ITEM
1. Business
History
of our Company
Lazex
Inc. (the “Company” or “Slinger”), was formed on July 12, 2015 as a Nevada corporation. From its inception
until September 13, 2019, the Company was in the business of providing travel consulting
and tour guide services. On September 16, 2019, Slinger Bag Americas Inc. (“Slinger Bag Americas”) acquired
20,000,000 shares of the Company’s common stock from its then shareholders. On September 16, 2019, the Company acquired
100% of the outstanding shares of “Slinger Bag Americas” when the then owner of Slinger Bag Americas contributed her
shares of Slinger Bag Americas to the Company in exchange for 20,000,000 shares of the Company. The result of the foregoing transactions
is that Slinger Bag Americas became a wholly-owned subsidiary of the Company. From September 16, 2019 and onward, the Company
ceased its performance of travel consulting or tour guide services and has switched its focus to the development of the technologies
and products owned by Slinger Bag Americas and its affiliates.
On
February 10, 2020, Slinger Bag Americas acquired a 100% ownership stake in Slinger Bag Ltd (“SBL”). SBL owns the intellectual
property rights pertaining to the Slinger Launcher (described more fully below) and was responsible for the Kickstarter campaign
described more fully below.
On
February 25, 2020, the Company increased the number of authorized shares of Common Stock
from 75,000,000 to 300,000,000 and effected a 4-1 forward split of its outstanding shares of common stock. Approval of the Company’s
stockholders was not required to be obtained, as authorized by Nevada Revised Statute Section 78.207, et seq. The forward split
became effective on February 25, 2020. As a result of the forward stock split, each share of the Company’s common stock
outstanding has been split into four shares of the Company’s common stock. All references in this report to numbers of shares
reflect the Company’s 4-1 forward split.
Through
its ownership of Slinger Bag Americas and SBL, Slinger is the owner of the Slinger Launcher and is focused on the Ball Sport Market
globally. Slinger has developed and patented a highly portable and affordable Ball launcher built into an easy to transport wheeled
trolley bag (the “Slinger Launcher”). The Slinger Bag allows anyone to simply and easily control the speed, frequency
and elevation of balls that are launched for practice, training or fitness purposes.
Slinger
will initially focus all its energies on the Tennis market worldwide.
For
the regular tennis player Slinger is much more than a tennis ball launcher. It also functions as a complete tennis bag with ample
room for racquets, shoes, towels, water bottles and other accessories and can charge mobile phones and other devices.
Tennis
Ball machines have been around since the 1950’s when they were introduced by Renne Lacoste. Improvements to performance
were made in the 1970’s when Prince started its tennis business on the back of its first product – Little Prince –
which was a vacuum operated ball machine. In the 1990’s the first battery operated machines came to the market and since
that time very little, if anything has changed in the structure of ball machines products outside of added computerization. Typically,
the machines being marketed by traditional ball machine brands are large, cumbersome and awkward to operate. They are also very
expensive – often well above U.S. $1,000. Up until today 99% of all tennis ball machines have sold to tennis facilities,
with only a few being sold directly to tennis playing consumers.
According
to the Tennis Industry Association (www.tia.org) the single largest challenge facing tennis participation is the fact that 34%
of lapsed players cited a “lack of a playing partner” as the reason for them stopping to play tennis. Slinger goes
a long way to solving this issue.
The
global tennis market is regarded by industry experts, governing organizations, Tennis brands and tennis-specific market research
companies as having 100 million active players globally, with as many consumers again being avid fans of the sport. Of this 100
million tennis player market, 20 million players are regarded as frequent or avid players – players who play regularly -
at least 1 time per month. These avid players drive the total tennis industry and account for 80% of all tennis revenues worldwide.
It
is this avid player market that Slinger is focused on penetrating with its Slinger Launcher and associated tennis accessories.
Slinger
intends to disrupt this traditional tennis market by creating a new ball machine category – called Slinger Launcher –
and marketing lightweight, portable, versatile and affordable Slinger Launchers directly to avid, regular tennis players.
Constructed within a standard-sized, wheeled trolley tennis bag, a Slinger Launcher weighs around 15kgs / 33lbs when empty. If
stored with 72 Balls inside the weight increases to 19kgs / 42lbs. It can easily be stored in the trunk of saloon/sedan
car, wheeled to the court and set up within minutes to use. The Slinger Launcher is powered by a Lithium battery that can
last up to 4 hours of play depending on the settings being used. Slinger’s convenience as a tennis bag combined with its
ease of operation and overall performance as a tennis ball launcher is the basis that the company will target direct sales to
these avid players.
While
the initial brand focus is clearly on Tennis, Slinger is developing similar launchers to address other forms of tennis around
the globe that are either rapidly gaining new participants or are already well-established sports in their own right. These include,
but are not limited to Pickleball (USA), Soft Tennis (Japan) and Paddle Tennis (International markets).
In
future years the company plans to enter new ball sport markets such as Baseball, Softball, Cricket, Lacrosse and other popular
ball sports.
To
test the market for its products, Slinger, through its affiliate SBL, initiated a Kickstarter and Indiegogo campaign in 2019,
selling 3,100 units which generated revenue of approximately U.S. $858,000.
At
the beginning of November 2019, the Company shipped 100 new product packages to potential distribution partners, high level players,
tennis journalists and tennis bloggers as part of a final market testing program. Feedback
resulted in minor tweaks to the design of the Slinger Launcher, which have all been incorporated into the final production
unit. Our manufacturing facility in China went into full production in late November 2019. As of April 30, 2020, we had
manufactured close to 10,000 product packages out of our vendor sources in southern China. These were shipped to our logistics
facilities located in South Carolina for the United States market and to Belgium and Xiamen, China for all other international
markets.
Additionally,
we ordered and shipped several containers of Slinger Triniti Tennis Balls from Wilson Sporting Goods (our supplier) in Thailand
to the United States and Belgium for onward distribution.
The
Company has already signed a number of exclusive distribution agreements covering Japan, UK & Ireland, Switzerland and the
Scandinavian markets covering Denmark, Sweden, Norway and Finland and is in various stages of negotiation with another 35 potential
market distribution companies across the globe.
Manufacturing
production is back to full capacity and discussions are under way with all Slinger vendors to reduce production lead-times and
to increase production capacities to meet expected increased demand both in core start-up markets such as the United States of
America and through the distribution partners in international markets already signed to long-term distribution agreements.
Our
principal executive office is located at 2709 N. Rolling Road, Suite 138, Windsor Mill, MD 21244, and our telephone number is
443-407-7564.
Strategy
The
Company has an opportunity to disrupt the traditional tennis market globally. The Company expects to drive 80% of its global revenues
through a direct-to-consumer go-to-market strategy, whether that be through its on-line e-commerce platform at www.slingerbag.com
or through associated e-commerce platforms established and managed by its distribution network. The balance of revenues will
come from partnerships with leading tennis wholesalers and specialty tennis dealers, country tennis federations and through
affiliate marketing programs aimed at teaching pros and brand influencers. The Company will operate a third-party distributor
structure in all markets with the exception of the United States, the largest tennis market globally, Canada and its founder’s
home market of Israel. As the business develops other markets may be added to this direct sale market list. Distributor partners
will have exclusive territories and will have a respected and recognized background within the tennis industry for their marketplace,
as well as having the financial capacity, personnel and service infrastructure to aggressively grow the Slinger brand. Slinger
will be one of the first brands across the wider sports industry to adopt a program of soliciting consumer orders through its
own e-platform portal at www.slingerbag.com and routing them directly back to each local distribution partner to fulfill and to
service local consumers. This will supplement and compliment Distributors’ own e-commerce activities through their respective
e-platform portals. All distributor partners will purchase either with advanced orders, based on a vendor-direct FOB Asia direct
shipment or through at once orders via 1 of our 3 global 3rd party distribution facilities. These at once orders will
be delivered on a duty paid basis and at premium cost price to the distributor to the advanced order FOB Asia direct ship price
structure. Currently, the Company has signed a number of exclusive distribution agreements in key international markets and has
on-going partnership discussions with another 35 key potential distributor partners across the globe and is aiming to close these
distribution arrangements in the coming months in line with market importance and Slinger’s ability to service their product
needs.
The
United States market will remain a direct to consumer market for Slinger. As the largest Tennis market in the world with 17.4
million players of which 10.5million are regular / avid players, the United States is a key market both to establish the Slinger
brand and to drive demonstrable growth. Direct to consumer sales will be supplemented by one or more leading tennis wholesalers
who own large databases of coach, player, college, high school and club clients and preferred select tennis specialty dealers.
This market will be serviced out of a third-party logistics facility in West Columbia SC and operated Slinger’s preferred
global logistics partners, DSV, one of the world’s leading suppliers of freight-forwarding, logistics and warehousing services.
Brand
Marketing
As
a direct-to-consumer e-commerce brand, all marketing activity and advertising media will be centered around pushing consumers
to www.slingerbag.com and converting them to purchases. Slinger has engaged a number of leading agencies to support its
global marketing efforts:
Brand
Nation is a world class influencer marketing agency based in London. Brand Nation will lead all influencer programming globally.
Slinger has seeded about 50% of its planned 1,000 global influencers to date. Influencers targeted are wide ranging and include
leading sports, tennis, film, TV, music and blogger celebrities all known for the fact that they play tennis regularly and have
a fan base in excess of 10,000 followers. All influencer activity is rolled back up to the Slinger social media platforms as a
means of generating significant brand awareness and product interest.
