of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. For example, the General Office of the Communist Party
of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities
in the securities market, requiring various governmental authorities to strengthen cross-border oversight of law-enforcement and judicial
cooperation, to enhance supervision over mainland China-based companies listed overseas, and to establish and improve the system of extraterritorial
application of the PRC securities laws. The CAC also promulgated the various data security-related measures described above under “Greater
oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange,
could adversely impact our business and our offering.” As explained above, we believe the Company and its subsidiaries are
not directly subject to the regulations and rules issued by CAC and other governmental agencies.
On
February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises
(the “New Overseas Listing Rules”) with five interpretive guidelines, which took effect on March 31, 2023. The New Overseas
Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information
under certain circumstances. The new rules provide that the determination as to whether a Chinese domestic company is indirectly offering
and listing securities on an overseas market shall be made on a substance-over-form basis, and if the issuer meets the following conditions,
the offering and listing will be deemed an indirect overseas offering and listing by a Chinese domestic company: (i) the revenue, profit,
total assets or net assets of the Chinese domestic entity constitutes more than 50% of such item in the issuer’s audited consolidated
financial statements for the most recent fiscal year; or (ii) the senior managers in charge of business operations and management of
the issuer are mostly Chinese citizens or with a regular domicile in China, the main locations of its business operations are in China,
or its main business activities are conducted in China. YYEM is headquartered in Hong Kong, and at least 50% of its executive officers
and directors are based in Hong Kong and are not Chinese citizens. Furthermore, all of its assets are located in Hong Kong and all of
its revenue and profit is generated from operations in Hong Kong. We therefore believe that YYEM is not subject to the New Overseas Listing
Rules.
On
February 24, 2023, the CSRC, the Ministry of Finance, the National Administration of State Secrets Protection, and the National Archives
Administration released the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities
Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which took effect
on March 31, 2023. PRC domestic enterprises seeking to offer securities and list in overseas markets, either directly or indirectly,
are required to establish and improve their confidentiality systems and archives work and to complete various approval and filing procedures
with competent authorities, if such PRC domestic enterprises or their overseas listing entities provide or publicly disclose documents
or materials involving state secrets and work secrets of state organs to relevant securities companies, securities service institutions,
overseas regulatory agencies, or other entities and individuals.
As
of the date of this prospectus, these new laws and guidelines have not impacted YYEM’s ability to conduct its business. YYEM is
headquartered in Hong Kong and does not have a VIE structure. YYEM is not a cyberspace operator with personal information of more than
1 million users or activities that affect or may affect the national security of China, and it does not possess documents and materials
likely to affect the national security or public interest of China. However, any change in foreign investment regulations or other policies
in China, or related enforcement actions by the PRC government, could result in a material change in YYEM’s operations and the
value of our Common Stock and could significantly limit or completely hinder our ability to offer our Common Stock to investors or cause
the value of our Common Stock to significantly decline or be worthless.
We
are subject to risks relating to economic, political, legal, and social conditions in Hong Kong.
Even
though much of YYEM’s revenue is derived from licensees outside Hong Kong, any adverse changes in the economic, political, legal,
and social conditions of Hong Kong could lead to an adverse impact on the demand for YYEM’s services and result in deteriorating
financial performance of the Company.
We
cannot assure you that there will not be any political movements or large-scale political unrest in Hong Kong that could adversely impact
the market. If such unrest or movement persists for a substantial period of time, it may lead to disruption of the general economic,
political, and social conditions in Hong Kong, and YYEM’s overall business, results of operations, and financial condition may
be adversely affected.
The
Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security
Law”) could impact YYEM’s operations in Hong Kong.
On
June 30, 2020, the Standing Committee of the PRC National People’s Congress adopted the Hong Kong National Security Law. This law
defines the duties of the government bodies responsible for safeguarding national security and specifies four categories of offences
— secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security
— and their corresponding penalties. On July 14, 2020, the U.S. President signed the Hong Kong Autonomy Act (the “HKAA”),
into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have
materially contributed to the erosion of Hong Kong’s autonomy. On August 7, 2020, the U.S. government imposed HKAA-authorized sanctions
on eleven individuals, including the then Hong Kong Chief Executive Carrie Lam and the current Hong Kong Chief Executive John Lee. On
October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under the HKAA, identifying
persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration
or the Basic Law.” The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign
financial institutions that knowingly conduct a significant transaction with a foreign person sanctioned under this authority. The imposition
of sanctions may directly affect foreign financial institutions as well as any third parties or customers dealing with any foreign financial
institution that is targeted. The ramifications of the Hong Kong National Security Law and the HKAA are still unfolding, and it is therefore
difficult to predict the full impact on Hong Kong and companies located in Hong Kong. If YYEM is accused of violating the Hong Kong National
Security Law or the HKAA by competent authorities, its business operations, financial position, and results of operations could be materially
and adversely affected.
Risks
Related to Ownership of Our Shares
Our
stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment
as a result.
You
should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant
loss and wide fluctuation in the market value of your investment. The market price of our Common Stock could be subject to significant
fluctuations in response to the factors described in this section and other factors, many of which are beyond our control. Among the
factors that could affect our stock price are:
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or anticipated variations in our quarterly and annual operating results or those of companies perceived to be similar to us; |
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in expectations as to our future financial performance, including financial estimates by securities analysts and investors, or differences
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in the market valuations of companies perceived by investors to be comparable to us; |
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public’s response to our or our competitors’ filings with the SEC or announcements regarding new products or services,
enhancements, significant contracts, acquisitions, strategic investments, litigation, restructurings, or other significant matters; |
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Speculation
about our business in the press or the investment community; |
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In
addition, the securities markets have experienced significant price and volume fluctuations that have affected and continue to affect
the market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating
performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political, and market conditions,
such as recessions, loss of investor confidence, interest rate changes, or international currency fluctuations, may negatively affect
the market price of our shares.
If
any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even
if unsuccessful, could be costly to defend and a distraction to management.
The
trading market for our common shares will be influenced by the research and reports that equity research analysts publish about us and
our business. The price of our common shares could decline if one or more securities analysts downgrade our common shares or if those
analysts issue a sell recommendation or other unfavorable commentary or cease publishing reports about us or our business. If one or
more of the analysts who elect to cover us downgrade our common shares, our share price could decline rapidly. If one or more of these
analysts cease coverage of us, we could lose visibility in the market, which in turn could cause the price and trading volume of our
Common Stock to decline.
We
do not intend to pay dividends on the shares of our Common Stock.
We
intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business and do
not anticipate paying cash dividends. Any future determination to pay dividends will be at the discretion of our Board of Directors,
subject to compliance with applicable law and any contractual provisions, and will depend on, among other factors, our results of operations,
financial condition, capital requirements, and other factors that our Board of Directors deems relevant. You should expect to receive
a return on your investment in our Common Stock only if the market price of the stock increases, which may never occur.
Our
stockholders may not be able to enforce judgments entered by U.S. courts against our officers and directors.
We
are incorporated in the State of Delaware. However, following the completion of the Acquisition, all of our directors and executive officers
will reside outside the United States. As a result, our stockholders may not be able to effect service of process upon those persons
within the United States or enforce against those persons judgments obtained in U.S. courts.
Future
sales of shares of Common Stock may result in a decrease in the market price of our Common Stock, even if our business is doing well.
The
market price of our Common Stock could decline due to sales of a large number of shares of Common Stock in the market or the perception
that such sales could occur. This could make it more difficult to raise funds through future offerings of Common Stock.
Our
Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized 1,000,000,000 shares
of Common Stock that are not issued or reserved for issuance under convertible or exchangeable instruments. In addition, we may attempt
to raise additional capital by selling shares, possibly at a deep discount to the market price. These actions may result in material
dilution of the ownership interests of existing shareholders and the book value of our Common Stock.
If
securities or industry analysts do not publish research, or they publish inaccurate or unfavorable research about our business, our stock
price and trading volume could decline.
The
trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about
us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities
or industry analysts commence coverage of our company, the trading price of our stock may be negatively impacted. In the event that securities
or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our Company
or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume
to decline.
Holders of our Common Stock
may be diluted by the future issuance of additional shares of Common Stock or preferred stock, or securities convertible into shares
of Common Stock or preferred stock, in connection with incentive plans, acquisitions or otherwise; future sales of such shares in the
public market or the expectation that such sales may occur may decrease the market price of our Common Stock.
We
could issue a significant number of shares of Common Stock post-Acquisition, for example in connection with investments or acquisitions.
We may increase the number of shares of Common Stock reserved for the Slinger Bag Inc. Global Share Incentive Plan (2020) which would
provide additional shares of Common Stock for the issuance, pursuant to the terms and subject to the conditions set forth in such plan,
of long-term incentive compensation which may take the form of options, restricted stock units or other securities. Any of these issuances
could dilute existing stockholders of the Company, and such dilution could be significant. Moreover, such dilution could have a material
adverse effect on the market price for the shares of our Common Stock. Any issuance of shares of preferred stock with voting rights may
adversely affect the voting power of the holders of shares of our Common Stock, either by diluting the voting power of our Common Stock
if the preferred stock votes together with the Common Stock as a single class, or by giving the holders of any such preferred stock the
right to block an action on which they have a separate class vote, even if the action were approved by the holders of our Common Stock.
The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms
favorable to the holders of preferred stock could adversely affect the market price for our Common Stock by making an investment in the
Common Stock less attractive. For example, investors in the Common Stock may not wish to purchase Common Stock at a price above the conversion
price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase
Common Stock at the lower conversion price, causing economic dilution to the holders of Common Stock. As of April 30, 2024, the Company
had no shares of preferred stock authorized, issued or outstanding.
USE
OF PROCEEDS
All
securities sold pursuant to this prospectus will be offered and sold by the selling stockholders. We will not receive any proceeds from
the sale of Common Stock offered by the selling stockholders. If the selling stockholders exercise their Pre-Funded Warrants in full
via a cash exercise, however, we will receive aggregate gross proceeds of approximately $315.
MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market
Information
Shares
of our Common Stock are listed on Capital Market under the symbol “YYAI”. The last reported sales price of the shares of
Common Stock on the Nasdaq Capital Market on August 21, 2024 was $7.63.
Holders
As
of August 9, 2024, we had approximately 520 holders of the Common Stock.
Dividends
We
have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable
future. We currently expect to retain future earnings, if any, to finance the growth and development of our business. Any future determination
to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a
number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general
business conditions, and other factors that our board of directors may deem relevant.
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 prospectus. Certain statements in this discussion and elsewhere in this report constitute
forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” elsewhere in this prospectus.
Because this discussion involves risks and uncertainties, our actual results may differ materially from those anticipated in these forward-looking
statements.
Since we expected the Acquisition will
close before the Commission declares effective the registration statement of which this prospectus forms a part, we have included a separate
discussion of YYEM’s financial condition and results of operations for the period ended April 30, 2024.
Overview
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 2,500 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 2,500 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 2,500 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.
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”), which was formed on April 3, 2019. On February 10, 2021, Zehava Tepler, the owner of SBL,
contributed Slinger Bag UK to Slinger Bag Americas for no consideration.
Effective
February 25, 2020, the Company increased the number of authorized shares of common stock from 75,000,000 to 300,000,000 via a four-to-one
forward split of its outstanding shares of common. All share and per share information contained in this report have been retroactively
adjusted to reflect the impact of the stock split. Effective June 27, 2024, the Company increased the number of authorized shares of
common stock from 300,000,000 to 1,000,000,000.
On
June 21, 2021, Slinger Bag Americas entered into a membership interest purchase agreement with Charles Ruddy to acquire a 100% ownership
stake in Foundation Sports Systems, LLC (“Foundation Sports”).
On
February 2, 2022, the Company entered into a share purchase agreement with Flixsense Pty, Ltd. (“Gameface”). As a result
of the share purchase agreement, Gameface became a wholly owned subsidiary of the Company.
On
February 22, 2022, the Company entered into a merger agreement with PlaySight Interactive Ltd. (“PlaySight”) and Rohit Krishnan
(the “Shareholders’ Representative”). As a result of the merger agreement, PlaySight would become a wholly owned subsidiary
of the Company.
During
April 2022, the Company determined that the technology utilized in the Foundation Sports acquired entity would take substantially more
financial resources and more time to bring to market and achieve profitability than originally anticipated. As a result, the goodwill
and intangible assets related to Foundation Sports were fully impaired as of April 30, 2022, resulting in an impairment loss of $3,486,599.
In addition, during April 2022 the Company decided to sell a portion of Foundation Sports. The Company continued to classify Foundation
Sports in continuing operations, until December 5, 2022 when it sold 75% of Foundation Sports back to the original owners at which time
it deconsolidated this subsidiary and recorded a loss on the sale. The Company also determined to dispose of the PlaySight entity during
the year ended April 30, 2023. The Company completed the sale in November 2022 and recorded a loss on the sale at that time.
In
April 2022, the Company changed its domicile from Nevada to Delaware. On April 7, 2022, the Company effected a name change to Connexa
Sports Technologies Inc. We also changed our ticker symbol, “CNXA”. Connexa is now the holding company under which Slinger
Bag and Gameface reside.
The
operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred
to as the “Company.”
On
June 14, 2022, the Company effected a 1-for-10 reverse stock split, where the Company’s common stock began to trade on a reverse
split adjusted basis. No fractional shares were issued in connection with the reverse stock split and all such fractional interests were
rounded up to the nearest whole number of shares of common stock. All references to the outstanding stock have been retrospectively adjusted
to reflect this reverse split. The Company also consummated a public offering of shares of its common stock and the listing of its common
stock on the Nasdaq Capital Market.
On
November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the Board of Directors of the Company. Gabriel and Rohit were members
of the audit and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee.
Neither Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies
or practices.
On
November 27, 2022, the Company entered into a share purchase agreement (the “PlaySight Agreement”) with PlaySight, Chen Shachar
and Evgeni Khazanov (together, the “Buyer”) pursuant to which the Buyer purchased 100% of the issued and outstanding shares
of PlaySight from the Company in exchange for (1) releasing the Company from all of PlaySight’s obligations towards its vendors,
employees, tax authorities and any other (past, current and future) creditors of PlaySight; (2) waiver by the Buyer of 100% of the personal
consideration owed to them under their employment agreements in the total amount of U.S. $600,000 (which would have been increased in
December 2022 to U.S. $800,000); and (3) cash consideration of U.S. $2 million to be paid to the Company as follows:
(i) |
a
promissory note in the amount of U.S. $2 million issued and delivered to the Company (the “Promissory Note”). |
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The
maturity due date of the Promissory Note is December 31, 2023 subject to a one year extension in the discretion of the Buyer until
December 31, 2024. The Buyer timely elected to extend the maturity date of the Promissory Note to December 31, 2024. |
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The
Promissory Note can be partially paid over the time, but in the event it is not paid in full by December 31, 2024, then the remaining
amount due (i.e. U.S. $2 million less any amount paid), will be converted into ordinary shares of PlaySight (the “Deposited
Shares”), which will be deposited with the escrow company of Altshuler Shaham Trust Ltd. (the “Escrow Agent”) for
the benefit of the Company or, at the election of the Company, issued in the form of a stock certificate or recorded in some other
market-standard format to be held by the Escrow Agent. |
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The
number of the Deposited Shares shall be determined according to the post-money valuation of the last investment round of the Company,
and in the absence of such investment round, the total number of the Deposited Shares shall be $2 million divided by the Company’s
valuation to be determined at that time by a third-party appraiser, to be nominated by both the Company and the Buyer (the “Appraiser”).