Ad
Venture Media Group is a New York based leading PPC (pay-per-click) agency whose work is grounded in sophisticated scientific
analysis of consumer data and consumer trends and they are recognized globally as leaders in paid search and paid social media
campaigns. Ad Venture Media will lead all Slinger PPC activity on a performance-based fee structure and is briefed to drive consumer
engagement, through bespoke advertising campaigns that are aligned to our product profitability objectives.
In
the United States market, we have partnered with an organization called Team HQS who will manage an affiliate marketing program
across USA based teaching professionals, players, juniors and events. These affiliates will be provided with unique affiliate
marketing codes to share with their social media followers and other such communities that they are connected to and each will
receive an affiliate marketing fee based on revenues generated by consumers purchasing Slinger products attributable to their
unique code.
Each
of our distributor partners around the world are establishing their Slinger Bag distribution business as Slinger itself would
do if it was establishing a Slinger Bag subsidiary in each market. As such, each distributor will also adopt all forms of Slinger
brand marketing programs as well as initiating new local concepts of their own – all aimed at reaching the avid/regular
tennis player directly and ensuring that the Slinger brand message is consistent around the globe. Slinger Bag has agreed a local
marketing budget structure with each distributor as part of its distribution agreement. This marketing budget will be primarily
funded by the distributor partner with an additional contribution coming from Slinger with the contribution being linked
to the distributors purchase objectives. Each distributor will execute local grassroots programs including demonstration days,
local teaching pro partnerships, specialist tennis network communications, seeding of Slinger Bag product locally as necessary
to local key market tennis influencers to further increase the intensity of the influencer effort. Marketing dollars will also
be allocated to Google, Facebook, YouTube and other social media advertising spend and, where appropriate, approved and
overseen by Ad Venture Media Group.
Distribution
Agreements
As
at the date of this report, Slinger Bag Americas has entered into exclusive distribution agreements for Slinger’s line of
products, including, but not limited to, tennis ball launcher devices, tennis ball launcher accessories, sports bags, tennis balls
tennis court accessories and other tennis related products in the following markets and with the following distributors:
Territory
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Distributor
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Minimum
Purchase Requirement of
Slinger Bag Tennis Ball Launchers
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Japan
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Globeride
Inc.
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32,500
through the end of January 2025
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United
Kingdom and Ireland
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Framework
Sports & Marketing Ltd
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9,000
through the end of May 2025
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Switzerland
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Ace
Distribution
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3,000
through the end of May 2025
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Denmark,
Finland, Norway and Sweden
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Frihavnskompagniet
ApS
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6,500
through the end of December 2025
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Brand
Endorsements
Slinger
has reached agreement with several globally recognized brand ambassadors.
Nick
Bollettieri is without question the most famous tennis coach globally, having trained 10 world #1 players such as Andre Agassi,
Jim Courier, Boris Becker, Monica Seles, Maria Sharapova and Serena Williams. Nick will join Slinger Bag as “Head Coach”
and will provide registered Slinger consumers with regular training and coaching tips through Slingers “Coaches Corner”
on its website.
Mike
& Bob Bryan (aka the Bryan Brothers – the foremost doubles team in the Tennis world) will be the global ambassadors
for Slinger Bag from the global Tennis tour and will feature prominently in our marketing messaging.
The
Professional Tennis Registry (PTR) – a United States-based teaching teacher association with approximately 40,000 members
will become a non-exclusive strategic partner for Slinger with all their members able to access an affiliate member part
of our website.
PTCA
Central Europe is a European Coach organization of leading touring pro coaches and they, like others, will undertake an affiliate
marketing approach.
Slinger
Bag is currently in discussions with other organizations, events, prominent coaches and players and has to date seeded Slinger
Bag products to 12 of the Top 20 ATP male players, 5 of the top 20 WTA women players, plus numerous other top-class touring and
teaching professionals.
Throughout
the summer Slinger Bag became or will become a brand sponsor of several prominent tennis events, e.g. Battle of the Brits, Tie
Break 10s (all shown live across the globe).
Strategic
Brand Partnerships
Slinger
Bag is actively working on securing a number of highly visible ground-breaking strategic partnerships across tennis. These partnerships
will both provide Slinger Bag either with co-branded products to supplement the core Slinger Bag product offering or a
range of services required by Slinger to execute its business operations. Examples of these are
●
Professional Tennis Registry (PTR):
The
PTR is the world’s most prestigious teaching pro organization with more than 40,000 members. Slinger has partnered with
PTR on a non-exclusive basis for the supply of Ball Launchers to their membership.
●
DSV Logistics DSV is the world’s leading suppliers of warehousing, freight forwarding and logistics. Slinger will use DSV
services in China, Europe and the US to optimize all logistical activities.
●
Quinte Computer Systems (QCS) is a business enterprise systems development company based on Canada. Through their Solentris®
operating systems they have been at the forefront of supporting many global sports businesses with all of their back-end support
programs including sales-order management, inventory management, and financial management. The support of QCS has allowed
Slinger to establish rigorous procedures and process to support its global business.
Competition
None.
There are currently no competitors with products that are similar to the Slinger Bag. There are, however, tennis ball machines,
including the following machines:
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Spinshot
Player Tennis Ball Machine
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Spinfire
Pro 2
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Lobster
Sports Elite 3
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Spinshot
Plus-2
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Lobster
Sports Elite Grand V Limited Edition
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Lobster
Sports Phenom II
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Spinshot
Plus
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Lobster
Sports Elite 2
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Spinshot
Pro
|
●
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Lobster
Sports Elite 1
|
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Spinshot
Lite
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Lobster
Sports Elite Liberty Tennis Ball Machine
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Match
Mate Rookie
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https://sportstutor.com/tennis-cube/
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●
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https://sportstutor.com/tennis-tutor-prolite/
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https://sportstutor.com/tennis-tutor/
|
Raw
Materials
All
materials used in the Slinger Launder are available off-the-shelf. The trolley bag is manufactured with 600D Polyester and has
the CA65 certification for the USA market. The launcher housing, Oscillator and Ball Collector tube parts are produced using an
injection mold using poly propylene mixed with 30% glass fibers. The electronic motors, PCB boards and remote-control parts are
all standard off the shelf items that have been customized for use within the proprietary Slinger Launcher.
Intellectual
Property
The
Company retains specialist trademark and patent attorneys with international experience.
As
at the date hereof, the Company has applied for international design and utility patent protection for its main 3 products: Slinger
Launcher, Slinger Oscillator and Slinger Telescopic Ball Tube.
Patents
have been applied for in the following markets: USA, Canada, China, Israel, Japan and the European Patent Organization
markets comprising all member states of the European Union (including
the UK) together with Albania, Macedonia, Iceland, Liechtenstein, Monaco, Norway, San Marino,
Serbia, Switzerland and Turkey.
Trademarks
have been applied for in all major markets around the globe Trademark protection has been applied for and/or received in the following
countries:
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USA
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Chile
|
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Taiwan
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Mexico
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EU
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Russia
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Poland
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Czech
Republic
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Australia
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New
Zealand
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China
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South
Korea
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Vietnam
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Singapore
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India
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Canada
|
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United
Arab Emirates*
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South
Africa*
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Columbia*
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Israel*
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Japan*
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Switzerland*
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Indonesia*
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●
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Malaysia*
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Thailand*
|
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●
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Turkey*
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*Protection
is pending.
Slinger Bag Inc. owns the rights to its Slingerbag.com domain and
many other Slinger or Slingerbag domain extensions across global markets.
Costs
and Effects of Complying with Environmental Regulations
Set
forth below is a detailed chart of all Product Certifications held by Slinger for key global markets covering Battery, Remote
Control (Radio Wave), and Power Charger. In addition, within the United States, Slinger complies with the required California
65 regulations in respect of the materials used in the construction of its trolley bag.
Research
and Development
The
Company is involved in additional research and development of transportable, affordable and player-enhancing ball launching machines
and associated game improvement products for all Ball Sports. Following a successful launch of its tennis ball launcher and provided
that the Company achieves certain performance targets, Slinger Bag plans to adapt its technology and introduce similar transportable,
versatile and affordable ball launchers for Baseball, Softball, Cricket and other high participation ball sports.
Slinger
Bag retains outside consultants to provide research and product design services and each consultant has a specific expertise (molding
technology, electronics, product design, bag design as examples). We also are working with a select group of highly qualified
and resourceful third-party suppliers in Asia. We are continually striving to identify product enhancements, new concepts and
improvement to the production process on an on-going daily basis. In respect of any new project, management provides detailed
briefs, market data, product cost targets, competitive analysis, timelines and project cost goals to either the product consultants
or vendors and manages them to agreed key performance indicators (“KPIs”). These KPI’s include but are not limited
to (i) manufacturing to target costs; (ii) agreed development timelines; (iii) established quality criteria; (iv) defined performance
criteria.
Outside
of this we retain specialist trademark and patent attorneys and bring them in to the projects as needed.
Government
Regulation
Both
Slinger Launcher and Slinger Oscillator meet all the United States government requirements for electrical, radio wave and battery
standards as well as having all necessary and required certification to facilitate global marketing and sales of these products.
Quality
Control
Quality
control is a critical function within Slinger. As a new brand our business enterprise success will be solely dependent on the
quality and consistency of our products. To ensure the highest levels of quality control, Slinger has engaged a QC/Vendor Management
partner located in Taiwan with offices in Southern China. The QC partner, Stride-Innovation, has over 30 years of experience working
with Ball Sport companies such as ours and is steeped in knowledge, resources and experience in working with Chinese vendors of
sports equipment.
In
partnership, together, we have created and documented Slinger quality guidelines, testing procedures and warranty processes. We
have implemented an agreed Quality Audit process for all product parts being received and used by our product assembly vendor.
All products go through a rigorous, statistically valid QC testing approval process before being confirmed as available to be
released for shipment to one of our distribution centers or to any of our distribution partners.
Slinger
offers a limited warranty with all purchases in accordance with local market statutory regulations. This limited warranty can
be further extended by the purchaser registering his/her unique product serial number at www.slingerbag.com/warranty
Vendors
Slinger
only works with and through highly reputable third-party suppliers. We are in the process of finalizing vendor agreements with
each of our key vendor partners and through our vendor management partner. Our management and our vendor management partner,
Stride-Innovation, regularly visit the vendor facilities and monitor production, employee conditions and welfare and undertake
quality control testing. We do not utilize or condone the use of child labor of any kind in the production of our products. We
ensure that our vendor partners are providing quality workplace conditions, workplace health and safety, employee care and support
programs that meet or exceed all statutory requirements.
Going
Concern
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit
of $10,228,513 as of April 30, 2020 and more losses are anticipated in the development of the business. Accordingly, there is
substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include
any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or being
able to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations
when they become due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans
from related parties, and/or private placement of common stock.
There
can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that
funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional
capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force
the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business.
Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that
they will not have a significant dilutive effect on the Company’s existing stockholders.
The
Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of the commencement
of revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company anticipates
raising additional funds through public or private financing, strategic relationships or other arrangements in the near future
to support its business operations; however, the Company may not have commitments from third parties for a sufficient amount of
additional capital. The Company cannot be certain that any such financing will be available on acceptable terms, or at all, and
its failure to raise capital when needed could limit its ability to continue its operations. The Company’s ability to obtain
additional funding will determine its ability to continue as a going concern. Failure to secure additional financing in a timely
manner and on favorable terms would have a material adverse effect on the Company’s financial performance, results of operations
and stock price and require it to curtail or cease operations, sell off its assets, seek protection from its creditors through
bankruptcy proceedings, or otherwise. Furthermore, additional equity financing may be dilutive to the holders of the Company’s
common stock, and debt financing, if available, may involve restrictive covenants, and strategic relationships, if necessary,
to raise additional funds, and may require that the Company relinquish valuable rights.
ITEM
1A. 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 prospectus, 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,
operating results or prospects. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial
may also impair our business, financial condition, operating results and prospects. In such case, the trading price of our common
stock could decline and you could lose all or part of your investment.
Risks
Related to Our Business
Our
business is sensitive to consumer spending and general economic conditions.
Consumer
purchases of discretionary premium sporting good items, which include all of our products, may be adversely affected by the current
Coronavirus pandemic, as well as economic conditions such as employment levels, wage and salary levels, trends in consumer confidence
and spending, reductions in consumer net worth, interest rates, inflation, the availability of consumer credit and taxation policies
influence public spending confidence. Recent dramatic downturns in the strength of global stock markets, currencies and key economies
have highlighted many if not all of these risks.
Consumer
purchases in general may decline during recessions, periods of prolonged declines in the equity markets or housing markets and
periods when disposable income and perceptions of consumer wealth are lower, and these risks may be exacerbated for us due to
our focus on discretionary premium items. A downturn in the global economy, or in a regional economy in which we have significant
sales, could have a material, adverse effect on consumer purchases of our products, our results of operations and our financial
position, and a downturn adversely affecting our affluent consumer base or travelers could have a disproportionate impact on our
business.
There
continues to be a significant and growing volatility and uncertainty in the global economy due to the coronavirus or covid-19
(“Coronavirus”) pandemic affecting all business sectors and industries. In addition, the on-going uncertainty in Europe
(including concerns that certain European countries may default in payments due on their national debt and concerns regarding
the future viability of the European Union and the possible effects of its unraveling) and any resulting disruption could adversely
impact our net sales in Europe and globally unless and until economic conditions in that region improve and the prospects of national
debt defaults in Europe decline. Further or future downturns may adversely affect traffic at our on-line sales portals (which
currently includes our own website www.slingerbag.com) and could materially and adversely affect our results of operations, financial
position and growth strategy.
Likewise,
the current impasse in USA-China trade relations has resulted in import duties for all Slinger products into the USA being increased
from the previous standard of 5% to 30%. Management has taken the view that at this time in the early years of Slinger growth,
gaining distribution and share outweighs the immediate margin consideration and has decided to take the added increase in import
tariffs as a margin loss.
We
rely on independent manufacturers and suppliers.
We
outsource the manufacture and assembly of all our products to companies located in China. We do not control our independent manufacturers
and suppliers or their labor and other business practices. Violations of labor, environmental or other laws by an independent
manufacturer or supplier, or divergence of an independent manufacturer’s or supplier’s labor or other practices from
those generally accepted as ethical or appropriate in the U.S., could disrupt the shipments of our products or draw negative publicity
for us, thereby diminishing the value of our brand, reducing demand for our products and adversely affecting our net income. Additionally,
since we do not manufacture our products, we are subject to risks associated with inventory and product quality-control.
Recent
events, such as the outbreak of Coronavirus in China during the Chinese New Year holidays resulted in material delays in the production
of our products. This resulted in a three-month delay in our production. Further delays may be forthcoming should Coronavirus
spike for a second time in Asia or otherwise.
Further,
we have not historically entered into manufacturing contracts with our manufacturers; instead we have hired them on an ad hoc
basis. Identifying a suitable manufacturer is an involved process that requires us to become satisfied with the prospective manufacturer’s
quality control, responsiveness and service capabilities, financial stability and labor practices. While we have business continuity
and contingency plans for alternative sourcing, we may be unable, in the event of a significant disruption in our sourcing, to
locate alternative manufacturers or suppliers of comparable quality at an acceptable price, or at all, which could result in product
shortages or decreases in product quality, and adversely affect our net sales, gross margin, net income, customer relationships
and our reputation.
We
depend on the strength of the Slinger® brand.
We
expect to derive substantially all of our net sales from sales of Slinger branded products. The reputation and integrity of the
Slinger brand are essential to the success of our business. We believe that our consumers value the status and reputation of the
Slinger brand, and the superior quality, performance, functionality and durability that our brand represents. Building, maintaining
and enhancing the status and reputation of the Slinger brand image are also important to expanding our consumer base. Our continued
success and growth depend on our ability to protect and promote the Slinger brand, which, in turn, depends on factors such as
the quality, performance, functionality and durability of our products, our communication activities, including advertising and
public relations, and our management of the consumer experience, including direct interfaces through customer service and warranty
repairs. We may need to make substantial investments in these areas in order to maintain and enhance our brand, and such investments
may not be successful.
Additionally,
in order to expand our reach in the future, we may need to engage with third-party distributors. To the extent those third-party
distributors fail to comply with our operating guidelines, we may not be successful in protecting our brand image. Product defects,
product recalls, counterfeit products and ineffective marketing are among the potential threats to the strength of our brand,
and to protect our brand’s status, we may need to make substantial expenditures to mitigate the impact of such threats.
In
addition, if we fail to continue to innovate to ensure that our products are deemed to achieve superior levels of function, quality
and design, or to otherwise be sufficiently distinguishable from our competitors’ products, or if we fail to manage the
growth of our on-line sales in a way that protects the high-end nature of our brand, the value of the Slinger brand may be diluted,
and we may not be able to maintain our premium position and pricing or sales volumes, which could adversely affect our financial
performance and business. In addition, we believe that maintaining and enhancing our brand image in new markets where we have
limited brand recognition is important to expanding our consumer base. If we are unable to maintain or enhance our brand in new
markets, then our growth strategy could be adversely affected.
The
cost of raw materials, labor or freight could lead to an increase in our cost of sales and cause our results of operations to
suffer.
Increasing
costs for raw materials (due to limited availability or otherwise), labor or freight could make our sourcing processes more costly
and negatively affect our gross margin and profitability. Labor costs at our independent manufacturers’ sites have been
increasing and it is unlikely that these increases will abate. Wage and price inflation in our source countries could cause unanticipated
price increases which may be significant. Such price increases by our independent manufacturers could be rapid in the absence
of manufacturing contracts. Energy costs have fluctuated dramatically in the past and may fluctuate in the future. Rising energy
costs may increase our costs of transporting our products for distribution, our utility costs in our offices and owned stores
and the costs of products that we source from independent suppliers. Further, many of our products are made of materials, such
as high impact plastics, plastic-injected molded parts, and lightweight high tensile strength metals, that are either petroleum-based
or require energy to construct and transport. Costs for transportation of such materials have been increasing as the price of
petroleum increases. Our independent suppliers and manufacturers may attempt to pass these cost increases on to us, and our relationships
with them may be harmed or lost if we refuse to pay such increases, which could lead to product shortages. If we pay such increases,
we may not be able to offset them through increases in our pricing and other means, which could adversely affect our ability to
maintain our targeted gross margins. If we attempt to pass the increases on to consumers, our sales may be adversely affected.
Failure
to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure the brand and negatively
affect sales.