The Company and the Buyer have agreed that the identity of the Appraiser shall be Murray Devine Valuation Advisers, to the extent
their cost of the appraisal shall not be higher than the cost of other appraisers from the big 4 accounting firms (i.e. E&Y,
KPMG, PWC and Deloitte). The Company and the Buyer have agreed to split the cost of the Appraiser. |
The
Company has also released PlaySight from all of its obligations (except for those created by the PlaySight Agreement) in respect of the
Company, including any inter-company debts on the books, and the Buyer has released the Company from all of its obligations (except for
those created by the PlaySight Agreement) in respect of PlaySight and the Buyer.
The
reason for the entry into the PlaySight Agreement and the transactions contemplated thereby was to eliminate the need for the Company
to provide further financing for PlaySight’s operations.
On
December 5, 2022, the Company assigned 75% of its membership interest in Foundation Sports to Charles Ruddy, its founder and granted
him the right for a period of three years to purchase the remaining 25% of its Foundation Sports membership interests for $500,000 in
cash. As of December 5, 2022, the results of Foundation Sports will no longer be consolidated in the Company’s financial statements,
and the investment was accounted for as an equity method investment. On December 5, 2022, the Company analyzed this investment and established
a reserve for the investment at the full amount of $500,000. The Company intends to enter into a database access and marketing agreement
with Foundation Sports pursuant to which Foundation Sports will (i) provide the Company with sporting or racquet facility information
and contact data of its customers (subject to applicable law) and (ii) publish any promotional content, call to action, survey or similar
promotional communications provided by the Company to Foundation Sport’s customers for its Customers to promote said material to
their extended network of consumers in exchange for 7% of any gross revenue to be generated from such activities.
On
March 7, 2023, Slinger Bag entered into an exclusive distribution agreement for Padel Tennis with a company located in Valencia, Spain
called with Desarrollo y Promocion de Padel S.L. This agreement is contracted to deliver approximately $15 million in revenue by the
end of 2028.
On
November 16, 2023, the Company entered into an agreement with Agile Capital Funding (the “ACF Agreement”) pursuant to which
the Company sold $693,500 in future receivables to ACF (the “ACF Receivable Amount”) in exchange for $450,000 in cash. The
Company agreed to pay ACF $28,895.83 each week until the ACF Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF
a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur,
assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
As
previously disclosed on the Current Report on Form 8-K furnished with the SEC on September 9, 2020, the Company entered into a service
agreement dated September 7, 2020 (the “YK Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation
officer and member of the Company’s board of directors. Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement,
the Company owes Mr. Kalfa $1,137 in salary (the “Salary Compensation”) through January 31, 2024 to Mr. Kalfa.
The
Company was unable to pay Mr. Kalfa any of the compensation in cash and, given Mr. Kalfa’s extraordinary contribution to the Company,
pursuant to Section 2.1(b) of the YK Employment Agreement, on January 20, 2024 the Company agreed to pay $1 million of the $1.137 million
owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance of shares of Common Stock as memorialized by
that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20, 2024 (the “2024 Agreement”). The 2024
Agreement sets forth the price per share of the shares to be issued (267,380), the number of shares to be issued using that price ($3.74),
and the amount due to Mr. Kalfa through January 31, 2024.
Due
to administrative delays, the Company did not issue the shares in January. Rather, on March 15, 2024, the Company issued 220,265 shares
of Common Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price
of the Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024).
No
shareholder approval was required for the issuance of the 220,265 shares because it was less than 20% of the number of the Company’s
outstanding shares of Common Stock as of March 14, 2024 and was issued at a price per share ($4.54) above the Minimum Price as defined
under Nasdaq Listing Rule 5635(d).
The
Company sought and obtained shareholder approval, pursuant to Nasdaq Listing Rule 5635(c), to issue the balance of 47,115 shares (267,380
minus 220,265) to Mr. Kalfa.
The
Shares were issued on May 24, 2024 without registration under the Securities Act of 1933, as amended (the “Securities Act”),
in reliance on the exemption provided by Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.
On
January 20, 2024, the Company agreed to issue to Mike Ballardie, the Company’s chairman of the board and chief executive officer,
warrants to purchase 317,514 shares of common stock (the “MB Warrants”) at an exercise price of $0.02 per share and with
a term of 10-years as compensation for his extraordinary contribution to the company, in exchange for Mr. Ballardie’s waiver of
his right to receive any bonus payments as described in clause 2.2 of his service agreement with Slinger Bag International (UK) Limited
dated 1 November 2020 (the “Service Agreement”) to which he would otherwise be entitled to receive through January 31, 2024.
Acquisition
and Recent Transactions
On
March 18, 2024, the Company entered into the Purchase Agreement and the Exchange Agreement to acquire a total of 70% of the issued and
outstanding ordinary shares of YYEM from the YYEM Seller, for a combined $56 million. The consummation of the transactions contemplated
in the Agreements will result in a change in control of the Company as the shareholders of YYEM will become the owners 82.4% of the issued
and outstanding shares of the Common Stock”. As part of this transaction, as further described below under “The Separation
Agreement”, the Company has agreed to sell its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity
to be owned by Yonah Kalfa and Mike Ballardie.
The
Acquisition Structure
Pursuant
to the Purchase Agreement, the Company agreed to purchase, and the Seller agreed to sell, 2,000 ordinary shares of YYEM, representing
20% of the issued and outstanding ordinary shares of YYEM, for the purchase price of $16,500,000 (the “Share Purchase Consideration”),
payable in cash (the “Share Purchase Transaction”). The Share Purchase Transaction closed on March 20, 2024.
Pursuant
to the Exchange Agreement, the Company has agreed to purchase, and the Seller has agreed to sell, 5,000 ordinary shares of YYEM, representing
50% of the issued and outstanding ordinary shares of YYEM, for 8,127,572 newly issued shares of Common Stock to the Seller (the “Share
Exchange Transaction,” and together with the Share Purchase Transaction, the “Transactions”). The shares are expected
to represent 82.4% of the issued and outstanding shares of Common Stock as of the date of the closing of the Share Exchange Transaction
(the “Share Exchange Consideration”).
The
Exchange Shares will be issued without registration under the Securities Act, in reliance upon a safe harbor for offshore transactions
or an exemption from registration for transactions not involving a public offering and, as such, will constitute “restricted securities”
within the meaning of Rule 144 under the Securities Act. Under Rule 144, the Exchange Shares generally may not be offered or sold publicly
unless they have been held for at least six months and subject to other conditions.
Separation
Agreement
In
connection with the Exchange Transaction, the Company has agreed that at or prior to the closing date of the Acquisition (the “Closing
Date”), it will enter into a separation agreement to sell, transfer and assign all or substantially all of its legacy business,
assets and liabilities related to or necessary for the operations of its “Slinger Bag” business or products (the “Legacy
Business”) to a newly established entity (“NewCo”), and that after the Closing Date, NewCo will have the sole right
to and obligations of the Legacy Business and will be liable to the Company for any losses arising from third-party claims against the
Company that arise from liabilities related to the Legacy Business (the “Separation”). NewCo will be owned by Yonah Kalfa
and Mike Ballardie.
On
a pro forma basis, as of April 30, 2024, the Legacy Business’ assets were approximately $5.2 million (which represents the assets
of the Company as of January 31, 2024, minus, on a pro forma basis, the $16.5 million used for the purchase of 20% ownership of YYEM
in April 2024), and the liabilities of the Legacy Business were $12.0 million (which represents the liabilities of the Company as of
April 30, 2024).
Financial
Accommodations
As
an inducement to the Company to complete the Transactions, the Agreements provide that aggregate payments of (a) $4,500,000 shall be
made to the Company in cash by YYEM and (b) $500,000 shall be made to NewCo (as defined under the header “The Separation Agreement”)
in cash by YYEM, as follows: (i) $800,000 payable within two (2) business days of the date of the Agreements; (ii) $1,200,000 payable
within three (3) business days of the Company changing its ticker symbol from “CNXA” to “YYAI,” or such other
symbol as the parties may agree; (iii) $2,000,000 payable at the Closing and (iv) $500,000 to be paid within 30 days from the Closing
Date and paid to NewCo. Out of the $4,500,000, the Company paid $2,142,857 to certain companies for arranging the Transactions.
Management
following the Acquisition
At
or after the Closing, the Board of Directors shall comprise those individuals designated by YYEM Seller, and all current members of the
Board of Directors shall resign with such resignation being effective on the later of the Closing or the appointment or election of the
new directors.
Closing
Conditions
The
Share Exchange, as amended, provides that:
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on
or before the Closing Date, the Company shall obtain approval from holders of shares of Common Stock for the Share Exchange Transaction
and other matters related to the Share Exchange Transaction. Such stockholder approval was received on May 15, 2024; |
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on
or before the Closing Date, the Company shall obtain approval from Nasdaq for the Reverse Stock Split of the Common Stock at a ratio
to be determined by the parties; |
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as
a condition to Closing, from the date of the Exchange Agreement through the Closing Date, the existing shares of Common Stock shall
have been continually listed on Nasdaq, and the Company shall have not received a determination from Nasdaq indicating that the Common
Stock will be delisted from Nasdaq; and |
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the
Company and YYEM shall cooperate to effectuate a reverse stock split, obtain approval from Nasdaq of a new listing application to
be submitted to Nasdaq in connection with the Share Exchange Transaction, and provide such information as is necessary for the Company
to obtain shareholder approval of the Share Exchange Transaction and other matters relating thereto. The shareholder approval was
obtained on May 15, 2024, and a new listing application was submitted to Nasdaq in May 2024, which is currently under review by Nasdaq. |
We
cannot provide assurance as to when, or if, all of the closing conditions will be satisfied or waived by the relevant party. As of the
date of this prospectus, we have no reason to believe that any of the conditions will not be satisfied.
Closing
Deliverables
At
the Closing, the Company shall deliver to YYEM Seller the following:
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copies
of all resolutions of the Board of Directors authorizing the execution, delivery, and performance of the Exchange Agreement and the
other agreements, instruments, and documents required to be delivered in connection with the Exchange Agreement or at the Closing
to which the Company is a party and the consummation of the transactions contemplated hereby and thereby; |
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the
Exchange Shares; |
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all
documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of
the conditions under Section 6.01 and Section 6.03 of the Exchange Agreement that are relevant to the Company; |
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a
duly executed bought and sold note, as applicable; and |
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all
other documents, instruments and writings which may be reasonably requested by YYEM Seller to be delivered by the Company at or prior
to the Closing pursuant to the Exchange Agreement. |
At
the Closing, YYEM Seller shall deliver to the Company the following:
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payment
of the Closing Cash Payment (as defined in the Exchange Agreement); |
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a
good standing certificate (or its equivalent) for YYEM from the relevant governmental authority of Hong Kong, if applicable, and
each other jurisdiction where YYEM is qualified, registered, or authorized to do business, if any; |
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if
the YYEM shares are represented by certificates, such certificates duly endorsed for transfer by YYEM Seller, as applicable; |
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a
counterpart to any consents required in connection with the transactions contemplated by the Exchange Agreement; |
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all
documents, instruments, agreements and certificates that may be deliverable in connection with the performance or fulfillment of
the conditions under Section 6.01 and Section 6.02 of the Exchange Agreement that are relevant to YYEM Seller; |
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a
duly executed bought and sold note as may be required under the law of Hong Kong; and |
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all
other documents, instruments and writings which may be reasonably requested by YYEM Buyer to be delivered by YYEM Seller and YYEM
at or prior to the Closing pursuant to the Exchange Agreement. |
Termination
The
Exchange Agreement may be terminated by mutual written consent of the Company and the YYEM Seller at any time before the Closing or by
either the Company or the YYEM Seller at any time before the Closing if the Share Exchange Transaction has not been consummated by the
date that is 180 days from the date of the Exchange Agreement (the “Termination Date”) or if any party breaches the Exchange
Agreement with respect to the closing conditions and such breaches cannot be cured by the Termination Date. If the Exchange Agreement
is terminated by the Company unilaterally and of its own volition other than due to the aforementioned termination conditions, the Company
shall be liable for a termination fee in the amount of three times the fees and costs incurred by the YYEM Seller in connection with
the Share Exchange Transaction up to a maximum amount in the aggregate of $600,000, with certain exceptions, including, but not limited
to lack of SEC or Nasdaq approval of the Share Exchange Transaction or lack of approval from holders of shares of Common Stock.
Meged
Agreements
On
June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which
the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment
to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables
Purchased Amount is paid in full.
On
September 19, 2023, the Company entered into an agreement with Meged (the “Second Meged Agreement”) pursuant to which the
Company sold $423,000 in future receivables to Meged (the “Meged Second Receivable Amount”) in exchange for paying the then
outstanding balance of $70,153 of the Meged Receivables Purchased Amount in full with the balance being retained by the Company in cash
for general purposes. The Company agreed to pay Meged $15,107 each week until the Meged Second Receivable Amount was paid in full.
In
order to secure payment and performance of the Company’s obligations to Meged under the Second Meged Agreement, the Company granted
to Meged a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform
Commercial Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on
or with respect to any of such collateral.
UFS
Agreement
On
August 7, 2023, the Company entered into an agreement with UFS (the “UFS Agreement No.1”) pursuant to which the Company sold
$797,500 in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company
of $550,000 in cash less fees of $50,000. The Company agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased
Amount was paid in full.
In
order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement No.1, the Company granted to
UFS a security interest in all accounts receivable and all proceeds therefrom as such term is defined by Article 9 of the Uniform Commercial
Code (UCC). The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect
to any of such collateral.
Special
Meeting of Stockholders
On
September 13, 2023 the Company held a special meeting of stockholders in which the following items were approved: (i) the issuance of
(i) 1,274 shares of the our common stock, par value $0.001 per share, that were issued on October 3, 2023, and, (ii) 14,753 shares of
our common stock issuable upon exercise of Pre-Funded Warrants at an exercise price of $0.00002 per share, (iii) 16,026 shares of common
stock issuable upon the exercise of 5-Year Warrants at an exercise price of $312 per share, (iv) 32,052 shares of common stock issuable
upon the exercise of 7.5 Year Warrants at an exercise price of $344 per share and (v) 22,625 shares of our common stock issuable upon
the exercise of 5.5 Year Warrants at an at an exercise price per share equal to $1,768per share to Armistice Capital Master Fund Ltd
and (ii) a reverse stock split of our common stock within a range of 1-for-10 to 1-for-40 (“Reverse Stock Split”), with the
Board of Directors of the Company to set the specific ratio and determine the date for the reverse split to be effective and any other
action deemed necessary to effectuate the Reverse Stock Split, without further approval or authorization of stockholders, at any time
within 12 months of the special meeting date.
On
September 25, 2023, as a result of the shareholder approval obtained at the special meeting of stockholders on September 13, 2023 and
the Reverse Stock Split, the aggregate number of Pre-Funded Warrants, 5-Year Warrants, 5.5-Year Warrants and 7-Year Warrants increased
from 85,455 to 471,348 due to certain adjustments that were required to be made by the terms of the relevant warrants in the event of
receipt of shareholder approval and the occurrence of the Reverse Stock Split.
Armistice
Transactions from September 2023 to April 2024
From
September 18, 2023 through April 30, 2024, the Company issued Armistice 9478,709 shares of Common Stock related to the exercise of the
pre-funded warrants.