Our
trademarks, copyrights, patents, designs and other intellectual property rights are important to our success and our competitive
position. We devote significant resources to the registration and protection of our trademarks and patents. In spite of our efforts,
counterfeiting and design copies still occur. If we are unsuccessful in challenging the usurpation of these rights by third parties,
this could adversely affect our future sales, financial condition, and results of operations. Our efforts to enforce our intellectual
property rights can potentially be met with defenses and counterclaims attacking the validity and enforceability of our intellectual
property rights. Unplanned increases in legal fees and other costs associated with protecting our intellectual property rights
could result in higher operating expenses. Additionally, legal regimes outside the United States, particularly those in Asia,
including China, may not always protect intellectual property rights to the same degree as U.S. laws, or the time required to
enforce our intellectual property rights under these legal regimes may be lengthy and delay recovery.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our employees, or outside consultants in the course
of their employment or retention with us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived
by an employee during the scope of his or her employment with a company are regarded as “service inventions.” The
Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, has previously held,
in certain cases, that employees may be entitled to remuneration for service inventions that they develop during their service
for a company despite their explicit waiver of such right. Therefore, although we enter into agreements with all of our employees
pursuant to which they waive their right to special remuneration for service inventions created in the scope of their employment
or engagement and agree that any such inventions are owned exclusively by us, we may face claims by employees demanding remuneration
beyond their regular salary and benefits.
We
face risks associated with operating in international markets.
We
operate in a global marketplace. In addition, international sales growth is a key element of our growth strategy. We are subject
to risks associated with our international operations, including:
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Foreign
currency exchange rates;
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Economic
or governmental instability in foreign markets in which we operate or in those countries from which we source our merchandise;
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Delays
or legal uncertainty (including with respect to enforcement of intellectual property rights) in countries with less developed
legal systems in which we operate;
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Potential
changes in trade relations between the United States (which we see as our principal market) and China (where our manufacturing
is done);
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Unexpected
changes in laws, regulatory requirements, taxes or trade laws
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Increases
in the cost of transporting goods globally;
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Acts
of war, terrorist attacks, outbreaks of contagious disease and other events over which we have no control; and
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Changes
in foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous trade restrictions,
tariffs, duties, taxes, embargoes, exchange or other government controls.
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Any
of these risks could have an adverse impact on our results of operations, financial position or growth strategy. Furthermore,
some of our international operations are conducted in parts of the world that experience corruption to some degree. Although we
have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to
the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010), our employees and wholesalers could take actions
that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could
have an adverse impact on our reputation, our results of operations or our financial position.
Potential
future revenue may be derived from abroad, including outside of the United States. As a result, our business and share price may
be affected by fluctuations in foreign exchange rates with these other currencies, which may also have a significant impact on
our reported results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements
in place.
Foreign
exchange movements may also negatively affect the relative purchasing power of foreign tourists and result in declines in travel
volumes or their willingness to purchase discretionary premium goods, such as our products, while traveling, which would adversely
affect our net sales. We do not currently use the derivative markets to hedge foreign currency fluctuations.
Our
results of operations are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our
common stock.
Our
quarterly results of operations may fluctuate significantly as a result of a variety of factors, including:
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Changes
in the number of our points of distribution;
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Weather
trends;
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Changes
in our merchandise mix; and
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The
timing of new product introductions.
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The
growth of our business depends on the successful execution of our growth strategy, including our efforts to expand internationally
by growing our e-commerce business.
Our
current growth strategy depends on our ability to continue to expand geographically in a number of international regions including
Asia, Europe and North America, China, Japan, South Korea, Middle East, India, South Africa and Australia. These arrangements
are contingent upon our ability to continually introduce our products to new markets. The implementation of higher tariffs, quotas
or other restrictive trade policies in any international regions in which we seek to operate could adversely affect our ability
to commence new, international operations, which could have an adverse impact on our growth strategy. Further, consumer demand
behavior, as well as tastes and purchasing trends, may differ in various countries and, as a result, sales of our products may
not be, or may take time to become, successful, and gross margins on those net sales may not be in line with what we currently
experience. Our ability to execute our international growth strategy, especially where we are not yet established, depends on
our ability to appreciate regional market demographics, and we may not be able to do so. If our international expansion plans
are unsuccessful, our growth strategy and our financial results could be materially adversely affected.
If
we are unable to respond effectively to changes in market trends and consumer preferences, our market share, net sales and profitability
could be adversely affected.
The
success of our business depends on our ability to identify the key product and market trends and bring products to market in a
timely manner that satisfy the current preferences of a broad range of consumers (either by enhancing existing products or by
developing new product offerings). Consumer preferences differ across and within different parts of the world, and shift over
time in response to changing aesthetics and economic circumstances. We believe that our success in developing products that are
innovative and that meet our consumers’ functional needs is an important factor in our image as a premium brand, and in
our ability to charge premium prices. We may not be able to anticipate or respond to changes in consumer preferences, and, even
if we do anticipate and respond to such changes, we may not be able to bring to market in a timely manner enhanced or new products
that meet these changing preferences. If we fail to anticipate or respond to changes in consumer preferences or fail to bring
products to market in a timely manner that satisfy new preferences, our market share and our net sales and profitability could
be adversely affected.
We
may be unable to appeal to new consumers while maintaining the loyalty of our core consumers.
Part
of our growth strategy is to introduce new consumers, including younger consumers, to the Slinger brand. If we are unable to attract
new consumers, including younger consumers, our business and results of operations may be adversely affected as our core consumers’
age increases and levels of travel and purchasing frequency decrease. Initiatives and strategies intended to position our brand
to appeal to new and younger consumers may not appeal to our core consumers and may diminish the appeal of our brand to our core
consumers, resulting in reduced core consumer loyalty. If we are unable to successfully appeal to new and younger consumers while
maintaining our brand’s premium image with our core consumers, then our net sales and our brand image may be adversely affected.
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 jurisdiction 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.
Our
business could suffer if we are unable to maintain our websites or manage our inventory effectively.
We
employ a distribution strategy that is heavily dependent upon our websites and third-party distributor e-commerce websites. The
effectiveness of our e-commerce strategy depends on our ability to manage our inventory and our distribution processes effectively
so as to ensure that our products are available in sufficient quantities and thereby prevent lost sales. If we are not able to
maintain our e-commerce channels, or if we are not able to effectively manage our inventory, we could experience a decline in
net sales, as well as excess inventories for some products and missed opportunities for other products. In addition, the failure
to deliver our products to customers in accordance with our delivery schedules could damage our relationship with these customers
and lead to negative feedback being posted on e-commerce sites. Consequently, our net sales, profitability and the implementation
of our growth strategy could be adversely affected.
We
plan to use cash provided by operating activities to fund our expanding business and execute our growth strategy and may require
additional capital, which may not be available to us.
We
expect our business to rely on net cash provided by our future operating activities as our primary source of liquidity. To support
our business and execute our growth strategy as planned, we will need to generate significant amounts of cash from operations
in order to purchase inventory, pay personnel, invest in research and development, and pay for the increased costs associated
with operating as a public company. If our business does not generate cash flow from operating activities sufficient to fund these
activities, and if sufficient funds are not otherwise available to us, we will need to seek additional capital, through debt or
equity financings, to fund our growth. Conditions in the credit markets (such as availability of finance and fluctuations in interest
rates) may make it difficult for us to obtain such financing on attractive terms or even at all. Additional debt financing that
we may undertake, may be expensive and might impose on us covenants that restrict our operations and strategic initiatives, including
limitations on our ability to incur liens or additional debt, pay dividends, repurchase our capital stock, make investments and
engage in merger, consolidation and asset sale transactions. Equity financings may be on terms that are dilutive or potentially
dilutive to our stockholders, and the prices at which new investors would be willing to purchase our equity securities may be
lower than the price per share of our common stock in this offering. The holders of new securities may also have rights, preferences
or privileges that are senior to those of existing holders of common stock. If new sources of financing are required, but are
unattractive, insufficient or unavailable, then we will be required to modify our growth and operating plans based on available
funding, if any, which would inhibit our growth and could harm our business.
Our
extended supply chain requires long lead times and relies heavily on manufacturers in Asia.
We
rely heavily on manufacturers in Asia which requires long lead times to get goods to markets. The long lead times will require
us to carry extra inventory to avoid out-of-stock scenarios. In the event of a decline in demand for our products, due to general
economic conditions or other factors, we may be forced to liquidate this extra inventory at low margins or at a loss. In addition,
as a result of these long lead times, design decisions are required to be made several months or as early as a year and a half
before the goods are delivered. Consumers’ tastes can change between the time a product is designed and the time it takes
to get to market. If the designs are not popular with consumers, it could also result in the need to liquidate the inventories
at low margins or at a loss, which would adversely affect our results of operations.
We
depend on existing members of management and key employees to implement key elements in our strategy for growth, and the failure
to retain them or to attract appropriately qualified new personnel could affect our ability to implement our growth strategy successfully.
The
successful implementation of our growth strategy depends in part on our ability to retain our experienced management team and
key employees and on our ability to attract appropriately qualified new personnel. For instance, our chief executive officer has
extensive experience running branded sporting goods as well as retail-oriented businesses. The loss of any key member of our management
team or other key employees could hinder or delay our ability to implement our growth strategy effectively. Further, if we are
unable to attract appropriately qualified new personnel as we expand over the next few years, we may not be successful in implementing
our growth strategy. In either instance, our profitability and financial performance could be adversely affected. See “Management”
for more detail on our executive officers.
Under
applicable employment laws, we may not be able to enforce covenants not to compete.
We
generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally
prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors or clients
for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees
work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants
developed while working for us.