On
October 11, 2023, the Company, the Lenders and the Agent (as defined in the LSA) entered into a loan and security modification agreement
to allow for an additional loan of $1,000,000 pursuant to the loan and security modification agreement. In addition, on October 11, 2023,
the Company agreed to issue warrants to purchase up to 8,460 shares of Common Stock at an exercise price of $138 per share (the “October
Warrants”).
On
December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice
with regard to certain of the Company’s existing warrants to purchase up to a total of 248,611 shares of Common Stock, consisting
of: (i) 70,508 shares of Common Stock issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of
$35.46 per share with a term of five year (the “September 2022 Five Year Warrants”); (ii) 155,479 shares of Common Stock
issuable upon the exercise of warrants issued on September 28, 2022 each at an exercise price of $70.92 per share with a term of seven
and one half years (the “September 2022 Seven and a Half Year Warrants”); and (iii) 22,625 shares of Common Stock issuable
upon the exercise of warrants issued on January 6, 2023 (the “January 2023 Warrants” and, together with the September 2022
Five Year Warrants and the September 2022 Seven and a Half Year Warrants, the “2022 and 2023 Warrants”).
Pursuant
to the Inducement Letter, Armistice agreed to exercise for cash the 2022 and 2023 Warrants to purchase an aggregate of 248,611 shares
of Common Stock at a reduced exercise price of $5.88 per share in consideration of the Company’s agreement to issue common stock
purchase warrants to purchase up to an aggregate of 497,221 shares of Common Stock (the “December Warrants”). The Company
received aggregate gross proceeds of $1,461,827.68 from the exercise of the 2022 and 2023 Warrants by the Holder, before deducting offering
expenses payable by it. The transaction closed on December 7, 2023.
The
resale of the shares of the Common Stock underlying the 2022 and 2023 Warrants and 224,472 shares of Common Stock owned by Sapir LLC,
a consultant engaged by the Company were registered pursuant to an existing registration statement on Form S-1 (File No. 333-275407),
declared effective by the Securities and Exchange Commission (the “SEC”) on December 4, 2023.
As
of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds
of $3 million from the Lenders.
On
February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant Amendment and Second Loan and Security Modification
Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to waive certain events of default with regard
to certain covenants and obligations the Company had pursuant to (a) that certain registration rights agreement between the Company and
the Lenders and the Agent entered into in September 2022, (b) the LSA (as modified), and (c) the Inducement Letter.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed to modify the Loan and Security
Agreement such that the Note is now convertible into up to 499,584 shares of Common Stock based on the agreed to conversion price of
$6.40. The Company believed that the $6.40 conversion price meets the definition of “Minimum Price” in Nasdaq Listing Rule
5635(d).
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to use their reasonable best efforts to voluntarily
convert all amounts owed under the Note on or prior to the last trading day before the trading day on which the next meeting of the Company’s
shareholders would take place.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that following shareholder approval,
which the Company obtained on May 15, 2024, the October Warrants and December Warrants have been amended to lower the exercise price
of such warrants to $3.20 per share.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company agreed that Slinger Bag Americas Inc., a Delaware subsidiary of the
Company (“Slinger”) would, within ten (10) business days of the six month anniversary of the effectiveness of the registration
statement on Form S-1 registering the shares of Common Stock issuable pursuant to the conversion of the Note (the “Effectiveness
Date”), pay in cash to the Lenders and the Agent the difference, if any, between (i) $6 million (the “Guaranteed Amount”)
and (ii) the combined gross proceeds realized by the Lenders and the Agent from its sale of the shares of Common Stock issued pursuant
to (a) conversions of the Note and (b) exercises of the October Warrants and December Warrants(the “Realized Amount”). Slinger
is obligated to fund an escrow account with $2 million within ten (10) weeks of February 21, 2024. The Company and the Lenders and the
Agent also agreed that if, due to a Force Majeure Event, the Lenders and the Agent had not fully converted the Note prior to the six-month
anniversary of the Effectiveness Date, the Company would repurchase the Note and the October Warrants and December Warrants by paying
in cash to the Lenders and the Agent the difference, if any, between the Guaranteed Amount and the Realized Amount.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent agreed that once the Note was fully repaid
(either via a combination of cash payments and conversions into shares of Common Stock or just via conversions into shares of Common
Stock) all liens and security interests of the Lenders and the Agent in any and all of the property of the Company and the Guarantors
(as defined in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation,
any liens and security interests evidenced by Uniform Commercial Code financing statements.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company agreed to prepare and file a registration statement on Form S-1 registering
the shares of Common Stock issuable pursuant to the conversion of the Note with the SEC within five (5) business days of February 21,
2024 and use commercially reasonable best efforts to cause such registration statement to be declared effective by the SEC as soon as
practical thereafter and, in any event, within thirty (30) calendar days of February 21, 2024. A registration statement was filed and
became effective on March 1, 2024 in compliance with this obligation.
On
April 15, 2024, the Company acknowledged and agreed to the entrance into a warrant purchase agreement (the “Morgan WPA”)
by Armistice and Morgan Capital LLC (“Morgan”) pursuant to which Armistice sold the October and December 2023 Warrants to
Morgan for $2,500,000 in cash. Pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to, within 10
Business Days of the six month anniversary of the Waiver, Amendment, and Modification Agreement, pay in cash to Armistice the difference,
if any, between (i) $6 million and (ii) the combined gross proceeds to be realized by the Holder from its sale of the Company’s
common stock issued pursuant to (a) conversions of the note (which as of the date hereof has been fully converted into shares of the
Company’s common stock) and (b) exercises of the Warrants would be terminated and of no further effect and force. In addition,
pursuant to the Morgan WPA, Armistice agreed that the obligation of Slinger Bag Americas to maintain an escrow account with its counsel
in the amount of no less than $2,000,000 would be terminated and of no further effect and force. Armistice further agreed that any and
all liens and security interests of Armistice in any and all of the property of the Company and the Guarantors (as such terms are defined
in the Waiver, Amendment, and Modification Agreement) would be automatically released and terminated, including without limitation, any
liens and security interests evidenced by Uniform Commercial Code financing statements.
Amendment
to Bylaws
On
October 12, 2023, the Board of Directors of the Company approved an amendment to the Bylaws of the Company to reduce the percentage of
shares of stock, issued and outstanding and entitled to vote, to be present in person or represented by proxy in order to constitute
a quorum for the transaction of any business from a majority to thirty-three and one third percent (33 1/3%).
Share
Issuance to Sapir
On
November 14, 2023, the Company issued 11,224 shares of Common Stock to Sapir LLC. Sapir LLC is controlled by Aitan Zacharin, an investor
relations and financial structuring consultant to the Company who is a party to an amended and restated consulting agreement with the
Company dated April 30, 2020 (the “AZ Consulting Agreement”). Pursuant to the AZ Consulting Agreement, the Company owed Mr.
Zacharin $127,500 as consulting fee compensation through November 30, 2023 (the “Consulting Fee Compensation”). In addition,
the Company granted Mr. Zacharin $127,500 as discretionary compensation (“Discretionary Compensation”) pursuant to Section
2.1(d) of the AZ Consulting Agreement. In consideration of the Consulting Fee Compensation and the Discretionary Compensation, the issuance
of shares of Common Stock consisted of (i) 8,017 shares of Common Stock as payment of the Consulting Fee Compensation, and (ii) 3,207
shares of Common Stock as payment of the Discretionary Compensation.
Nasdaq
Compliance
On
January 30, 2024, the Company received a letter from the staff of the Nasdaq Stock Market confirming that following the receipt of a
an investment of $16.5 million as disclosed in the Company’s current report filed on Form 8-K on January 24, 2024 (i) the Company
has regained compliance with the minimum shareholder equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”), as
required by the Nasdaq Hearing Panel’s (“Panel”) decision dated April 12, 2023, as amended, and (ii) in application
of Listing Rule 5815(d)(4)(B), the Company will be subject to a mandatory panel monitor for a period of one year from the date of such
letter. If, within that one-year monitoring period, the Nasdaq Listing Qualifications staff (the “Staff”) finds that the
Company is no longer in compliance with the Equity Rule, then, notwithstanding Rule 5810(c)(2), the Company will not be permitted to
provide Staff with a plan of compliance with respect to such deficiency and the Staff will not be permitted to grant additional time
for the Company to regain compliance with respect to such deficiency, nor will the Company be afforded an applicable cure or compliance
period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity
to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. The Company will
have the opportunity to respond/present to the Hearings Panel as provided by Listing Rule 5815(d)(4)(C) and the Company’s securities
may at that time be delisted from Nasdaq.
In
application of Listing Rule 5815(d)(4)(B), the Company is also subject to a mandatory panel monitor in respect of its periodic filing
requirements in Listing Rule 5250(c)(1) (the “Periodic Filing Rule”) for a period of one year from October 11, 2023. If,
within that one-year monitoring period, the Staff finds the Company again out of compliance with the Periodic Filing Rule, notwithstanding
Rule 5810(c)(2), the Company will not be permitted to provide Staff with a plan of compliance with respect to that deficiency and Staff
will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the company
be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, Staff will issue a Delist Determination Letter
and the Company will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial
Panel is unavailable. The Company will have the opportunity to respond/present to the hearing panel as provided by Listing Rule 5815(d)(4)(C)
and the Company’s securities may at that time be delisted from Nasdaq.
On
December 12, 2023, the Company received a letter from Nasdaq informing the Company that because, for 30 consecutive trading days, the
bid price of the Common Stock had closed below the minimum of $1.00 per share, it was not in compliance with the minimum bid price requirement
for continued listing as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Nasdaq notice
indicated that, in accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company would be provided 180 calendar days, or until June
10, 2024, to regain compliance. On June 11, 2024, the Company was notified by Nasdaq that its securities were subject to delisting because
the Company had not regained compliance with the rule within the prescribed time period but the Company could appeal the delisting determination
and request a hearing before a new Nasdaq Hearings Panel. The Company’s request for a new panel was timely made and a hearing was
scheduled for July 23, 2024, and any further suspension or delisting action was stayed. On July 18, 2024, Nasdaq informed us that the
Company had regained compliance with the Minimum Bid Price Requirement. Consequently, the scheduled hearing before the new panel on July
23, 2024 was canceled.
On
May 1, 2024, the Company received a letter from the Nasdaq indicating that, due to the Company’s failure, in violation of Listing
Rules 5620(a) and 5810(c)(2)G), to hold an annual meeting of shareholders within twelve months of the end of the Company’s fiscal
year end of April 30, 2023, it no longer complies with the Nasdaq’s Listing Rules for continued listing. On May 17, 2024, Nasdaq
notified the Company that based on the Company’s current report on Form 8-K filed on May 17, 2024, the Company’s proxy distributed
on May 2, 2024, and the annual meeting of the stockholders held on May 15, 2024, it has regained compliance with the Nasdaq Listing Rules
for continued listing.
The
January 2024 Offering
On
January 19, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with three
investors (the “January 2024 Investors”) for the issuance and sale to each investor of (i) 116,510 shares of Common Stock
and (ii) the Pre-Funded Warrants to purchase an aggregate of 1,258,490 shares of Common Stock at a combined purchase price of $0.40 per
share of Common Stock for an aggregate amount of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002
per share of Common Stock and are exercisable beginning on May 15, 2024, the date stockholder approval was received and effective, allowing
exercisability of Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised in full. The aggregate number of
Shares issued to the January 2024 Investors is 349,530 and the aggregate number of Pre-Funded Warrants is 3,775,470.
From
April 2024 through May 2024, the Company acknowledged and agreed to the entrance into certain warrant purchase agreements (the “WPAs”)
by the January 2024 Investors and 10 purchasers (the “Pre-Funded Warrants Purchasers”) pursuant to which the January 2024
Investors sold all of the 3,775,470 Pre-Funded Warrants to Pre-Funded Warrants Purchasers for an aggregate amount of $18,877,350 in cash.
Share
Issuance to Smartsports
On
January 23, 2024, the Company issued 10,000 shares of Common Stock to Smartsports LLC. Smartsports LLC is an investor relations consultant
to the Company who is a party to a consulting agreement with the Company dated January 23, 2024 (the “Smartsports Consulting Agreement”).
Pursuant to the Smartsports Consulting Agreement, the Company agreed to issue and deliver to Smartsports LLC 10,000 shares of Common
Stock as a consulting fee for the provision of investor relations services (the “Consulting Fee Compensation”) and use its
commercially reasonable efforts to prepare and file with the Securities Exchange Commission a registration statement covering the resale
of all of the shares on Form S-1 as soon as is reasonably practicable.
Agile
Capital LLC Agreement
On
January 10, 2024, the Company entered into an agreement with Agile Capital Funding, LLC (the “Agile Jan Agreement”) pursuant
to which the Company sold $1,460,000 in future receivables to Agile Capital Funding, LLC (the “Agile Jan Receivable Amount”)
in exchange for $1,000,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“Agile”) $52,142.86 each week until
the Agile Receivable Amount is paid in full. In order to secure payment and performance of the Company’s obligations to Agile under
the Agile Jan Agreement, the Company granted to Agile a security interest in all present and future accounts receivable. The Company
also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
The proceeds from the sale of future receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as
defined below).
Cedar
Advance Agreement No. 1
On
January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which
the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000
in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid
in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company
granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed
not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Unique
Funding Solutions Agreement
On
March 6, 2024, the Company entered into an agreement (the “UFS Agreement No.2”) with Unique Funding Solutions (“UFS”)
pursuant to which the Company sold $323,350 in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000
in cash. The Company agreed to pay UFS $9,798.49 each week until the UFS Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement No.2, the Company granted to
UFS a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or permit
to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar
Advance Agreement No. 2
On
April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company
sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The
Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted
to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or
permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar
Advance Agreement No. 3
On
April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company
sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The
Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted
to Cedar a security interest in all present and future accounts receivable. The Company also agreed not to create, incur, assume, or
permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Operations
The
Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Launcher, which is comprised
of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing
AI technology and performance analytics.
From
inception to date, we have been focused on the ball sport market globally. Our first product, the Slinger Bag Launcher, is a patented,
highly portable, versatile and affordable ball launcher built into an easy to transport wheeled trolley bag.
Tennis
ball machines have been around since the 1950’s when they were introduced by Rene 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 generally expensive - often well above U.S. $1,000 compared
to the entry price of $700 for a Slinger Bag Launcher. We believe that up until the introduction of the Slinger Bag Launcher, the majority
of traditional tennis ball machines were sold to tennis facilities, institutions and tennis teachers, with only a few being sold directly
to tennis playing consumers.