For
example, some labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate
that the competitive activities of the former employee will harm one of a limited number of material interests of the employer
which have been recognized by the courts as justification for the enforcement of non-compete undertakings, such as the protection
of a company’s trade secrets or other intellectual property.
We
do not employ traditional advertising channels, and if we fail to adequately market our brand through product introductions and
other means of promotion, our business could be adversely affected.
Our
marketing strategy depends on our ability to promote our brand’s message by using online advertising and social media to
promote new product introductions in a cost-effective manner and possibly from time to time the use of newspapers and magazines.
We do not employ traditional advertising channels such as billboards, television and radio. If our marketing efforts are not successful
at attracting new consumers and increasing purchasing frequency by our existing consumers, there may be no cost-effective marketing
channels available to us for the promotion of our brand. If we increase our spending on advertising, or initiate spending on traditional
advertising, our expenses will rise, and our advertising efforts may not be successful. In addition, if we are unable to successfully
and cost-effectively employ advertising channels to promote our brand to new consumers and new markets, our growth strategy may
be adversely affected.
Failure
to protect confidential information of our consumers and our network against security breaches or failure to comply with privacy
and security laws and regulations could damage our reputation, brand and business.
A
significant challenge to e-commerce and communications, including the operation of our website, is the secure transmission of
confidential information over public networks. Our failure to prevent security breaches could damage our reputation and brand
and substantially harm our business and results of operations. On our website, a majority of the sales are billed to our consumers’
credit card accounts directly, orders are shipped to a consumer’s address, and consumers log on using their email address.
In such transactions, maintaining complete security for the transmission of confidential information on our website, such as consumers’
credit card numbers and expiration dates, personal information and billing addresses, is essential to maintaining consumer confidence.
In addition, we hold certain private information about our consumers, such as their names, addresses, phone numbers and browsing
and purchasing records. We rely on encryption and authentication technology licensed from third parties to effect the secure transmission
of confidential information, including credit card numbers. Advances in computer capabilities, new discoveries in the field of
cryptography or other developments may result in a compromise or breach of the technology used by us to protect consumer transaction
data. In addition, any party who is able to illicitly obtain a user’s password could potentially access the user’s
transaction data or personal information. We may not be able to prevent third parties, such as hackers or criminal organizations,
from stealing information provided by our consumers to us through our website. In addition, our third-party merchants and delivery
service providers may violate their confidentiality obligations and disclose information about our consumers. Any compromise of
our security or material violation of a non-disclosure obligation could damage our reputation and brand and expose us to a risk
of loss or litigation and possible liability, which would substantially harm our business and results of operations. In addition,
anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in
our operations.
For
as long as we are an “emerging growth 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
emerging growth companies will make our ordinary shares less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth
company, we may choose to take advantage of certain exemptions from reporting requirements applicable to other publicly reporting
companies that are not emerging growth companies. These include: (i) 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 Sarbanes-Oxley Act, (ii) not being required to comply with any requirements adopted by the PCAOB requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional
information about the audit and the financial statements of the issuer, (iii) not being required to comply with any new audit
rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, (iv) not being required to provide certain
disclosure regarding executive compensation required of larger publicly reporting companies, and (v) not being required to hold
a non-binding advisory vote on executive compensation or seek shareholder approval of any golden parachute payments not previously
approved. We could be an emerging growth company for up to five years from the end of our current fiscal year, although, if the
market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of any June 30 before the end of that
five-year period, we would cease to be an emerging growth company as of the following December 31. We cannot predict if investors
will find our ordinary shares less attractive if we choose to rely on these exemptions. If some investors find our ordinary shares
less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our ordinary
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.
Exchange
rate fluctuations between the U.S. dollar, the Euro and other foreign currencies, and inflation, may negatively affect our earnings
and we may not be able to hedge our currency exchange risks successfully.
The
U.S. dollar is our functional and reporting currency. However, a significant portion of our operating expenses, including personnel
and facilities related expenses, are incurred in other currencies, including GBP. As a result, we are exposed to the risks that
the GBP may appreciate relative to the U.S. dollar, or, if the GBP instead devalues relative to the U.S. dollar, that the inflation
rate in the United Kingdom may exceed such rate of devaluation of the GBP, or that the timing of such devaluation may lag behind
inflation in the United Kingdom. In any such event, the dollar cost of our operations in the United Kingdom would increase and
our dollar-denominated results of operations would be adversely affected. Moreover, substantially all of our purchases from our
foreign suppliers are denominated in U.S. dollars. A precipitous or prolonged decline in the value of the U.S. dollar could cause
our foreign suppliers to seek price increases on the goods they supply us, which would adversely affect our gross margins if market
conditions prevent us from passing those costs on to consumers. We cannot predict any future trends in the rate of inflation in
the United Kingdom or the rate of devaluation (if any) of the GBP against any other currency.
Risks
Related to our Operations in China
Our
manufacturing takes place in China and, therefore, is susceptible to shutdowns and delays caused by coronavirus and other diseases
and epidemics
As
at the date hereof, our sole manufacturing facilities are located in southern China. Following the outbreak of the coronavirus
our manufacturing facility shut down for three months, which caused significant delays in manufacturing and delivery of our products.
However, there may be further outbreaks of coronavirus and other diseases and epidemics, which may cause further delays and shutdowns.
This, in turn, will negatively affect our revenue and increase our expenses and costs.
Risks
Related to Our Operations in Israel
Our
product development company and chief marketing officer are located in Israel and, therefore, our business, financial condition
and results of operation may be adversely affected by political, economic and military instability in Israel.
We
plan to operate Slinger business in Israel under Slinger Bag Israel Ltd. We have also engaged an Israeli product development company
to assist in the development of our current and future products and our chief marketing officer resides in Israel. Accordingly,
political, economic and military conditions in Israel directly affect our business.
Political,
economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between Israel and its neighboring countries, Hamas (an Islamist militia and
political group that controls the Gaza Strip) and Hezbollah (an Islamist militia and political group based in Lebanon). In addition,
several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions
on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Any hostilities
involving Israel, terrorist activities, political instability or violence in the region or the interruption or curtailment of
trade or transport between Israel and its trading partners could adversely affect our operations and results of operations and
adversely affect the market price of our ordinary shares.
Our
commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the
Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that
are caused by terrorist attacks or acts of war, there can be no assurance that this government coverage will be maintained, or
if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have
a material adverse effect on our business, financial condition and results of operations.
Further,
our operations could be disrupted by the obligations of our employees to perform military service. Our chief marketing officer
is subject to the obligation to perform reserve military duty. In response to increased tension and hostilities in the region,
there have been, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future.
Our operations could be disrupted by the absence of these employees due to military service. Such disruption could harm our business
and operating results.
Popular
uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such
instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these
countries. Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and companies with
an Israeli presence, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities
in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those
countries. Parties with whom we may do business could decline to travel to Israel during periods of heightened unrest or tension.
In addition, the political and security situation in Israel may result in parties with whom we may have agreements involving performance
in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions
in such agreements. In addition, any hostilities involving Israel could have a material adverse effect on our facilities including
our corporate office or on the facilities of our local suppliers, in which event all or a portion of our inventory may be damaged,
and our ability to deliver products to customers could be materially adversely affected. Any hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic
or financial condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease
and adversely affect our share price following this offering. Moreover, individuals in certain geographical regions may refrain
from doing business with Israel and Israeli companies as a result of their objection to Israeli foreign or domestic policies.
Risks
Related to Ownership of Our Ordinary Shares
There
is currently limited liquidity of shares of our common stock.
Shares
of our common stock do not trade on a regular basis. Failure to develop or maintain a trading market could negatively affect its
value and make it difficult or impossible for you to sell your shares. Even if a market for common stock does develop, the market
price of common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the
profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors,
many of which are beyond our control, may have a negative effect on the market price of our common stock.
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 ordinary shares to be risky, and you should invest in our ordinary shares only if you can
withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our ordinary shares
could be subject to significant fluctuations after this offering in response to the factors described in this “Risk Factors”
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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Actual
or anticipated variations in our quarterly and annual operating results or those of companies perceived to be similar to us;
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Weather
conditions, particularly during holiday shopping periods;
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Changes
in expectations as to our future financial performance, including financial estimates by securities analysts and investors,
or differences between our actual results and those expected by investors and securities analysts;
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Fluctuations
in the market valuations of companies perceived by investors to be comparable to us;
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The
public’s response to our or our competitors’ filings with the Securities and Exchange Commission, or 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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Future
sales of our ordinary shares;
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Actions
by our competitors;
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Additions
or departures of members of our senior management or other key personnel; and
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The
passage of legislation or other regulatory developments affecting us or our industry.
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In
addition, the securities markets have experienced significant price and volume fluctuations that have affected and continue to
affect 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 ordinary 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.
If
equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade
our common stock, the price of our ordinary shares could decline.
The
trading market for our ordinary shares will be influenced by the research and reports that equity research analysts publish about
us and our business. The price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary
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 ordinary 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
our ordinary share price and trading volume to decline.
We
do not intend to pay dividends on our common shares.
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.
As a result, you should expect to receive a return on your investment in our ordinary shares only if the market price of the ordinary
shares increases, which may never occur.
You
will incur dilution as a result of any offering of our securities.
To
the extent that we sell any securities to third-parties, you will experience immediate dilution, the extent of which depends on
the number of securities to be sold. See “Dilution” for a more detailed description regarding dilution.
Future
sales, or the perception of future sales, of our common stock may depress the price of our common stock.
We
have 26,209,714 outstanding common shares. Of these shares, 5,596,560 shares are in the public float or are eligible for re-sale
under Rule 144 under the Securities Act (“Rule 144”). All remaining common shares outstanding are “restricted
securities” within the meaning of Rule 144. Additional sales of our common shares in the public market after the date hereof,
or the perception that these sales could occur, could cause the market price of our common shares to decline.
Risks
relating to our business
Our
products face intense competition.
Slinger
is a consumer products company and the relative popularity of tennis and various sports and fitness activities and changing design
trends affect the demand for our products. The athletic equipment industry is highly competitive both in the United States and
worldwide. We compete internationally with a significant number of athletic and sports equipment companies and large companies
having diversified lines of athletic and sport equipment. We also compete with other companies for the production capacity of
independent manufacturers that produce our products. Our online digital e-commerce operations will compete with brand wholesalers
or specialist retailers.
Product
offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production,
customer service, digital commerce platforms and social media presence are areas of intense competition. This, in addition to
rapid changes in technology and consumer preferences in the markets for athletic and sports equipment, constitute significant
risk factors in our operations. In addition, the competitive nature of retail including shifts in the ways in which consumers
are shopping, and the rising trend of digital commerce, constitutes a risk factor implicating our online and wholesale operations.
If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for
our products may decline significantly.
Failure
to create and maintain our reputation and brand image could negatively impact our business.
Our
success depends on our ability to create, maintain and enhance our brand image and reputation. Creating, maintaining, promoting
and growing our brands will depend on our design and marketing efforts, including advertising and consumer campaigns, product
innovation and product quality. Our commitment to product innovation and quality and our continuing investment in design (including
materials) and marketing may not have the desired impact on our brand image and reputation. In addition, our success in creating,
maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment,
including our increasing reliance on social media and digital dissemination of advertising campaigns. We could be adversely impacted
if we fail to achieve any of these objectives. Our brand value also depends on our ability to create and maintain a positive consumer
perception of our corporate integrity and brand culture. Negative claims or publicity involving us, our products, consumer data,
or any of our key employees, endorsers, sponsors or suppliers could seriously damage our reputation and brand image, regardless
of whether such claims are accurate. For example, while we require our suppliers of our products to operate their business in
compliance with applicable laws and regulations, we do not control their practices. Negative publicity relating to a violation
or an alleged violation of policies or laws by such suppliers could damage our brand image. Social media, which accelerates and
potentially amplifies the scope of negative publicity, can increase the challenges of responding to negative claims. Adverse publicity
about regulatory or legal action against us, or by us, could also damage our reputation and brand image, undermine consumer confidence
in us and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our
operations. If the reputation or image of any of our brands is tarnished or if we receive negative publicity, then our sales,
financial condition and results of operations could be materially and adversely affected.
If
we are unable to anticipate consumer preferences and develop new products, we may not be able to maintain or increase our revenues
and profits.
Our
success depends on our ability to identify, originate and define product trends as well as to anticipate, gauge and react to changing
consumer demands in a timely manner. However, lead times for many of our products may make it more difficult for us to respond
rapidly to new or changing product trends or consumer preferences. All of our products are subject to changing consumer preferences
that cannot be predicted with certainty. Our new products may not receive consumer acceptance as consumer preferences could shift
rapidly to different types of performance products or away from these types of products altogether, and our future success depends
in part on our ability to anticipate and respond to these changes. If we fail to anticipate accurately and respond to trends and
shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products and categories, and
influencing sports and fitness preferences through extensive marketing, we could experience lower sales, excess inventories or
lower profit margins, any of which could have an adverse effect on our results of operations and financial condition. In addition,
we market our products globally through a diverse spectrum of advertising and promotional programs and campaigns, including social
media, mobile applications and online advertising. If we do not successfully market our products or if advertising and promotional
costs increase, these factors could have an adverse effect on our business, financial condition and results of operations.
We
rely on technical innovation and high-quality products to compete in the market for our products.
Research
and development plays a key role in technical innovation. We rely upon specialists in the fields of engineering, industrial design,
sustainability and related fields, as well as other experts to develop and test cutting-edge performance products. While we strive
to produce products that help to enhance player performance, if we fail to introduce technical innovation in our products, consumer
demand for our products could decline, and if we experience problems with the quality of our products, we may incur substantial
expense to remedy the problems.
Failure
to continue to obtain or maintain high-quality endorsers of our products could harm our business.
We
establish relationships with professional athletes, as well as other public figures such as teaching pros and influencers, to
develop, evaluate and promote our products, as well as establish product authenticity with consumers. However, as competition
in our industry has increased, the costs associated with establishing and retaining such sponsorships and other relationships
have increased. If we are unable to maintain our current associations with professional athletes, or other public figures, or
to do so at a reasonable cost, we could lose the high visibility or on-field authenticity associated with our products, and we
may be required to modify and substantially increase our marketing investments. As a result, our brands, net revenues, expenses
and profitability could be harmed. Furthermore, if certain endorsers were to stop using our products contrary to their endorsement
agreements, our business could be adversely affected. In addition, actions taken by athletes or other endorsers, associated with
our products that harm the reputations of those athletes or endorsers, could also seriously harm our brand image with consumers
and, as a result, could have an adverse effect on our sales and financial condition. In addition, poor performance by our endorsers,
a failure to continue to correctly identify future athletes, public figures or sports organizations, to use and endorse our products
or a failure to enter into cost-effective endorsement arrangements with prominent athletes, public figures, and sports organizations
could adversely affect our brand, sales and profitability.
General
economic factors beyond our control, and changes in the global economic environment, including fluctuations in inflation and currency
exchange rates, could result in lower revenues, higher costs and decreased margins and earnings.
Our
products are manufactured and sold outside of the United States and we conduct purchase and sale transactions in various currencies,
which increases our exposure to the volatility of global economic conditions, including fluctuations in inflation and foreign
currency exchange rates. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result
of the United Kingdom’s impending exit from the European Union, commonly referred to as “Brexit” or new or proposed
U.S. policy changes that impact the U.S. Dollar value relative to other international currencies. Our international revenues and
expenses generally are derived from sales and operations in foreign currencies, and these revenues and expenses could be affected
by currency fluctuations, specifically amounts recorded in foreign currencies and translated into U.S. Dollars for consolidated
financial reporting, as weakening of foreign currencies relative to the U.S. Dollar adversely affects the U.S. Dollar value of
the Company’s foreign currency-denominated sales and earnings. Currency exchange rate fluctuations could also disrupt the
business of the independent manufacturers that produce our products by making their purchases of raw materials more expensive
and more difficult to finance. Foreign currency fluctuations have adversely affected and could continue to have an adverse effect
on our results of operations and financial condition. We may hedge certain foreign currency exposures to lessen and delay, but
not to completely eliminate, the effects of foreign currency fluctuations on our financial results. Since the hedging activities
are designed to lessen volatility, they not only reduce the negative impact of a stronger U.S. Dollar or other trading currency,
but they also reduce the positive impact of a weaker U.S. Dollar or other trading currency. Our future financial results could
be significantly affected by the value of the U.S. Dollar in relation to the foreign currencies in which we conduct business.
The degree to which our financial results are affected for any given time period will depend in part upon our hedging activities.
Global
economic conditions could have a material adverse effect on our business, operating results and financial condition.
The
uncertain state of the global economy continues to impact businesses around the world, most acutely in emerging markets and developing
economies. If global economic and financial market conditions do not improve or deteriorate, the following factors could have
a material adverse effect on our business, operating results and financial condition:
●
Slower consumer spending may result in reduced demand for our products, reduced orders from retailers for our products, order
cancellations, lower revenues, higher discounts, increased inventories and lower gross margins.
●
In the future, we may be unable to access financing in the credit and capital markets at reasonable rates in the event we find
it desirable to do so.
●
We conduct transactions in various currencies, which increases our exposure to fluctuations in foreign currency exchange rates
relative to the U.S. Dollar. Continued volatility in the markets and exchange rates for foreign currencies and contracts in foreign
currencies, including in response to certain policies advocated or implemented by the U.S. presidential administration, could
have a significant impact on our reported operating results and financial condition.
●
Continued volatility in the availability and prices for commodities and raw materials we use in our products and in our supply
chain (such as cotton or petroleum derivatives) could have a material adverse effect on our costs, gross margins and profitability.
●
If wholesalers or retailers of our products experience declining revenues or experience difficulty obtaining financing in the
capital and credit markets to purchase our products, this could result in reduced orders for our products, order cancellations,
late retailer payments, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with
collection efforts and increased bad debt expense.
●
If wholesalers or retailers of our products experience severe financial difficulty, some may become insolvent and cease business
operations, which could negatively impact the sale of our products to consumers.
●
If contract manufacturers of our products or other participants in our supply chain experience difficulty obtaining financing
in the capital and credit markets to purchase raw materials or to finance capital equipment and other general working capital
needs, it may result in delays or non-delivery of shipments of our products.
Our
business may be affected by seasonality, which could result in fluctuations in our operating results.
We
expect to experience moderate fluctuations in aggregate sales volume during the year. We expect revenues in the first and fourth
fiscal quarters to exceeded those in the second and third fiscal quarters. However, the mix of product sales may vary considerably
from time to time as a result of changes in seasonal and geographic demand for tennis and other sports equipment and in connection
with the timing of significant sporting events, such as any Grand Slam tennis tournament and, over time, other sports competition.