Recent
Events
On
May 15, 2024, the Company held its 2024 annual general meeting of stockholders at which the following items were approved:
1. |
The
nominations of Mike Ballardie, Yonah Kalfa, Kirk Taylor, Stephen Crummey, and Rodney Rapson for election as directors at the Annual
Meeting until the 2025 annual meeting of stockholders and until their respective successors are duly elected and qualified. |
2. |
The
appointment of Olayinka Oyebola & Co. to continue as our independent registered public accounting firm for the fiscal year ended
April 30, 2024. |
3. |
The
approval of the issuance of shares of our common stock pursuant to that certain Share Exchange Agreement dated March 18, 2024 (the
“Exchange Agreement”) among the Company, Mr. Hongyu Zhou (the “YYEM Seller”), and Yuanyu Enterprise Management
Co., Limited (“YYEM”), in exchange for 50% of the issued and outstanding ordinary shares of YYEM. The Exchange Agreement
is a part of a transaction between the Company, YYEM Seller, and YYEM, whereby the Company agreed to purchase a total of 70% of the
issued and outstanding ordinary shares of YYEM by entering into a share purchase agreement (the “Purchase Agreement”)
and the Exchange Agreement as described in the Company’s Schedule 14A filed on May 2, 2024. Upon the closing of the Acquisition,
YYEM Seller will be issued the number of Exchange Shares equal to 82.4% of the Company’s issued and outstanding shares of common
stock immediately following the closing of the Acquisition, and Connexa stockholders as of immediately prior to the closing of the
Acquisition will retain the balance of approximately 17.6% of such outstanding shares. |
4. |
The
amendment to the Company’s certificate of incorporation to increase the authorized shares of its common stock from 300,000,000
shares to 1,000,000,000 shares. |
5. |
The
approval of an amendment to the Company’s certificate of incorporation to authorize a reverse stock split of its common stock
within a range of 1-for-10 to 1-for-100, with the Board of Directors of the Company to set the specific ratio and determine the date
for the Reverse Stock Split to be effective. |
6. |
The
approval of the separation of the Company’s “Slinger Bag” business and products and the transactions contemplated
by the separation agreement related to the transaction contemplated by the Exchange Agreement (the “Share Exchange Transaction”).
Once the Share Exchange Transaction is closed, the current board of directors of the Company will resign and will appoint YYEM’s
slate of directors to the board, which will effect of a change of control of the Company, and the current business of the Company,
including its liabilities, will be spun off and sold to a company to be owned and controlled by Yonah Kalfa, the founder of the Slinger
Bag business and an officer and director of the company, and Mike Ballardie, the Company’s current chief executive officer
and director. The Company’s current shareholders will not have a participation in the Slinger Bag business from the date of
the closing of the Share Exchange Transaction and onward. |
7. |
The
approval of the amendment to the exercise price of the Warrants held by Morgan Capital LLC to $3.20 per share. |
8. |
The
approval of the issuance of shares of Common Stock to certain investors party to the Company’s securities purchase agreements
entered into in January 2024 when the Company received an investment of $16,500,000 in cash in exchange for the issuance and sale
to each Investor of (i) 116,510 shares of the Company’s common stock (the “Common Stock Shares”) and (ii) pre-funded
warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 1,258,490 shares of the Company’s common stock
(the “Pre-Funded Warrant Shares”) at a combined purchase price of $4 per share of our common stock for an aggregate amount
of approximately $16.5 million. The Pre-Funded Warrants have an exercise price of $0.0002 per share of Common Stock and became exercisable
on May 15, 2024 allowing exercisability of the Pre-Funded Warrants under Nasdaq rules until the Pre-Funded Warrants are exercised
in full. The aggregate number of Common Stock Shares issued was 349,530 and the aggregate number of Pre-Funded Warrant Shares to
be issued is 3,775,470. |
9. |
The
approval of the issuance of 47,116 shares of Common Stock to Yonah Kalfa. As previously disclosed on the Current Report on Form 8-K
furnished with the SEC on September 9, 2020, the Company entered into a service agreement dated September 7, 2020 (the “YK
Employment Agreement”) with Yonah Kalfa, the Company’s chief innovation officer and a member of the Company’s Board.
Pursuant to Sections 2.1(a) and 2.1(b) of the YK Employment Agreement, the Company owed Mr. Kalfa $1,137,000 in salary (the “Salary
Compensation”) through January 31, 2024. The Company was unable to pay Mr. Kalfa any of the compensation in cash and, given
Mr. Kalfa’s extraordinary contribution to the Company, pursuant to Section 2.1(b) of the YK Employment Agreement, the Company
agreed to pay $1 million of the $1.137 million owed (with Mr. Kalfa waiving the right to receive the $137,000 balance) via an issuance
of shares of Common Stock as memorialized by that certain Deferred Payment Conversion Agreement with Mr. Kalfa, dated January 20,
2024 (the “2024 Agreement”). The 2024 Agreement sets forth the price per share of the shares to be issued (267,380),
the number of shares to be issued using that price ($3.74), and the amount due to Mr. Kalfa through January 31, 2024. Due to administrative
delays, the Company did not issue the shares in January 2024. Rather, on March 15, 2024, the Company issued 220,265 shares of Common
Stock. This is the amount of stock owed for a $1 million payment at a conversion price of $4.54, which was the closing price of the
Common Stock on March 13, 2024 (and a higher price than the closing price on March 14, 2024). |
10. |
The
approval of the issuance of 50,000 shares of Common Stock to each of Yonah Kalfa, Mike Ballardie and Kirk Taylor and 25,000 shares
of common stock to each of Rodney Rapson and Steven Crummey, our directors, for their services and extraordinary contribution to
the Company. |
11. |
The
approval of the issuance of 16,750 shares of Common Stock to each of Juda Honickman, the Company’s chief marketing officer,
and Mark Radom, the Company’s general counsel, for their services and extraordinary contribution to the Company. |
12. |
The
approval of the amendment of the 2020 Slinger Bag Inc. Global Share Incentive Plan to make an additional 1,500,000 shares of the
Common Stock available for the issuance of awards under the plan. |
On
June 27, 2024, the Company effected a 1-for-20 reverse stock split. No fractional shares were issued in connection with the reverse stock
split, and all such fractional interests were rounded up to the nearest whole number of shares of common stock. All references to the
outstanding stock have been retrospectively adjusted to reflect this reverse split.
The
operations of Slinger Bag Inc., Slinger Bag Americas, Slinger Bag Canada, Slinger Bag UK, SBL and Gameface are collectively referred
to as the “Company.”
The
Company operates in the sports equipment and technology business. The Company is the owner of the Slinger Bag Launcher, which is comprised
of a portable tennis ball launcher, a portable padel tennis ball launcher and a portable pickleball launcher and Gameface, providing
AI technology and performance analytics for sports.
Critical
Accounting Policies and Estimates
The
critical accounting policies relate exclusively to our continuing operations.
Basis
of Presentation
The
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, SBL and Gameface for the
years ended April 30, 2024 and 2023. All intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Valuation
of Inventory
Inventory
is valued at the lower of the cost (determined principally on a first-in, first-out basis) or net realizable value. The Company’s
valuation of inventory includes inventory reserves for inventory that will be sold below cost and the impact of inventory shrink. Inventory
reserves are based on historical information and assumptions about future demand and inventory shrink trends. It is possible that changes
to inventory reserve estimates could be required in future periods due to changes in market conditions.
Revenue
Recognition
The
Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, the core principle of which
is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The Company recognizes
revenue for its performance obligation associated with its contracts with customers at a point in time once products are shipped. Amounts
collected from customers in advance of shipping products ordered are reflected as deferred revenue on the accompanying 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.
Business
Combinations
Upon
acquisition of a company, we determine if the transaction is a business combination, which is accounted for using the acquisition method
of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired, and liabilities assumed, are
recorded at fair value. We use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired
and liabilities assumed at the acquisition date. One of the most significant estimates relates to the determination of the fair value
of these assets and liabilities. The determination of the fair values is based on estimates and judgments made by management. Our estimates
of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Measurement
period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which
all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year
from the acquisition date. We may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities
assumed, with the corresponding offset to goodwill.
Additionally,
uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the
acquisition date. We continue to collect information and reevaluate these estimates and assumptions periodically and record any adjustments
to preliminary estimates to goodwill, provided we are within the measurement period. If outside of the measurement period, any subsequent
adjustments are recorded to the consolidated statement of operations.
Fair
Value of Financial Instruments
Fair
value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for
inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities,
is as follows:
Level
1 - Quoted prices in active markets for identical assets or liabilities
Level
2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level
3 - Unobservable pricing inputs in the market
Financial
assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair
value measurements. Our assessment of the significance of a particular input to the fair value measurements requires judgment and may
affect the valuation of the assets and liabilities being measured and their categorization within the fair value hierarchy.
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount
of these financial instruments approximates fair value due to their short-term maturity. The Company’s derivative liabilities were
calculated using Level 2 assumptions.
The
Company’s contingent consideration in connection with the acquisition of Gameface and PlaySight were calculated using Level 3 inputs.
The
Company estimates the fair value of its intangible assets using Level 3 assumptions, primarily based on the income approach utilizing
the discounted cash flow method.
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 that are more likely than not to be realized.
Long-Lived
Assets and Goodwill
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. If those net undiscounted cash flows do not exceed the carrying amount, impairment, if any, is based on the excess of the carrying
amount over the fair value, based on market value or discounted expected cash flows of those assets and is recorded in the period in
which the determination is made.
The
Company accounts for goodwill in accordance with ASC 350, Intangibles - Goodwill and Other (“ASC 350”). ASC 350 requires
that goodwill not be amortized, but reviewed for impairment if impairment indicators arise and, at a minimum, annually. The Company records
goodwill as the excess purchase price over assets acquired and includes any work force acquired as goodwill. Goodwill is evaluated for
impairment on an annual basis.
With
the adoption of the ASU 2017-04, which eliminates the second step of the goodwill impairment test, the Company tests impairment of goodwill
in one step. In this step, the Company compares the fair value of each reporting unit with goodwill to its carrying value. The Company
determines the fair value of its reporting units with goodwill using a combination of a discounted cash flow and a market value approach.
If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the Company will
record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. If the fair value of
the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the Company
will not record an impairment charge.
Valuation
of Warrants
The
Company grants warrants to key employees and executives as compensation on a discretionary basis. The Company also grants warrants in
connection with certain note payable agreements and other key arrangements. The Company is required to estimate the fair value of share-based
awards on the measurement date and recognize as expense that value of the portion of the award that is ultimately expected to vest over
the requisite service period.
Recent
Accounting Pronouncements
Recently
Adopted
The
following are the results of our operations for the year ended April 30, 2024 as compared to April 30, 2023:
| |
For
the Years Ended April
30, | | |
| | |
| |
| |
2024 | | |
2023 | | |
Change
($) | | |
Change
(%) | |
| |
| | |
| | |
| | |
| |
Net
sales | |
$ | 8,398,049 | | |
$ | 9,922,799 | | |
$ | (1,524,750 | | |
| -15 | % |
Cost
of sales | |
| 5,004,375 | | |
| 7,144,335 | | |
| (2,139,960 | ) | |
| -30 | % |
Gross
profit | |
| 3,393,674 | | |
| 2,778,464 | | |
| 615,210 | | |
| 22 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating
expenses: | |
| | | |
| | | |
| | | |
| | |
Selling
and marketing expenses | |
| 1,565,006 | | |
| 1,928,198 | | |
| (363,192 | ) | |
| -19 | % |
General
and administrative expenses | |
| 8,271,823 | | |
| 22,743,877 | | |
| (14,472,054 | ) | |
| -64 | % |
Research
and development costs | |
| - | | |
| 65,164 | | |
| (65,164 | ) | |
| -100 | % |
Total
operating expenses | |
| 9,836,829 | | |
| 24,737,239 | | |
| (14,900,410 | ) | |
| -60 | % |
| |
| | | |
| | | |
| | | |
| | |
Loss
from operations | |
| (6,443,155 | ) | |
| (21,958,775 | ) | |
| 15,515,620 | | |
| -71 | % |
| |
| | | |
| | | |
| | | |
| | |
Other
expenses (income): | |
| | | |
| | | |
| | | |
| | |
Amortization
of debt discount | |
| (1,067,806 | ) | |
| (4,095,030 | ) | |
| 3,027,224 | | |
| -74 | % |
Loss
on conversion of accounts payable to common stock | |
| (289,980 | ) | |
| - | | |
| (289,908 | ) | |
| - | % |
| |
| | | |
| - | | |
| | | |
| | |
Gain
on change in fair value of derivative liability | |
| 7,635,612 | | |
| 10,950,017 | | |
| (3,314,405 | ) | |
| -30 | % |
| |
| | | |
| - | | |
| | | |
| | |
Derivative
Expense | |
| (14,119,784 | ) | |
| (8,995,962 | ) | |
| (5,123,822 | ) | |
| 57 | % |
Interest
expense - related party | |
| - | | |
| (293,090 | ) | |
| (293,090 | ) | |
| -100 | % |
Interest
expense | |
| (1,351,305 | ) | |
| (884,985 | ) | |
| (466,320 | ) | |
| 53 | % |
Total
other (income) expense | |
| (9,193,263 | ) | |
| (3,319,050 | ) | |
| (5,874,213 | ) | |
| 177 | % |
Net
loss from Continuing Operations | |
$ | (15,636,418 | ) | |
$ | (25,227,825 | ) | |
$ | 9,641,407 | | |
| -38 | % |
Net
sales
Our
net sales during the year ended April 30, 2024 were $8,398,049, compared to net sales of $9,922,799, in the same period to April 30,
2023, a reduction of 15%. Net sales consisted partially of shipped orders related to new orders placed and fulfilled to consumers via
our online marketplace and to our international distributors. The significant decrease in our online consumer marketing of Slinger Bag,
coupled with on-going delays in inventory production in Asia, resulting in a significant lack of availability in Q4, all combined to
contribute to the significant decrease in sales as of April 30, 2024.
Cost
of sales
Our
cost of sales during the year ended April 30, 2024 were $5,004,257, compared to $7,144,335 for the period to April 30, 2023, a reduction
of 30%. Cost of Sales represents the costs of units shipped during the period. This reduction in Cost of Sales is a result of the reduction
in net sales coupled with efficiencies in both our incoming and outgoing product supply chains. This resulted in a gross profit of $3,393,674,
or 41%. compared to a gross profit of $2,778,464, or 28% for the period to April 30, 2023. The 41% in gross profit margin can be attributed
to a combination of a reduction in transportation costs from Asia as well as inland USA, compared to the same period in 2023, coupled
with a small increase in average selling price of the Slinger Bag units.
Selling
and marketing expenses
During
the year ended April 30, 2024, we incurred selling and marketing expenses of $1,565,006 compared with $1,928,198 during the year ended
April 30, 2023, a reduction of 19%. This decrease is largely driven by a decrease in social media advertising, sponsorships, and other
investments in our market driven primarily by reduced sales and consumer demand stemming from our production delays and significant out
of stock position.
General
and administrative expenses
General
and administrative expenses consist primarily of compensation, including share-based compensation, and other employee-related costs,
as well as legal fees and fees for professional services. During the year ended April 30, 2024, we incurred general and administrative
expenses of $8,721,823 compared with $22,743,877 during the year ended April 30, 2023, a reduction of 64%. The decrease in general and
administrative expenses is largely due to a reduction in our share based compensation and reductions in all professional fees and amortization
costs.
Research
and development costs
During
the year ended April 30, 2024, we incurred research and development costs of $0 compared with $65,164 during the year ended April 30,
2023. This decrease is mainly driven by our need to pause all development activity in the period due to limited cash flow being available
for investment.
Other
expenses
During
the year ended April 30, 2024, we recorded a gain on change in fair value of derivatives of $7,635,612, compared to $10,950,017 during
the year ended April 30, 2023. Excluding the gain from the change in the fair value of the derivative liabilities during the years ended
April 30, 2024 and 2023, we had other expenses totaling $16,828,875 and $14,269,067, respectively. The increase in other expenses for
the year ended April 30, 2024 as compared to April 30, 2023 was primarily due an increase in derivative expenses coupled with increases
in amortization of debt discounts, losses incurred on conversion of accounts payable to common stock, and an increase in interest expense.
Discontinued
Operations
Discontinued
operations incorporates the impact of the divestments of both PlaySight and Gameface during the period to April 30, 2024. Total loss
from discontinued operations was $0 during the year ended April 30, 2024 compared to $45,875,860 in the year ended April 30, 2023.
The
loss from discontinued operations was $0 during the period to April 30,2024 compared to $4,461,968 in the period to April 30, 2023.
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 $167,387,028 as of April 30,
2024, 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 hand, loans from related parties, and/or
private placement of debt and/or common stock.
The
following is a summary of our cash flows from operating, investing and financing activities for the years ended April 30, 2024 and 2023:
| |
For
the Years Ended April 30, | |
| |
2024 | | |
2023 | |
Cash
flows used in operating activities | |
$ | (3,001,433 | ) | |
$ | (6,365,389 | ) |
Cash
flows used in investing activities | |
$ | (16,500,000 | ) | |
$ | - | |
Cash
flows provided by financing activities | |
$ | 19,478,993 | | |
$ | 5,821,187 | |
We
had cash and cash equivalents of $229,705 as of April 30, 2024, as compared to $202,095 as of April 30, 2023.
Net
cash used in operating activities was $3,001,433 during the year ended April 30, 2024, compared with $6,365,389 during the year ended
April 30, 2023. Our cash used in operating activities during the year ended April 30, 2024 was primarily the result of our net loss for
the years which was partially offset by our non-cash expenses as well as net decreases in inventories, prepaid inventories, prepaid expenses,
other current assets and accounts payable and accrued expenses, offset by net increases in accounts receivable, other current liabilities
and accrued interest.
Net
cash used in investing activities was $16,500,000 for the year ended April, 30 2024, compared with net cash used in investing activities
of $0 for the for year ended April 30, 2023. Investing activities for the year ended April, 30 2024 related to the acquisition of a 20%
stake in Yuanyu Enterprise Management.
Net
cash provided by financing activities was $19,478,993 for the year ended April 30, 2024, compared with $5,821,178 for the year ended
April 30, 2023. Cash provided by financing activities for the year ended April 30, 2024 consisted of proceeds of $17,961,828 from issuance
of common stock, $3,728,000 from notes payable, offset by $785,509 in repayments of notes payable and $1,425,326 in repayments of notes
payable to related parties.
Cash
provided by financing activities for the year ended April 30, 2023 consisted of proceeds of $8,744,882 from issuance of common stock,
$2,000,000 from notes payable and related party notes payable, offset by $546,158 in payment of notes to related parties and $4,377,537
in notes payable.
Merchant
Cash Advances
Meged
Agreement
On
June 8, 2023, the Company entered into a merchant cash advance agreement with Meged Funding Group (“Meged”) pursuant to which
the Company sold $315,689 in future receivables to Meged (the “Meged Receivables Purchased Amount”) to in exchange for payment
to the Company of $210,600 in cash less fees of $10,580. The Company agreed to pay Meged $17,538 each week until the Meged Receivables
Purchased Amount is paid in full.
UFS
Agreement No. 1
On
August 7, 2023, the Company entered into the UFS Agreement No.1 with Unique Funding Solutions, pursuant to which the Company sold $797,500
in future receivables (the “UFS Second Receivables Purchased Amount”) to UFS in exchange for payment to the Company of $550,000
in cash less fees of $50,000. The Company has agreed to pay UFS $30,000 each week until the UFS Second Receivables Purchased Amount is
paid in full.
In
order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement No.1, the Company granted to
UFS a security interest in the following collateral: all accounts receivable and all proceeds as such term is defined by Article 9 of
the UCC. The Company also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect
to any of such collateral.
Agile
Agreement No. 1
On
November 16, 2023, the Company entered into an agreement with Agile Capital Funding, LLC (the “ACF Agreement”) pursuant to
which the Company sold $693,500 in future receivables to Agile Capital Funding, LLC (the “ACF Receivable Amount”) in exchange
for $450,000 in cash. The Company agreed to pay Agile Capital Funding, LLC (“ACF”) $28,895.83 each week until the ACF Receivable
Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to ACF under the ACF Agreement, the Company granted to ACF
a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur,
assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Agile
Agreement No. 2
On
January 10, 2024, the Company entered into an agreement with ACF (the “Agile Jan Agreement”) pursuant to which the Company
sold $1,460,000 in future receivables to ACF (the “Agile Jan Receivable Amount”) in exchange for $1,000,000 in cash. The
Company agreed to pay ACF (“Agile”) $52,142.86 each week until the Agile Receivable Amount is paid in full. In order to secure
payment and performance of the Company’s obligations to Agile under the Agile Jan Agreement, the Company granted to ACF a security
interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create, incur, assume,
or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral. The proceeds from the sale of future
receivables were used, in part, to pay the outstanding balance of the ACF Receivable Amount (as defined above).
Cedar
Agreement No. 1
On
January 29, 2024, the Company entered into an agreement with Cedar Advance LLC (the “Cedar Agreement”) pursuant to which
the Company sold $1,183,200 in future receivables to Cedar Advance LLC (the “Cedar Receivable Amount”) in exchange for $752,000
in cash. The Company agreed to pay Cedar Advance LLC (“Cedar”) $39,440 each week until the Cedar Receivable Amount is paid
in full. In order to secure payment and performance of the Company’s obligations to Cedar under the Cedar Agreement, the Company
granted to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed
not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
UFS
Agreement No. 2
On
March 6, 2024, the Company entered into the UFS Agreement No.2 with Unique Funding Solutions, pursuant to which the Company sold $323,350
in future receivables to UFS (the “UFS Receivable Amount”) in exchange for $200,000 in cash. The Company agreed to pay UFS
$9,798.49 each week until the UFS Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to UFS under the UFS Agreement No.2, the Company granted to
UFS a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to create,
incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar
Agreement No. 2
On
April 3, 2024, the Company entered into an agreement with Cedar (the “Second Cedar Agreement”) pursuant to which the Company
sold $438,000 in future receivables to Cedar (the “Second Cedar Receivable Amount”) in exchange for $285,000 in cash. The
Company agreed to pay UFS $14,600 each week until the Second Cedar Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to Cedar under the Second Cedar Agreement, the Company granted
to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to
create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Cedar
Agreement No. 3
On
April 22, 2024, the Company entered into an agreement with Cedar (the “Third Cedar Agreement”) pursuant to which the Company
sold $481,800 in future receivables to Cedar (the “Third Cedar Receivable Amount”) in exchange for $310,200 in cash. The
Company agreed to pay UFS $18,530.77 each week until the Third Cedar Receivable Amount is paid in full.
In
order to secure payment and performance of the Company’s obligations to Cedar under the Third Cedar Agreement, the Company granted
to Cedar a security interest in the following collateral: all present and future accounts receivable. The Company also agreed not to
create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.
Description
of Indebtedness
Loan
and Security Agreement
On
January 6, 2023, the Company entered into a loan and security agreement (the “Loan and Security Agreement”) with one or more
institutional investors (the “Lenders”) and Armistice Capital Master Fund Ltd. as agent for the Lenders (the “Agent”)
for the issuance and sale of (i) a note in an aggregate principal amount of up to $2,000,000 (the “Note”) with the initial
advance under the Loan and Security Agreement being $1,400,000 and (ii) warrants (the “Warrants”) to purchase a number of
shares of common stock of the Company equal to 200% of the face amount of the Note divided by the closing price of the common stock of
the Company on the date of the issuance of the Notes (collectively, the “Initial Issuance”). The closing price of the Company’s
common stock on January 6, 2023, as reported by Nasdaq, was $176.80 per share, so the Warrants in respect of the initial advance under
the Note are exercisable for up to 90,498 shares of the Company’s common stock. The Warrants have an exercise price per share equal
to the closing price of the common stock of the Company on the date of the issuance of the Note, or $4.42 per share and a term of five-
and one-half (5½) years following the initial exercise date. The initial exercise date of the Warrants was September 13, 2023, the
date stockholder approval was received and effective allowing exercisability of the Warrants under Nasdaq rules. Pursuant to the terms
of the Loan and Security Agreement, an additional advance of $600,000 was made to the Company under the Note in February 2023. The Company’s
obligations under the terms of the Loan and Security Agreement were fully and unconditionally guaranteed by all of the Company’s
subsidiaries (the “Guarantors”).
On
October 11, 2023, Connexa Sports Technologies Inc. (the “Company”) entered into a loan and security modification agreement
(the “Loan and Security Modification Agreement”) with a one or more institutional investors (the “Lenders”) and
a certain institutional investor, as agent for the Lenders (the “Agent”) amending the terms of the Loan and Security Agreement
dated January 6, 2023 (the “LSA”) by and among the Company, the Lenders and the Agent to make an additional loan of $1,000,000
and modify the terms of the LSA to reflect the New Loan.
In
connection with the Loan and Security Modification Agreement, the Company agreed to issue to the investor warrants (the “Common
Warrants”) to purchase up to 8,460 shares of Common Stock at an exercise price of $19 per share. The Common Warrants are exercisable
six months after their issuance and will expire five and one-half years from their date of issuance. The Common Warrants and the shares
of our Common Stock issuable upon the exercise of the Common Warrants are not being registered under the Securities Act of 1933, as amended
(the “Securities Act”), were not offered pursuant to the Registration Statement and were offered pursuant to the exemption
provided in Section 4(a)(2) under the Securities Act, and Rule 506(b) promulgated thereunder. The warrants to purchase 8,460 shares of
Common Stock are referred to herein as the “October Warrants”.
As
previously disclosed, on December 6, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”)
with a certain holder (the “Holder”) whereby the Holder agreed to exercise for
cash warrants to purchase an aggregate of 248,611 shares of Common Stock at a reduced exercise price of $2.94 per share in consideration
of the Company’s agreement to issue new common stock purchase warrants (the “December Warrants” and, together with
the October Warrants, the “Lender’s Warrants”) to purchase up to an aggregate of 497,221 shares of Common Stock at
an exercise price of $5.88 per share (subject to adjustment).
As
of February 21, 2024, the total amount owed pursuant to the Note was $3,197,335.65. Of this amount, the Company received gross proceeds
of $3 million from the Lenders.
On
February 21, 2024, the Company and the Lenders and the Agent entered into a Waiver, Warrant
Amendment and Second Loan and Security Modification Agreement (the “Waiver, Amendment, and Modification Agreement”).
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Lenders and the Agent agreed to
waive certain events of default with regard to certain covenants and obligations the Company had pursuant to (a) that certain registration
rights agreement between the Company and the Lenders and the Agent entered into in September
2022, (b) the Loan and Security Agreement (as modified), and (c) the Inducement Letter.
Pursuant
to the Waiver, Amendment, and Modification Agreement, the Company and the Lenders and the Agent
agreed to modify the Loan and Security Agreement such that the Note became convertible into up to 499,584 shares of Common Stock
based on the agreed to conversion price of $6.40. The Company believes that the $6.40 conversion price meets the definition of “Minimum
Price” in Nasdaq Listing Rule 5635(d). On March 26, 2024, the Holder had fully converted the Note into shares of Common Stock and
the Note was fully paid.
Notes
Payable – Related Party
On
January 14, 2022, the Company entered into two loan agreements with Yonah Kalfa and Naftali Kalfa, each for $1,000,000 (together, the
“Loan Agreements”), pursuant to which we received a total amount of $2,000,000. The loans bear interest at a rate of 8% per
annum, and we agreed to repay the loans in full by July 3, 2022, or such other date as may be accepted by the lenders. On June 27, 2022,
the Company entered into amendments for the two related party loan agreements with the lenders in which the repayment date was extended
to July 31, 2024.
There
were $1,169,291 and $1,953,842 in outstanding borrowings from the Company’s related parties for the years ended April 30, 2024
and 2023, respectively. Accrued interest due to related parties as of April 30, 2024 and 2023 amounted to $917,957 and $917,957, respectively.
On
January 6, 2023, we sold certain of our inventory including all components, parts, additions and accessions thereto to Yonah Kalfa and
Naftali Kalfa who immediately consigned it back to us in exchange for a payment of $103 per ball launcher we sell until we have paid
them an aggregate total of $2,092,700, which represents payment in full of the principal amounts of and accrued interest in respect of
the Loan Agreements (as defined above) and certain other expenses they incurred in connection with the Company.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Effect
of Inflation and Changes in Prices
We
do not believe that inflation and changes in prices will have a material effect on our operations.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk
As
a smaller reporting company, we are not required to provide this information.
Discussion
of Financial Condition and Results of Operations of YYEM
Management’s
Discussion and Analysis of Financial Condition and Results of Operations of YYEM
For
purposes of this section only, “YYEM,” “we,” “us,” “our” or “the Company”
refers to YYEM, together with its subsidiaries, unless the context otherwise requires.
You
should read the following discussion and analysis of YYEM’s financial condition and results of operations together with its financial
statements and the related notes appearing elsewhere in this prospectus. Among other things, those historical financial statements include
more detailed information regarding the basis of presentation for the financial data than is included in the following discussion. In
addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties,
and assumptions. YYEM’s actual results may differ materially from those discussed below.
Overview
We
own advanced patents and other proprietary technology which we license out, and we are using this intellectual property to develop an
AI-powered matchmaking platform to license to partners worldwide, enabling them to create localized matchmaking experiences tailored
to their specific markets and cultures. We also intend to leverage our partners’ expertise in offline matchmaking to offer, alongside
our own technology tools, a range of best practices, empowering licensees to develop culturally relevant and highly effective in-person
matchmaking solutions to complement their online offerings.
We
believe our pioneering technology is unique in the “love & marriage” industry. We possess six technologies related to
the metaverse and five AI matchmaking patents, which together enable access to both Augmented Reality (AR) and eXtended Reality (XR),
enhancing our future revenue growth potential. Our AI technology is also designed to integrate with existing Big Data models and other
larger AI models, facilitating the identification of our licensees’ target subscriber base, while providing subscriber profile
analysis and connecting to our AI matchmaker platform, all with the goal of helping our licensees deliver effective matchmaking services
both online and in person, and helping their clients find successful life partnerships.
In-person
matchmaking serves as an important complement to the online experience at some of our licensees. These licensees can leverage our proprietary
technology and know-how, including our AI-related patents, to facilitate a range of in-person events, from one-to-one encounters to group
gatherings with a curated guest list of potential matches. One licensee partner operates retail stores across 40 cities in China, where
fees reaching up to $2,750 provide clients with a bespoke matchmaking service, delivered through face-to-face interactions across the
branded offline stores. Other licensing agreements cover the use of our intellectual property in Europe, Sub-Saharan Africa, and various
Asia Pacific countries.
YYEM
collected royalties of approximately $1.9 million in its fiscal year ended January 31, 2024 and approximately $3.3 million for the three-month
period ended April 30, 2024.