In addition, our customers may cancel orders, change delivery schedules or change the mix of products ordered with minimal notice.
As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to
fluctuate significantly from period to period. This seasonality, along with other factors that are beyond our control, including
general economic conditions, changes in consumer preferences, weather conditions, availability of import quotas, transportation
disruptions and currency exchange rate fluctuations, could adversely affect our business and cause our results of operations to
fluctuate. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing
and transportation costs, shifts in product sales mix and geographic sales trends, all of which we expect to continue. Results
of operations in any period should not be considered indicative of the results to be expected for any future period.
We
may be adversely affected by the financial health of our customers.
We
extend credit to our tennis wholesale and tennis specialist retail customers based on an assessment of a customer’s financial
condition, generally without requiring collateral. To assist in the scheduling of production and the shipping of our products,
we offer our distributor partners the opportunity to place orders three months ahead of delivery under our direct ship ordering
program. These advance orders may be canceled under certain conditions, and the risk of cancellation may increase when dealing
with financially unstable distribution partners struggling with economic uncertainty. In the past, some sport customers have experienced
financial difficulties up to and including bankruptcies. Such future events would have an adverse effect on our sales, our ability
to collect on receivables and our financial condition. When the retail economy weakens or as consumer behavior shifts, retailers
may be more cautious with orders. A slowing or changing economy in our key markets could adversely affect the financial health
of our customers, which in turn could have an adverse effect on our results of operations and financial condition. In addition,
product sales are dependent in part on high quality merchandising and an appealing retail environment to attract consumers, which
requires continuing investments by retailers. Retailers that experience financial difficulties may fail to make such investments
or delay them, resulting in lower sales and orders for our products.
Failure
to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased
operating margins, reduced cash flows and harm to our business.
To
meet anticipated demand for our products, we purchase products from manufacturers outside of our direct ship ordering program
and in advance of customer orders, which we hold in inventory and resell to customers. There is a risk we may be unable to sell
excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs,
and the sale of excess inventory at discounted prices could significantly impair our brand image and have an adverse effect on
our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or
if our manufacturers fail to supply products we require at the time we need them, we may experience inventory shortages. Inventory
shortages might delay shipments to customers, negatively impact retailer, distributor and consumer relationships and diminish
brand loyalty. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial
condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely
affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.
Consolidation
of retailers or concentration of retail market share among a few retailers may increase and concentrate our credit risk and impair
our ability to sell products.
The
sports equipment retail markets in some countries are dominated by a few large athletic equipment retailers with many stores.
These retailers have in the past increased their market share by expanding through acquisitions and construction of additional
stores. These situations concentrate our credit risk with a relatively small number of retailers, and, if any of these retailers
were to experience a shortage of liquidity or consumer behavior shifts away from traditional retail, it would increase the risk
that their outstanding payables to us may not be paid. In addition, increasing market share concentration among one or a few retailers
in a particular country or region increases the risk that if any one of them substantially reduces their purchases of our products,
we may be unable to find a sufficient number of other retail outlets for our products to sustain the same level of sales and revenues.
Our
online operations have required and will continue to require a substantial investment and commitment of resources and are subject
to numerous risks and uncertainties.
Many
factors unique to e-commerce operations, some of which are beyond the Company’s control, pose risks and uncertainties. Risks
include, but are not limited to credit card fraud or data mismanagement.
If
the technology-based systems that give our consumers the ability to shop with us online do not function effectively, our operating
results, as well as our ability to grow our digital commerce business globally, could be materially adversely affected.
Many
of our consumers shop with us through our digital platforms. Increasingly, consumers are using mobile-based devices and applications
to shop online with us and with our competitors and to do comparison shopping. We are increasingly using social media and proprietary
mobile applications to interact with our consumers and as a means to enhance their shopping experience. Any failure on our part
to provide attractive, effective, reliable, user-friendly digital commerce platforms that offer a wide assortment of merchandise
with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive
disadvantage, result in the loss of digital commerce and other sales, harm our reputation with consumers, have a material adverse
impact on the growth of our digital commerce business globally and could have a material adverse impact on our business and results
of operations. Risks specific to our digital commerce business also include diversion of sales from our and our retailers’
brick and mortar stores, difficulty in recreating the in-store experience through direct channels and liability for online content.
Our failure to successfully respond to these risks might adversely affect sales in our digital commerce business, as well as damage
our reputation and brands.
Failure
to adequately protect or enforce our intellectual property rights could adversely affect our business.
We
may encounter counterfeit reproductions of our products or products that otherwise infringe our intellectual property rights.
If we are unsuccessful in enforcing our intellectual property rights, continued sales of these products could adversely affect
our sales and our brand and could result in a shift of consumer preference away from our products.
The
actions we take to establish and protect our intellectual property rights may not be adequate to prevent imitation of our products
by others. We also may be unable to prevent others from seeking to block sales of our products as violations of proprietary rights.
We
may be subject to liability if third parties successfully claim we infringe on their intellectual property rights. Defending infringement
claims could be expensive and time-consuming and might result in our entering into costly license agreements. We also may be subject
to significant damages or injunctions against development, use, importation and/or sale of certain products.
We
take various actions to prevent the unauthorized use and/or disclosure of our confidential information and intellectual property
rights. These actions include contractual measures such as entering into non-disclosure and non-compete agreements and agreements
relating to our collaborations with third parties. Our controls and efforts to prevent unauthorized use and/or disclosure of confidential
information and intellectual property rights might not always be effective. For example, confidential information related to business
strategy, new technologies, mergers and acquisitions, unpublished financial results or personal data could be prematurely, inadvertently,
or improperly used and/or disclosed, resulting in a loss of reputation, a decline in our stock price and/or a negative impact
on our market position, and could lead to damages, fines, penalties or injunctions.
In
addition, the laws of certain countries may not protect or allow enforcement of intellectual property rights to the same extent
as the laws of the United States. We may face significant expenses and liability in connection with the protection of our intellectual
property rights, including outside the United States, and if we are unable to successfully protect our rights or resolve intellectual
property conflicts with others, our business or financial condition may be adversely affected.
We
are subject to data security and privacy risks that could negatively affect our results, operations or reputation.
In
addition to our own sensitive and proprietary business information, we handle transactional and personal information about our
customers and users of our digital experiences, which include online distribution channels and product engagement, adaptive products
and personal fitness applications. Hackers and data thieves are increasingly sophisticated and operate social engineering, such
as phishing, and large-scale, complex automated attacks that can evade detection for long periods of time. Any breach of our or
our service providers’ network, or other vendor systems, may result in the loss of confidential business and financial data,
misappropriation of our consumers’, users’ or employees’ personal information or a disruption of our business.
Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of
our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or
significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or
redress problems caused by any breach.
In
addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal
data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”),
which became effective on May 25, 2018; and California passed the California Consumer Privacy Act (the “CCPA”) which
will go into effect in 2020. These laws impose additional obligations on companies regarding the handling of personal data and
provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted
laws (including implementation of the privacy and process enhancements called for under GDPR and CCPA) and regulations can be
costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure
to secure personal information could also result in violation of data privacy laws and regulations, proceedings against the Company
by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and
profits.
Failure
of our contractors or our licensees’ contractors to comply with local laws and other standards could harm our business.
We
work with contractors outside of the United States to manufacture our products. We require the contractors that directly manufacture
our products and our licensees that make products using our intellectual property (including, indirectly, their contract manufacturers)
to comply with environmental, health and safety standards for the benefit of workers. We also require these contractors to comply
with applicable standards for product safety. Notwithstanding their contractual obligations, from time to time contractors may
not comply with such standards or applicable local law or our licensees may fail to enforce such standards or applicable local
law on their contractors. Significant or continuing noncompliance with such standards and laws by one or more contractors could
harm our reputation or result in a product recall and, as a result, could have an adverse effect on our sales and financial condition.
Negative publicity regarding production methods, alleged practices or workplace or related conditions of any of our suppliers,
manufacturers or licensees could adversely affect our brand image and sales and force us to locate alternative suppliers, manufacturers
or licenses.
Our
international operations involve inherent risks which could result in harm to our business.
All
of our equipment is manufactured outside of the United States with a large volume of our products being also sold outside
of the United States. Accordingly, we are subject to the risks generally associated with global trade and doing business abroad,
which include foreign laws and regulations, varying consumer preferences across geographic regions, political unrest, disruptions
or delays in cross-border shipments and changes in economic conditions in countries in which our products are manufactured or
where we sell products. This includes, for example, the uncertainty surrounding the effect of Brexit, including changes to the
legal and regulatory framework that apply to the United Kingdom and its relationship with the European Union, as well as new and
proposed changes affecting tax laws and trade policy in the U.S. and elsewhere as further described below under “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” and “Changes to U.S. trade policy, tariff and import/export regulations may have a material adverse effect
on our business, financial condition and results of operations.” The U.S. presidential administration has indicated a focus
on policy reforms that discourage U.S. corporations from outsourcing manufacturing and production activities to foreign jurisdictions,
including through tariffs or penalties on goods manufactured outside the U.S., which may require us to change the way we conduct
business and adversely affect our results of operations. The administration has also targeted the specific practices of certain
U.S. multinational corporations in public statements which, if directed at us, could harm our reputation or otherwise negatively
impact our business.