Results
of Operations for the Three-Month Periods Ended April 30, 2024 and 2023
The
following are the results of our operations for the three-month period ended April 30, 2024 as compared to the same period in 2023:
| |
For
the three months period ended April
30, | | |
Change | |
| |
2024 | | |
2023 | | |
| |
Revenue | |
$ | 3,272,727 | | |
$ | 480,769 | | |
| 2,791,958 | |
Cost of revenue | |
| 744,231 | | |
| 144,231 | | |
| 600,000 | |
Gross profit | |
| 2,528,496 | | |
| 336,538 | | |
| 2,191,958 | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
General and Administrative | |
| 34,120 | | |
| 4,169 | | |
| 29,951 | |
Total operating expenses | |
| 34,120 | | |
| 4,169 | | |
| 29,951 | |
| |
| | | |
| | | |
| | |
Profit from Operations | |
| 2,494,376 | | |
| 332,369 | | |
| 2,162,007 | |
| |
| | | |
| | | |
| | |
Other Income / (Expense): | |
| - | | |
| - | | |
| | |
Total Other Income / (Expense) | |
| - | | |
| - | | |
| | |
| |
| | | |
| | | |
| | |
Provisions for income taxes | |
| 321,572 | | |
| 54,841 | | |
| 266,731 | |
| |
| | | |
| | | |
| | |
Net income | |
$ | 2,172,804 | | |
$ | 277,528 | | |
| 1,895,276 | |
Revenue
Revenue
increased by $2,791,958, or 581%, for the three-month period ended April 30, 2024, as compared to the same period in 2023. This increase
was driven by royalty income from new licensees.
Cost
of revenue and Gross profit
Cost
of revenue increased by $600,000, or 416%, for the three-month period ended April 30, 2024, as compared to the same period in 2023, primarily
due to the increase in amortization costs of new intellectual property or technology rights. Gross profit increased by $2,191,958, or
651%, for the three-month period ended April 30, 2024, as compared to the same period in 2023, driven by our higher royalty income.
General
and administrative expenses
General
and administrative expenses, which, in this period, mainly related to our intellectual property, increased by $29,951, or 718%, for the
three-month period ended April 30, 2024, as compared to the same period in 2023. This was primarily driven by an increase in royalty
revenue for the period.
Profit
from operations
Profit
from operations increased by $2,162,007, or 650%, for the three-month period ended April 30, 2024, as compared to the same period in
2023, primarily as a result of the royalty income generated by new licensees and from the new intellectual property or technology rights
noted above.
Liquidity
and Capital Resources
YYEM
finances its operations primarily through cash generated from operations. YYEM recorded net current assets of $9,043,074 as of April
30, 2024, compared to $6,126,039 as of April 30, 2023. Our accounts and other receivables increased by $3.7 million as we recognized
royalty revenue in this quarter in accordance with our recognition policy while the credit terms of our licensees allowed them 60 or
90 days from the end of the quarter to pay. This increase in accounts and other receivables was partially offset by a decline of $460,327
in cash and cash equivalents primarily reflecting mark-to-market changes in short-term investments.
As
of April 30, 2024, the capital structure of YYEM consisted of equity attributable to the owners of the company of $22,529,632, comprising
issued share capital and reserves.
Description
of Indebtedness
We
have no outstanding indebtedness.
Off
Balance Sheet Arrangements
We
have no off balance sheet arrangements.
Effect
of Inflation and Changes in Prices
We
do not believe that inflation and changes in prices will have a material effect on our operations.
Going
Concern
Our
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.
Financial
Statements of YYEM
The
audited historical financial statements of YYEM for the fiscal years ended January 31, 2024 and 2023, and unaudited interim financial
statements of YYEM for the quarter ended April 30, 2024 and 2023 are included elsewhere in this prospectus.
DESCRIPTION
OF BUSINESS
Following
the completion of the Acquisition, the Company will operate in the “love & marriage” industry.
The
effectiveness of the registration statement of which this prospectus forms a part is not a condition to the closing of the Acquisition.
For further details of the Acquisition, see “—Recent Development”.
Brief
History
Lazex
Inc. (“Lazex”) was incorporated under the laws of the State of Nevada on July 12, 2015. From 2019 through 2021, Lazex acquired
various entities related to the manufacture and distribution of the Slinger Bag Launcher, a portable tennis ball, padel tennis ball,
and pickleball launcher. In 2019, Lazex changed its name to Slinger Bag Inc., and in 2022 changed its name to Connexa Sports Technologies
Inc.
In
2021 and 2022, Connexa acquired three companies: Foundation Sports Systems, LLC, Flixsense Pty, Ltd. (known as Gameface), and PlaySight
Interactive Ltd. Over the course of 2022 and 2023, the Company disposed of or fully impaired the goodwill and intangible assets related
to all of these.
On
March 18, 2024, the Company entered into a series of agreements to acquire 70% of Yuanyu Enterprise Management Co., Limited (“YYEM”)
from the sole shareholder of YYEM for a combined $56 million (the “Acquisition”). $16.5 million of this amount was paid in
cash, and the balance was to be paid in shares. Assuming the Acquisition has closed prior to the date of this prospectus, the transaction
has resulted in a change of control of the Company as the shareholders of YYEM became the owners of approximately 82.4% of the issued
and outstanding shares of Common Stock and the Board of Directors comprised individuals designated by the seller of YYEM. As part of
this transaction, the Company agreed to transfer its wholly owned subsidiary, Slinger Bag Americas Inc., to a newly established entity
on or prior to the closing date of the Acquisition.
For
further details of the Company’s history, see the sections entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Overview” and “Description of Business — History of our Company”.
Overview
Yuanyu’s
mission is to empower global connections through innovative matchmaking technology and the facilitation of in-person initiatives. We
own advanced patents and other proprietary technology which we license out, and we are using this intellectual property to develop an
AI-powered matchmaking platform to license to partners worldwide, enabling them to create localized matchmaking experiences tailored
to their specific markets and cultures. We also intend to leverage our partners’ expertise in offline matchmaking to offer, alongside
our own technology tools, a range of best practices, empowering licensees to develop culturally relevant and highly effective in-person
matchmaking solutions. We also intend to leverage our partners’ expertise in offline matchmaking to offer, alongside our own technology
tools, a range of best practices, empowering licensees to develop culturally relevant and highly effective in-person matchmaking solutions
to complement their online offerings. We believe our pioneering technology has the power to transform the matchmaking industry, leading
to greater success for our licensees and their clients, and ultimately leading to more people finding successful life partnerships.
Technology
licensing
Our
company was founded on the principle that love is universal, but dating and marriage customs vary widely across cultures. By providing
highly relevant patents, and a flexible, customizable matchmaking app framework, we aim to enable our partners to develop matchmaking
services that resonate with local users while benefiting from our advanced matching algorithms, safety features, and engagement tools.
We
possess six technologies related to the metaverse and five AI matchmaking patents, which together enable access to both Augmented Reality
(AR) and eXtended Reality (XR), enhancing our future revenue growth potential in the online matchmaking segment. Our AI technology is
also designed to integrate with existing Big Data models and other larger AI models, such as Huawei Pangu, Baidu 6 Wenxinyiyan, Alibaba
Tongyi, and Tencent Hunyuan. Through interrogating and analyzing available Big Data, our intellectual property aims to support the identification
of our licensees’ target subscriber base, while providing subscriber profile analysis and connecting to our AI matchmaker platform,
all with the goal of helping our licensees deliver effective matchmaking services both online and in person and helping their clients
find successful life partnerships.
Our
revenue model is based on licensing fees and revenue sharing agreements with our partners, which we intend to bolster through the development
or acquisition of additional patents.
We
aim to pioneer a new approach to matchmaking. Our strategy is built on three core pillars:
| 1. | Technological
Innovation: We will invest in R&D, predominantly through our relationships with our
trusted outsourcing companies, to become a leading supplier of matchmaking technology. Our
AI-powered matching algorithms, advanced safety features, and engagement tools will be designed
to create meaningful connections while prioritizing user safety and authenticity. |
| 2. | Cultural
Adaptability: Our platform is being built with flexibility in mind, allowing partners
to easily customize the user experience and features to align with local cultural norms and
preferences. This approach will better ensure that each app feels native to its market while
benefiting from our global expertise. |
| 3. | Partner
Empowerment: We plan to offer our partners support, including technical integration,
marketing strategies, and ongoing optimization. Our success will be tied to the success of
our partners, creating a symbiotic relationship that drives innovation and growth. |
We
believe that by enabling our partners to customize our AI-powered platform for local preferences and practices, each app can present
a unique value proposition to its respective target user base.
Key
features of our technology, offered now or in development, include:
| ● | AI-driven
matching algorithms that learn and improve based on user behavior and feedback; |
| ● | Metaverse
capabilities for more natural meetings in cyberspace; |
| ● | Customizable
safety features, including photo verification, message filtering, and real-time moderation; |
| ● | Engagement
tools such as virtual events and video chat integration; |
| ● | Flexible
monetization options to suit different market needs; and |
| ● | Robust
analytics and reporting to help partners optimize their apps. |
Our
team has a strong track record in both matchmaking technology and international business. We intend to leverage this expertise not only
to improve our core technology but also to offer our partners help in navigating the complexities of launching and growing matchmaking
apps in diverse markets.
Looking
ahead, we see promising opportunities for growth as more people around the world embrace technological assistance with matchmaking, particularly
AI-driven assistance. By empowering local entrepreneurs and established companies to create culturally relevant matchmaking apps, we
believe we will expand our reach and impact far beyond what we could achieve with a single, global app.
In-person
matchmaking services
We
intend to supplement our technology offering through the sharing of in-person initiatives. We believe that in-person events can be an
important complement to the core online offering of our partners. These partners can leverage our proprietary technology and know-how,
including our AI-related patents, to facilitate a range of in-person events, from one-to-one encounters to group gatherings with a curated
guest list of potential matches. One of our licensees uses its physical locations in more than 40 cities across China to undergird its
online presence with in-person services.
At
Yuanyu, we understand the unique value and personal touch that in-person matchmaking services bring to the realm of relationship building.
We have licensees that possess a wealth of experience with personalized matchmaking strategies, client management, and event organization,
and we are committed to leveraging this expertise to enhance the services offered by our global network of partners. Our China-based
licensee, for instance, stratifies its client rolls, affording higher paying clients more options and potentially premium partners to
match with. Fees reaching up to $2,750 provide clients with a bespoke matchmaking service, delivered through face-to-face interactions
across the licensee’s branded offline stores. Organizing exclusive matchmaking events is another important strategy that can be
used by our licensees. These events can range from intimate gatherings and themed parties to large-scale social mixers. By creating an
inviting and relaxed environment — and, most importantly, by using our AI and other technology to curate the guest lists to increase
the likelihood of compatible matches — matchmakers can facilitate natural interactions and foster meaningful connections. And by
learning from each other’s experiences, our licensee partners can refine their approaches and deliver superior matchmaking services
tailored to their local markets.
We
believe that providing ongoing support and feedback to clients is crucial for successful matchmaking and that it is important for our
licensees to offer post-date follow-ups, relationship coaching, and personalized advice to help clients navigate their matchmaking journeys.
One partner currently offers a “Love & Marriage University” for clients who seek to improve their relationship skills,
involving, among other things, fashion and makeovers, manners and etiquette, and, critically, communication within relationships. A number
of these services can leverage our AI and other technology to evaluate compatibility and to target areas for improvement. Furthermore,
we intend to facilitate the sharing of best practices in maintaining client engagement, managing expectations, and offering constructive
feedback to ensure that clients feel supported and valued throughout the process.
Just
as in-person matchmaking can undergird our licensees’ online presences, our technology can enhance their in-person offerings. The
tools and platforms that we provide will complement traditional matchmaking methods through, for example, virtual consultations, digital
event planning, and AI-driven match suggestions. By blending the personal touch of in-person matchmaking with advanced technology, licensees
will be able to offer a holistic and modern service.
The
Yuanyu approach
At
this stage of our development, we are primarily a technology company that facilitates matchmaking, while our licensees are more often
matchmaking companies that leverage technology. We believe this combination enables each company to focus on the aspect of the business
in which it is strongest. At the same time, we consider ourselves more than a technology company — we are facilitating connections,
sparking romances, and bringing people together across the globe. In the process, we aim to redefine the future of matchmaking.
We
are sensitive to cultural norms and recognize that, as we expand to new jurisdictions, the balance between online and offline, and the
approaches taken to each, need to be adjusted to suit prevailing local preferences. For this reason, we often partner with local players
as we enter new markets, and we build our products and services with a view to customization based on local culture and practices. By
respecting cultural nuances, licensees can create services that resonate deeply with their clientele.
At
Yuanyu, we are dedicated to supporting our licensees in delivering exceptional online and in-person matchmaking services. Through our
advanced patent portfolio, our pioneering AI-powered technology platform, the facilitation of best practices in in-person services, and
cultural adaptation of both online and in-person offerings, we believe we can empower our partners to create meaningful and lasting connections
for their clients. Our commitment to innovation and excellence will help ensure that we are a trusted name in the matchmaking industry,
providing considerable value to our global network and, ultimately, to individuals looking for love and marriage.
DIRECTORS
AND EXECUTIVE OFFICERS
Our
executive officers and directors and their respective ages as of the date of this prospectus are as follows:
Name |
|
Age |
|
Positions
and Offices* |
Mike
Ballardie |
|
62 |
|
President,
Chief Executive Officer, Treasurer and Director |
Juda
Honickman |
|
37 |
|
Chief
Marketing Officer |
Mark
Radom |
|
55 |
|
General
Counsel |
Yonah
Kalfa |
|
40 |
|
Chief
Innovation Officer and Director |
Kirk
Taylor |
|
43 |
|
Director |
Stephen
Crummey |
|
79 |
|
Director |
Rodney
Rapson |
|
40 |
|
Director |
*Paul
McKeown, our former chief business integration officer, resigned in January 2023, and Tom Dye’s employment agreement terminated
on April 30, 2023. Mr. Dye and Mr. McKeown both continue to provide services to the Company as outside consultants.
On
November 17, 2022, Gabriel Goldman and Rohit Krishnan resigned from the Board of Directors. Gabriel and Rohit were members of the audit
and compensation committees. Gabriel Goldman was a member of the Company’s Nominating and Corporate Governance Committee. Neither
Gabriel nor Rohit advised the Company of any disagreement with the Company on any matter relating to its operations, policies or practices.
On July 14, 2023, Messrs. Crummey and Rapson joined the Board of Directors.
The
directors named above will serve until the next annual meeting of the shareholders or until their resignation or removal from office.
Thereafter, directors are anticipated to be elected for one-year terms at the annual shareholders’ meeting. Officers will hold
their positions pursuant to their respective service agreements.
Set
forth below is a brief description of the background and business experience of our executive officers and directors for the past five
years.
Mike
Ballardie
Mike
Ballardie has served as our President, Chief Executive Officer and a Director since June 2019. Mike is an experienced and widely recognized
tennis industry leader with 35 years of experience in tennis as a player, a coach and business leader. Mike started his tennis business
career at Wilson in the late 1980s where he spent 11 years growing and ultimately leading Wilson’s Europe, Middle East and Africa
Racquet sports division.
In
2002, Mike joined Prince Sports Europe as vice-president and managing director and stayed in this role through 2012. In 2003, Mike was
part of the management buyout team that acquired the Prince brand from Benetton Sports in partnership with a private equity group. In
2007, after a highly successful business turnaround the business was sold with the management team in place to another U.S. based private
equity group.
In
2013, Mike became the Chief Executive Officer of Prince Global Sports, a role in which he stayed until 2016.
After
Prince Global Sports, Mike owned and operated FED Sports Consulting where he managed all aspects of a major restructuring project involving
Waitt Brands (a holding company for Prince Global Sports) and Trilium Ltd (UK), a childcare business, from 2018 to 2019.
Immediately
prior to joining Prince Sports, Mike worked for VF Corp., where he built the international business for their JanSport brand from scratch.
Mike
also served for many years as an Executive Board Director for the Tennis Industry Association (TIA) both in the USA and in the UK. Mike
has been at the forefront of many of the most successful tennis racket innovations over this period and highly regarded across this industry
sector.
Juda
Honickman
Juda
Honickman is Chief Marketing Officer for Slinger Bag Inc. Juda joined Slinger Bag Inc in October 2017 to lead product design and overall
strategy for the Company’s pre-sale crowdfunding initiative which exceeded its goal by 2,600%. He is responsible for overseeing
the planning, development and execution of the Company’s marketing and advertising initiatives along with ensuring that the Company’s
offering and brand messaging is distributed across all channels and is effectively targeting audiences in order to meet sales objectives.
In his role, Juda oversees the global communications of Slinger’s brand, including consumer insights, digital marketing, creative
development, agency management, marketing effectiveness, social responsibility, sponsorships, media and employee communications. Juda
previously served as the Director of Marketing and Strategy for a global legal tech company and before that oversaw marketing and sales
for an innovative consumer tech business.
Mark
Radom
Mark
Radom has been general counsel of Connexa since September 2019. Mr. Radom has also served as general counsel of The Greater Cannabis
Company, Inc. and from February 2010 through July 2015, general counsel and chief carbon officer of Blue Sphere Corporation. From 2009
through 2010, Mr. Radom was managing director of Carbon MPV Limited, a Cyprus company focused on developing renewable energy and carbon
credit projects. From 2007 to 2009, Mr. Radom was general counsel and chief operating officer of Carbon Markets Global Limited, a London-based
carbon credit and renewable energy project developer. Mr. Radom has extensive experience in business development in the renewable energy
and carbon credit sectors. He has sourced over $100,000,000 in renewable energy, industrial gas and carbon credit projects and managed
many complex aspects of their implementation. He was legal counsel for a number of carbon and ecological project developers and was responsible
for structuring joint ventures and advising on developing projects through the CDM/JI registration cycle and emission reduction purchase
agreements under the auspices of the Kyoto Protocol. Prior to this, he worked on Wall Street and in the City of London as a U.S. securities
and capital markets lawyer where he represented sovereigns, global investment banks and fortune 500 companies across a broad range of
capital raising and corporate transactions. He is a graduate of Duke University and Brooklyn Law School. Mr. Radom is admitted to practice
law in New York and New Jersey and speaks fluent Russian.
Yonah
Kalfa
Yonah
Kalfa joined Connexa as its Chief Innovation Officer in September 2020. Prior to joining Slinger Bag, Mr. Kalfa owned and operated NA
Dental, a company active in the dental supply business since 2010. Mr. Kalfa is a director of Pharmedica Ltd., Plaqless Ltd., Dusmit
Ltd. and Parasonic Ltd.
Kirk
Taylor
Kirk
Taylor is the Chief Financial Officer of American Resources Corporation where he conducts all tax and financial accounting roles of the
organization, and has substantial experience in tax credit analysis and financial structure. Kirk’s main focus over his 13 years
in public accounting had been auditing, tax compliance, financial modeling and reporting on complex real estate and business transactions
utilizing numerous federal and state tax credit and incentive programs. Prior to joining American Resources Corporation, Kirk was Chief
Financial Officer of Quest Energy, Inc., ARC’s wholly-owned subsidiary. Prior to joining Quest Energy in 2015, he was a Manager
at K.B. Parrish & Co. LLP where he worked since 2014. Prior to that, he worked at Katz Sapper Miller since 2012 as Manager. In addition,
Kirk is an instructor for the CPA examination and has spoken at several training and industry conferences. He received a BS in Accounting
and a BS in Finance from the Kelley School of Business at Indiana University, Bloomington Indiana and is currently completing his Master
of Business Administration from the University of Saint Francis at Fort Wayne, Indiana. Kirk serves his community in various ways including
as the board treasurer for a community development corporation in Indianapolis, Indiana. Kirk does not have any family relationships
with any of the Company’s directors or executive officers. There are no arrangements or understandings between Kirk and any other
persons pursuant to which he was selected as an officer. He has no direct or indirect material interest in any transaction required to
be disclosed pursuant to Item 404(a) of Regulation S-K.
Stephen
Crummey
Stephen
Crummey has served as the senior vice president of Investor Relations at NuEra Capital Corporation since August 2022. Previously, Stephen
was (i) a partner in Covid Rapid Exam from January 2021 to September 2022, (ii) an advisor to IdentifySensors Biologics from September
2021 through August 2022, (iii) an advisor to Cmind AI from 2019 to April 2021 and (iv) chairman of CyVision Technologies, Inc. from
August 2017 through March 2021. Stephen does not have any family relationships with any of the Company’s directors or executive
officers. There are no arrangements or understandings between Stephen and any other persons pursuant to which he was selected as an officer.
He has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Rodney
Rapson
Mr.
Rapson has served as the chief executive officer of Inspiretek Pty Ltd since November 2022, managing director of PlaySight Europe from
January 2027 through January 2022 and managed Base Tennis Academy from September 2010 through December 2022. Rodney does not have any
family relationships with any of the Company’s directors or executive officers. There are no arrangements or understandings between
Rodney and any other persons pursuant to which he was selected as an officer. He has no direct or indirect material interest in any transaction
required to be disclosed pursuant to Item 404(a) of Regulation S-K.
The
following table lists the names, ages and positions of the individuals who are expected to serve as executive officers and directors
of the Company upon completion of the Acquisition:
Name |
|
Age |
|
Position |
Thomas
Tarala |
|
58 |
|
Chief
Executive Officer and Director |
Guibao
Ji |
|
60 |
|
Chief
Financial Officer |
Hongyu
Zhou |
|
36 |
|
Director |
Warren
Thomson |
|
48 |
|
Director |
Chenlong
Liu |
|
35 |
|
Director |
Kong
Liu |
|
35 |
|
Director |
Set
forth below is a brief description of the background and business experience for the past five years of individuals who are expected
to serve as executive officers and directors of the Company upon completion of the Acquisition.
Thomas
Tarala
Thomas
Tarala has 30 years of international corporate finance experience in New York, London, and Hong Kong, including as a partner at two
leading international law firms and as General Counsel for the international operations of one of the largest private conglomerates in
China. As a partner of Baker McKenzie from 2022 to 2024 and another international firm earlier in his career, Thomas has led U.S. securities
practices in Hong Kong, advising on equity and debt transactions, as well as cross-border joint ventures involving companies listed on
Nasdaq. With a particular focus on the technology sector, he has acted for companies and investment banks in Mainland China, Hong Kong,
Singapore, Indonesia, and Thailand, including on award-winning transactions in the region.
As
General Counsel in the overseas headquarters of HNA Group (International) Company Limited, a large conglomerate, from 2017 to 2022, Thomas
worked closely with the business teams on a wide range of corporate and finance transactions, including multi-billion dollar acquisitions
and divestments of household-name companies, the sale of airlines, and a range of investments ranging from New York and London skyscrapers
to global technology companies, as well as numerous companies that were number one globally in their respective fields.
Thomas
graduated magna cum laude and Phi Beta Kappa from Georgetown University with a Bachelor of Science degree in Foreign Service and
holds a Juris Doctor degree from the University of Virginia School of Law. Thomas speaks English, French, Spanish, and Mandarin and is
qualified to practice law in New York, Connecticut, Florida, England and Wales, and Hong Kong.
Guibao
Ji
Guibao
Ji has been a certified public accountant in China for 25 years and has worked as an accountant at Shenzhen Wanda Accounting Firm
since January 2005. He is a partner of the firm and also an independent director of Hekeda Technology Co. Ltd., a listed company.
Mr.
Ji graduated from Central Radio and TV University in 1994 with a degree in Business Accounting. He was certified by the Chinese Institute
of Certified Public Accountants in 1999.
Hongyu
Zhou
Hongyu
Zhou has 15 years of experience founding, growing, and managing successful enterprises. His experience extends to such areas as enterprise
management, entertainment technology, and information technology, including as an investor and business manager of a technology company,
as a founder and manager of an innovative entertainment company, and as the founder and manager of several technology companies. Mr.
Zhou has served as the Chairman of Shenzhen Qiangwo Entertainment Technology Co., Ltd., and since 2021, he has been the Chairman of our
China-based licensee, Shenzhen Qianyue Information Technology Co., Ltd., a leading provider of matchmaking services in China. Mr. Zhou
founded Shenzhen Yuanzu Century Network Technology Co., Ltd. in 2020 and Shenzhen Qiangwo Entertainment Technology Co., Ltd. in 2017.
In founding, managing, and growing companies across various industries, Mr. Zhou has honed his skills in strategic planning, business
development, and team leadership, including in the matchmaking industry.
Warren
Thomson
Warren
Thomson is a lawyer with over 20 years of experience at international law firms and companies. Mr. Thomson served as a partner at
Hogan Lovells, an international law firm in Dubai from 2013 to 2017, where he advised companies of all sizes in the Middle East and Asia
through the whole of their corporate lifecycle, from incorporation through financing and expansion, and sometimes to winding-up. This
experience included mergers and acquisitions, and commercial transactions, as well as regulatory, employment, and corporate finance matters.
Mr. Thomson worked at HNA Group (International) Company Limited as Senior Counsel from 2018 to 2022 and as General Counsel in 2022, and
since 2022 he has served as General Counsel (Overseas) at Link Asset Management Limited, the manager of Link REIT, a multi-billion-dollar
real estate investment trust listed in Hong Kong.
Mr.
Thomson graduated with a Bachelor of Arts degree from Canberra University and a Bachelor of Laws degree with Honors from Australian National
University before earning a Graduate Diploma in legal practice from the College of Law in Sydney. Mr. Thomson is a member of the Australian
Chamber of Commerce (sitting on the Finance, Legal and Tax Committee) and the Association of Corporate Counsel and is qualified to practice
law in New South Wales (Australia) and Hong Kong.
Chenlong
Liu
Chenlong
Liu is a certified public accountant, as well as an investor active in the technology industry. Mr. Liu’s career has focused
on technology-related investments and mergers and acquisitions. He has participated in many well-known transactions in the industry.
As an investment director at China Fusion Capital from 2016 to 2020, he helped execute Nasdaq-listed iQiyi’s convertible bond transactions,
Kosdaq-listed Longtu’s acquisition and reverse takeover, Hong Kong-listed Kuaishou’s Series B investment round, and China
Fusion Capital’s acquisition of Particle, Inc. Since 2020, Mr. Liu has served as a director of Particle, a San Francisco-based
technology company.
Mr.
Liu earned a Bachelor of Science degree in mathematics from the University of Minnesota–Twin Cities in 2013 and was awarded a master’s
degree in accounting from George Washington University in 2015. Mr. Liu became a certified public accountant in Washington State in January
2019.
Kong
Liu
Kong
(“Luke”) Liu is an entrepreneur with experience in both traditional industries and the technology and Web3 areas. (He
is not related to Chenlong Liu.) Mr. Liu has experience in management and strategy roles in companies ranging from startups to multinationals,
and he has founded several companies over the years. Mr. Liu has has a particular focus on digital strategies at both traditional retailers
and technology companies, as well as in the recruitment field. He serves as the CEO of World@Meta, a Singapore-based technology company
developing mobile apps and games, where maximizing user engagement is a primary objective. He also serves as a managing director of MS
Consultancy Pte Ltd, a business consultancy that he founded in November 2020. In such environments, Mr. Liu has been responsible for
establishing the vision of the enterprise and working across teams to make that vision a reality.
Mr.
Liu graduated from Nanyang Polytechnic, in Singapore, with a Diploma of Information Technology and from Trent University, in Canada,
with a Bachelor of Business Administration.
TERM
OF OFFICE
All
directors hold office until the next annual meeting of the shareholders of the Company and until their successors have been duly elected
and qualified. The Company’s Bylaws provide that the Board of Directors will consist of no less than three members. Officers are
elected by and serve at the discretion of the Board of Directors.
DIRECTOR
INDEPENDENCE
Our
Board is currently composed of five members. With the exception of Thomas Tarala and Hongyu Zhou, we have determined that all of the
directors are independent as such term is defined under The Nasdaq Stock Market Rules.
The
following table identifies the independent and non-independent current board and committee members:
Name: |
|
Independent |
|
Audit |
|
Compensation |
|
Nominating |
Mike
Ballardie |
|
|
|
|
|
|
|
|
Yonah
Kalfa |
|
|
|
|
|
|
|
|
Steven
Crummey |
|
Yes |
|
Yes |
|
Yes |
|
|
Kirk
Taylor |
|
Yes |
|
Yes |
|
|
|
Yes |
Rodney
Rapson |
|
Yes |
|
Yes |
|
Yes |
|
Yes |
The
following table identifies the individual who are expected to serve as independent and non-independent board and committee members of
the Company upon completion of the Acquisition:
Name: |
|
Independent |
|
Audit |
|
Compensation |
|
Nominating |
Thomas
Tarala |
|
|
|
|
|
|
|
|
Hongyu
Zhou |
|
|
|
|
|
|
|
|
Warren
Thomson |
|
Yes |
|
Yes |
|
Yes |
|
Yes |
Chenlong
Liu |
|
Yes |
|
Yes |
|
Yes |
|
Yes |
Kong
(“Luke”) Liu |
|
Yes |
|
Yes |
|
Yes |
|
Yes |
COMMITTEES
OF THE BOARD OF DIRECTORS
Audit
Committee
Management
has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The
Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors and administers our engagement
of the independent registered public accounting firm. The Audit Committee meets with the independent registered public accounting firm,
with and without management present, to discuss the results of its examinations, the evaluations of our internal controls, and the overall
quality of our financial reporting. Kirk Taylor, Stephen Crummey and Rodney Rapson, who each satisfy the independence requirements of
Rule 10A-3 under the Exchange Act and Nasdaq’s rules, serve on our audit committee.
Audit
Committee Financial Expert
We
have determined that Kirk Taylor is qualified as an Audit Committee Financial Expert following the Acquisition, as that term is defined
under the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.
Compensation
Committee
The
function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the
power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations
with respect to shareholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering
the 2020 Global Incentive Plan. Steven Crummey and Rodney Rapson are the independent directors on the compensation committee, with Rodney
Rapson serving as the chairman.
Nominating
and Corporate Governance Committee
The
responsibilities of the Nominating and Corporate Governance Committee include the identification of individuals qualified to become Board
members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of
the Board of Directors, establishing procedures for the nomination process including procedures, oversight of possible conflicts of interests
involving the Board of Directors and its members, developing corporate governance principles, and the oversight of the evaluations of
the Board of Directors and management. The Nominating and Corporate Governance Committee has not established a policy with regard to
the consideration of any candidates recommended by shareholders. If we receive any shareholder recommended nominations, the Corporate
Governance Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith. Kirk Taylor and Rodney
Rapson, who satisfy the independence requirements of Nasdaq’s rules, serve on our compensation committee, with Mr. Rapson serving
as the chairman.
Board
and Committee Meetings in the 2024 Fiscal Year
In
the 2024 fiscal year, the Board of Directors acted by written consent in lieu of having any meetings and there were no committee meetings
insofar as the committees were not established until July 2023, which was after the 2023 fiscal year had ended.
Board
Diversity
While
we do not have a formal policy on diversity, our Board of Directors considers diversity to include the skill set, background, reputation,
type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Our Board
believes that diversity brings a variety of ideas, judgments and considerations that benefit the Company and its shareholders. Although
there are many other factors, the Board seeks individuals with experience working with public companies or with the investment community,
and experience operating growing businesses.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our Common Stock to file initial
reports of ownership and changes in ownership of the Common Stock and other equity securities with the SEC. These individuals are required
by the regulations of the SEC to furnish us with copies of all Section 16(a) forms they file.
DIRECTOR
COMPENSATION
Following
stockholder approval on May 15, 2024, the Company issued the directors the following securities (following adjustment by the recent 1-for-20
reverse stock split):
Mike
Ballardie – Warrants to purchase 50,000 shares of common stock with a term of 10 years and an exercise price of $0.001 per share;
Kirk
Taylor – 50,000 shares of common stock consisting of 15,000 shares for two years of director service and 35,000 shares of common
stock for extraordinary contribution;
Yonah
Kalfa – 50,000 shares of common stock consisting of 15,000 shares for two years of director service and 35,000 shares of common
stock for extraordinary contribution;
Rodney
Rapson – 25,000 shares of common stock consisting of 7,500 shares for one year of director service and 17,500 shares of common
stock for extraordinary contribution;
Steve
Crummey – 25,000 shares of common stock consisting of 7,500 shares for one year of director service and 17,500 shares of common
stock for extraordinary contribution.
Messrs. Goldman and Krishnan
did not receive any compensation for or in respect of the period during which they served as directors of the Company.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None
of our officers currently serves, or in the past year has served, as a member of the compensation committee of any entity that has one
or more officers serving on our Board.
RISK
OVERSIGHT
Our
Board will oversee a company-wide approach to risk management. Our Board will determine the appropriate risk level for us generally,
assess the specific risks faced by us, and review the steps taken by management to manage those risks. While our Board will have ultimate
oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.
Specifically,
our compensation committee will be responsible for overseeing the management of risks relating to our executive compensation plans and
arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise
risk and financial risk, as well as potential conflicts of interests. Our Board will be responsible for overseeing the management of
risks associated with the independence of our Board.
CODE
OF BUSINESS CONDUCT AND ETHICS
The
Company has not adopted a code of ethics that applies to its principal executive officers, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, as the Company has only recently commenced operations. Our Board adopted
a code of business conduct and ethics that applies to our directors, officers and employees (the “Code of Business Conduct and
Ethics”). A copy of the Code of Business Conduct and Ethics is available on the Company’s website. The Company intends to
disclose on its website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and
Ethics that apply to their principal executive officer, principal financial officer, principal accounting officer, controller, or persons
performing similar functions.
CERTAIN
LEGAL PROCEEDINGS
No
director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation
of his ability or integrity during the past ten years.
SIGNIFICANT
EMPLOYEES
Other
than our officers and directors, we currently have one other person who became in February 2022 what we consider to be a significant
employee:
| ● | Jalaluddin
Shaik, President of Gameface. |
Jalaluddin
Shaik founded and became the chief executive officer of Gameface in 2017. Prior to founding Gameface, Mr. Shaik led product teams at
some of the world’s biggest brands, including Telstra, Sony, and Apple. While at Telstra, Shaik led the creation of the Telstra
video streaming platform ‘Presto’, that reaches over 10M Australians. In addition to his role at Telstra, Shaik was the design
lead on the Apple airplay technology integration to 80% of Tier1 Audio OEM (Original Equipment Manufacturers) such as Denon, Bose, Pioneer,
Yamaha, leading a team of 30 engineers. Previously (2003-2010), Shaik built and deployed various end to end video decoding solutions
at Sony and Intel. Mr. Shaik is a graduate of Visvesvaraya Technological University with a bachelor’s degree in Computer Science
with a major in machine learning.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
table below summarizes all compensation awarded to, earned by, or paid to our then Officers for all services rendered in all capacities
to us for the fiscal years ended as indicated.
Name and Principal Position | |
Year ended
April 30 | | |
Salary
($) | | |
Bonus ($) | | |
Share Awards
($)(1) | | |
Non-Equity
Incentive Plan Compensation ($) | | |
All other
compensation ($) | | |
Total ($) | |
Mike Ballardie (1) | |
| 2024 | | |
| 324,714 | | |
| 300,000 | | |
| | | |
| | | |
| 475,595 | | |
| 1,100,309 | |
| |
| 2023 | | |
| 570,169 | | |
| 300,000 | | |
| - | | |
| 285,000 | | |
| 105,318 | | |
| 1,260,487 | |
Judah Honickman (2) | |
| 2024 | | |
| 190,198 | | |
| 95,940 | | |
| | | |
| | | |
| 55,199 | | |
| 341,337 | |
| |
| 2023 | | |
| 179,502 | | |
| 87,400 | | |
| | | |
| | | |
| 27,144 | | |
| 294,046 | |
Paul McKeown (3) | |
| 2024 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 2023 | | |
| 366,023 | | |
| 77,411 | | |
| | | |
| | | |
| | | |
| 443,434 | |
Tom Dye (4) | |
| 2024 | | |
| 80,000 | | |
| | | |
| | | |
| | | |
| 10,395 | | |
| 90,395 | |
| |
| 2023 | | |
| 160,000 | | |
| 40,000 | | |
| | | |
| | | |
| 16,902 | | |
| 216,902 | |
Mark Radom (5) | |
| 2024 | | |
| 183,000 | | |
| 54,000 | | |
| | | |
| | | |
| | | |
| 237,000 | |
| |
| 2023 | | |
| 150,000 | | |
| 28,500 | | |
| | | |
| | | |
| | | |
| 178,500 | |
Yonah
Kalfa (6) | |
| 2024 | | |
| - | | |
| - | | |
| | | |
| | | |
| 441,000 | | |
| 441,000 | |
| |
| 2023 | | |
| - | | |
| - | | |
| | | |
| | | |
| 495,000 | | |
| 495,000 | |
Jason Seifert (7) | |
| 2024 | | |
| - | | |
| - | | |
| | | |
| | | |
| - | | |
| - | |
| |
| 2023 | | |
| 35,833 | | |
| | | |
| | | |
| | | |
| 8,442 | | |
| 44,275 | |
(1) |
Calculated
in accordance with ASC Topi c 718, consistent with the Company’s financial statements.
Mr. Ballardie has served as the Company’s Principal Executive Officer and as Chairman
of the Board of Directors since September 16, 2019 and has an address at 2709 N. Rolling
Road, Suite 138, Windsor Mill, MD 21244. |
(2) |
Mr.
Honickman has served as the Company’s Chief Marketing Officer since September 16, 2019 and has an address at 2709 N. Rolling
Road, Suite 138, Windsor Mill, MD 21244. |
(3) |
Paul
McKeown served as the Company’s Chief Financial Officer from April 30, 2020 through July 6, 2021 and from July 6, 2021 to January
31, 2023 as the Company’s Chief Business Integration Officer and had an address at 2709 N. Rolling Road, Suite 138, Windsor
Mill, MD 21244. |
(4) |
Tom
Dye served as the Company’s Chief Operating Officer from April 30, 2020 through April 30, 2023 and had an address at 2709 N.
Rolling Road, Suite 138, Windsor Mill, MD 21244. |
(5) |
Mark
Radom has served as the Company’s General Counsel since September 16, 2019 and has an address at 2709 N. Rolling Road, Suite
138, Windsor Mill, MD 21244. |
(6) |
Yonah
Kalfa has served as the Company’s Chief Innovation Officer since September 7, 2020 and has an address at 2709 N. Rolling Road,
Suite 138, Windsor Mill, MD 21244. |
(7) |
Jason
Seifert served as the Company’s Chief Financial Officer from July 6, 2021 through June 25, 2022 and had an address at 2709
N. Rolling Road, Suite 138, Windsor Mill, MD 21244. |
SERVICE
AGREEMENTS
The
Company is a party to service agreements with each of its executive officers.
Mike
Ballardie. On April 6, 2020, we entered into a service agreement with our Chief Executive Officer, Mike Ballardie, which was amended
on November 1, 2020. Pursuant to the service agreement, Mr. Ballardie will serve as our Chief Executive Officer for a period of five
years. During the five-year term, Mr. Ballardie receives a monthly base salary of $50,000 and a bonus payment at a minimum of 50% of
the annual base salary. We also issued Mr. Ballardie warrants to purchase 500,000 shares of Common Stock. The warrants were exercisable
at issuance at an exercise price of $0.01 per share and have an expiration date of April 6, 2030. We also provide standard indemnification
and directors’ and officers’ insurance. We may terminate Mr. Ballardie’s employment with cause (as defined under the
agreement) and without cause by giving at least 180 days prior written notice. If we terminate Mr. Ballardie without cause, all his unvested
stock and option compensation of any nature will vest without any further action. Mr. Ballardie may resign for good reason (as defined
under the agreement) or without good reason by giving at least 180 days prior written notice. If we terminate Mr. Ballardie without cause
or he resigns for good reason, we must pay severance in an amount in lieu of base salary and benefits that would have accrued to Mr.
Ballardie for the greater of (a) the unexpired portion of the term of the agreement or (b) two years, to be paid in full within 30 days
of termination. In addition, vesting of all unvested common or preferred shares and options and warrants will continue for 12 months
following such termination if we terminate Mr. Ballardie without cause or he resigns for good reason. Mr. Ballardie is also subject to
standard confidentiality and non-competition provisions.
Tom
Dye. On April 30, 2020, we entered into a service agreement with our Chief Operating Officer, Tom Dye. Pursuant to the service agreement,
Mr. Dye served as our Chief Operating Officer for a period of three years. During the three-year term, Mr. Dye received an annual base
salary of $120,000 and a bonus payment at a minimum of 25% of the annual gross base salary. We agreed to issue Mr. Dye warrants to purchase
a total of 125,000 shares of Common Stock to be issued at the time that certain performance goals are met. The warrants that were issued
to Mr. Dye on April 30, 2020 are exercisable at issuance at an exercise price of $3.00 per share and have an expiration date of April
30, 2030. The warrants that were awarded to Mr. Dye on February 9, 2021 are exercisable at issuance at an exercise price of $39.40 per
share and have an expiration date of February 9, 2031. We also agreed to issue a one-time bonus of 150,000 shares of Common Stock to
Mr. Dye after the value of the Company’s outstanding stock equals $100 million. The Company will also provide standard indemnification
and directors’ and officers’ insurance. The Company may terminate Mr. Dye’s employment with cause (as defined under
the agreement) and without cause by giving at least 60 days prior written notice. If we terminate Mr. Dye without cause, all Mr. Dye’s
unvested stock and option compensation of any nature will vest without any further action, and we will pay two years base salary severance
within 30 days of termination. In addition, vesting of all unvested common or preferred shares and options and warrants will continue
for 12 months following such termination. Mr. Dye may resign for good reason (as defined under the agreement) or without good reason
by giving at least 30 days prior written notice. Mr. Dye is also subject to standard confidentiality and non-competition provisions.
Since 30 April 2023, Mr. Dye has operated as a consultant to the company.
Paul
McKeown. On July 5, 2021, we entered into a service agreement with our former Chief Financial Officer, Paul McKeown. Pursuant to
the service agreement, Mr. McKeown served as our Chief Business Integration Officer until January 31, 2023, when he resigned. During
the term of this agreement, Mr. McKeown received a base salary at an hourly rate of $150 per hour and an annual performance bonus of
at least 30% of the annual gross base salary. and We also issued Mr. McKeown warrants to purchase 150,000 shares of Common Stock. The
warrants were exercisable at issuance at an exercise price of $0.01 per share and have an expiration date of The Company will also provide
standard indemnification and directors’ and officers’ insurance. Mr. McKeown was also subject to standard confidentiality
and non-competition provisions. Since January 2023, Mr. McKeown has operated as a consultant to the Company.
Juda
Honickman. On April 30, 2020, we entered into a service agreement with Nest Consulting Inc., a Delaware corporation, owned by our
Chief Marketing Officer, Juda Honickman. Pursuant to the service agreement, Mr. Honickman will serve as our Chief Marketing Officer for
a period of three years. During the three-year term, Mr. Honickman receives an annual base salary of $102,000 and a bonus payment at
a minimum of 50% of his annual base salary. We also issued warrants to purchase 250,000 shares of Common Stock to Mr. Honickman. The
warrants were exercisable at issuance at an exercise price of $3.00 per share and have an expiration date of April 30, 2030. The Company
will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Honickman’s
employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate
Mr. Honickman without cause, all Mr. Honickman’s unvested stock and option compensation of any nature will vest without any further
action and will pay two years base salary severance within 30 days of termination. In addition, Mr. vesting of all unvested common or
preferred shares and options and warrants will continue for 12 months following termination. Mr. Honickman may resign for good reason
(as defined under the agreement) or without good reason by giving at least 30 days prior written notice. Mr. Honickman is also subject
to standard confidentiality and non-competition provisions.
Mark
Radom. On February 1, 2022, we entered into the second amended and restated service agreement with our General Counsel, Mark Radom.
Pursuant to the service agreement, Mr. Radom will serve as General Counsel for a period of two years. During the two-year term, we agreed
to pay Mr. Radom a monthly base salary of $12,500 and a bonus payment at a minimum of 25% of the annual base salary. The Company will
also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Radom’s
employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate
Mr. Radom without cause, all Mr. Radom’s unvested stock and option compensation of any nature will vest without any further action,
and we will pay two years base salary severance within 30 days of termination. In addition, vesting of all unvested common or preferred
shares and options and warrants will continue for 12 months following termination. Mr. Radom may resign for good reason (as defined under
the agreement) or without good reason by giving at least 120 days prior written notice. Mr. Radom is also subject to standard confidentiality
and non-competition provisions.
Yonah
Kalfa. On September 7, 2020, we entered into a service agreement with our Chief Innovation Officer, Yonah Kalfa. Pursuant to the
service agreement, Mr. Kalfa will serve as our Chief Innovation Officer for a period of three years. During the three-year term, Mr.
Kalfa receives an annual base salary of 1,162,800 Israeli New Shekel (approximately $350,000) and a bonus payment at a minimum of 25%
of the annual gross base salary. Mr. Kalfa agreed to defer receipt of his base salary until otherwise agreed in writing. The Company
will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Kalfa’s
employment with cause (as defined under the agreement) and without cause by giving at least 60 days prior written notice. If we terminate
Mr. Kalfa without cause, we will pay two years base salary severance within 30 days of termination. Mr. Kalfa may resign for good reason
(as defined under the agreement) or without good reason by giving at least 30 days prior written notice. Mr. Kalfa is also subject to
standard confidentiality and non-competition provisions.
The
Company plans to enter into a service agreement with each of the individuals who will serve as directors of the Company upon completion
of the Acquisition. The terms of the service agreement are expected to include the following: (1) the director will serve as an independent
contractor of the Company and perform services to the Company in consideration of payment to be determined by the Company and the director;
(2) the Company shall indemnify the director if the basis of the indemnitee’s involvement was by reason of the fact that the indemnitee
is or was our director or officer or was serving at our request as a director, officer, member, employee or agent for another entity,
(3) the Company shall purchase and maintain directors’ and officers’ liability insurance during the term of the director’s
service and for a period of six years thereafter, (4) the term of the service agreement will be one year following the effective date
or upon an earlier termination date pursuant to the agreement; and (5) the director will agree to a non-competition clause.
DIRECTOR
COMPENSATION
The
following table sets forth director compensation for the years ended April 30, 2024 and 2023:
Name | |
Year
Ended April 30 | | |
Fees
earned
or
paid in cash ($) | | |
Stock
Awards
($) | | |
Total
($) | |
Mike
Ballardie | |
| 2024 | | |
| - | | |
| 207,750 | | |
| 207,750 | |
| |
| 2023 | |