In
addition, disease outbreaks, terrorist acts and military conflict have increased the risks of doing business abroad. These factors,
among others, could affect our ability to manufacture products or procure materials, our ability to import products, our ability
to sell products in international markets and our cost of doing business. If any of these or other factors make the conduct of
business in a particular country undesirable or impractical, our business could be adversely affected. In addition, many of our
imported products are subject to duties, tariffs or quotas that affect the cost and quantity of various types of goods imported
into the United States and other countries. Any country in which our products are produced or sold may eliminate, adjust or impose
new quotas, duties, tariffs, safeguard measures, anti-dumping duties, cargo restrictions to prevent terrorism, restrictions on
the transfer of currency, climate change legislation, product safety regulations or other charges or restrictions, any of which
could have an adverse effect on our results of operations and financial condition.
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 United States 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 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 subject to the examination of our tax returns by the United States 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 its 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.
Changes
to U.S. trade policy, tariff and import/export regulations or our failure to comply with such regulations may have a material
adverse effect on our reputation, business, financial condition and results of operations.
Changes
in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade,
manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our
business, as well as any negative sentiment toward the U.S. as a result of such changes, could adversely affect our business.
The U.S. presidential administration has instituted or proposed changes in trade policies that include the negotiation or termination
of trade agreements, the imposition of higher tariffs on imports into the U.S., economic sanctions on individuals, corporations
or countries, and other government regulations affecting trade between the U.S. and other countries where we conduct our business.
It may be time-consuming and expensive for us to alter our business operations in order to adapt to or comply with any such changes.
As
a result of recent policy changes of the U.S. presidential administration and recent U.S. government proposals, there may be greater
restrictions and economic disincentives on international trade. The new tariffs and other changes in U.S. trade policy has in
the past and could continue to trigger retaliatory actions by affected countries, and certain foreign governments have instituted
or are considering imposing retaliatory measures on certain U.S. goods. The Company, similar to many other multinational corporations,
does a significant amount of business that would be impacted by changes to the trade policies of the U.S. and foreign countries
(including governmental action related to tariffs, international trade agreements, or economic sanctions). Such changes have the
potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products,
and as a result, could have a material adverse effect on our business, financial condition and results of operations.
We
rely on one contract manufacturer to supply our products.
We
are supplied with all of our product constituent parts by 10 vendors all located in southern China who manufacture the constituent
part of Slinger Bag products and route all parts to a final assembly factory located in Xiamen, China. We do not own or operate
any manufacturing facilities and depend upon independent contract manufacturers to manufacture all of the products we sell. Our
ability to meet our customers’ needs depends on our ability to maintain a steady supply of products from our independent
contract manufacturers. If our manufacturer were to sever its relationship with us or significantly alter the terms of our relationship,
including due to changes in applicable trade policies, we may not be able to obtain replacement products in a timely manner, which
could have a material adverse effect on our sales, financial condition or results of operations. Additionally, if our manufacturer
fails to make timely shipments, do not meet our quality standards or otherwise fail to deliver us product in accordance with our
plans, there could be a material adverse effect on our results of operations.
Our
products are subject to risks associated with overseas sourcing, manufacturing and financing.
The
principal materials used in our products, injection molded plastics, polyester, electrical motors, remote controls, are available
in countries where our manufacturing takes place. Our products are dependent upon the ability of our unaffiliated contract manufacturers
to locate, train, employ and retain adequate personnel. Slinger Bag contractors and suppliers buy raw materials and are subject
to wage rates that are oftentimes regulated by the governments of the countries in which our products are manufactured.
There
could be a significant disruption in the supply of raw materials from current sources or, in the event of a disruption, our contract
manufacturers might not be able to locate alternative suppliers of materials of comparable quality at an acceptable price or at
all. Further, our unaffiliated contract manufacturers have experienced and may continue to experience in the future, unexpected
increases in work wages, whether government mandated or otherwise and increases in compliance costs due to governmental regulation
concerning certain metals used in the manufacturing of our products. In addition, we cannot be certain that our unaffiliated manufacturers
will be able to fill our orders in a timely manner. If we experience significant increases in demand, or reductions in the availability
of materials, or need to replace an existing manufacturer, there can be no assurance additional supplies of raw materials or additional
manufacturing capacity will be available when required on terms acceptable to us, or at all, or that any supplier or manufacturer
would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing
or find new manufacturing or sources of materials, we may encounter delays in production and added costs as a result of the time
it takes to train suppliers and manufacturers in our methods, products, quality control standards and labor, health and safety
standards. Any delays, interruption or increased costs in labor or wages, or the supply of materials or manufacture of our products
could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues
and net income both in the short- and long-term.
Because
independent manufacturers make all of our products outside of our principal sales markets, our products must be transported by
third parties over large geographic distances. Delays in the shipment or delivery of our products due to the availability of transportation,
work stoppages, port strikes, infrastructure congestion or other factors, and costs and delays associated with consolidating or
transitioning between manufacturers, could adversely impact our financial performance. In addition, manufacturing delays or unexpected
demand for our products may require us to use faster, but more expensive, transportation methods such as air freight, which could
adversely affect our profit margins. The cost of oil is a significant component in manufacturing and transportation costs, so
increases in the price of petroleum products can adversely affect our profit margins. Changes in U.S. trade policies, including
new and potential changes to import tariffs and existing trade policies and agreements, could also have a significant impact on
our activities in foreign jurisdictions, and could adversely affect our results of operations.
Our
success depends on our global distribution
We
distribute our products to customers directly from the factory and through distribution centers located throughout the world primarily
located in Xiamen, China, Ghent, Belgium and South Carolina USA. Our ability to meet customer expectations, manage inventory,
complete sales and achieve objectives for operating efficiencies and growth, particularly in emerging markets, depends on the
proper operation of our distribution facilities, the development or expansion of additional distribution capabilities and the
timely performance of services by third parties (including those involved in shipping product to and from our distribution facilities).
Our distribution facilities could be interrupted by information technology problems and disasters such as earthquakes or fires.
Any significant failure in our distribution facilities could result in an adverse effect on our business. We maintain business
interruption insurance, but it may not adequately protect us from adverse effects caused by significant disruptions in our distribution
facilities.
We
rely significantly on information technology to operate our business, including our supply chain and retail operations, and any
failure, inadequacy or interruption of that technology could harm our ability to effectively operate our business.
We
are heavily dependent on information technology systems and networks, including the Internet and third-party services (“Information
Technology Systems”), across our supply chain, including product design, production, forecasting, ordering, manufacturing,
transportation, sales and distribution, as well as for processing financial information for external and internal reporting purposes,
retail operations and other business activities. Information Technology Systems are critical to many of our operating activities
and our business processes and may be negatively impacted by any service interruption or shutdown. For example, our ability to
effectively manage and maintain our inventory and to ship products to customers on a timely basis depends significantly on the
reliability of these Information Technology Systems. We have implemented Information Technology Systems in all of the geographical
regions in which we operate. Our work to integrate, secure and enhance these systems and related processes in our global operations
is ongoing and Slinger Bag will continue to invest in these efforts. The failure of these systems to operate effectively, including
as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes,
or failure to properly maintain, protect, repair or upgrade systems, or problems with transitioning to upgraded or replacement
systems could cause delays in product fulfillment and reduced efficiency of our operations, could require significant capital
investments to remediate the problem which may not be sufficient to cover all eventualities, and may have an adverse effect on
our reputation, results of operations and financial condition.
We
also use Information Technology Systems to process financial information and results of operations for internal reporting purposes
and to comply with regulatory financial reporting, legal and tax requirements. If Information Technology Systems suffer severe
damage, disruption or shutdown and our business continuity plans, or those of our vendors, do not effectively resolve the issues
in a timely manner, we could experience delays in reporting our financial results, which could result in lost revenues and profits,
as well as reputational damage. Furthermore, we depend on Information Technology Systems and personal data collection for digital
marketing, digital commerce, consumer engagement and the marketing and use of our digital products and services. We also rely
on our ability to engage in electronic communications throughout the world between and among our employees as well as with other
third parties, including customers, suppliers, vendors and consumers. Any interruption in Information Technology Systems may impede
our ability to engage in the digital space and result in lost revenues, damage to our reputation, and loss of users.
Extreme
weather conditions and natural disasters could negatively impact our operating results and financial condition.
Extreme
weather conditions in the areas in which our suppliers, customers, distribution centers and vendors are located could adversely
affect our operating results and financial condition. Moreover, natural disasters such as earthquakes, hurricanes and tsunamis,
whether occurring in the United States or abroad, and their related consequences and effects, including energy shortages and public
health issues, could disrupt our operations, the operations of our vendors and other suppliers or result in economic instability
that may negatively impact our operating results and financial condition.
Our
financial results may be adversely affected if substantial investments in businesses and operations fail to produce 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
are subject to a complex array of laws and regulations, which could have an adverse effect on our business, financial condition
and results of operations.
As
a global business, we are subject to and must comply with extensive laws and regulations in the U.S. and other jurisdictions in
which we have operations and distribution channels. If we or our employees, agents, suppliers, and other partners fail to comply
with any of these laws or regulations, such failure could subject us to fines, sanctions or other penalties that could negatively
affect our reputation, business, financial condition and results of operations. We may be involved in various types of claims,
lawsuits, regulatory proceedings and government investigations relating to our business, our products and the actions of our employees
and representatives, including contractual and employment relationships, product liability, antitrust, trademark rights and a
variety of other matters. It is not possible to predict with certainty the outcome of any such legal or regulatory proceedings
or investigations, and we could in the future incur judgments, fines or penalties, or enter into settlements of lawsuits and claims
that could have a material adverse effect on our business, financial condition and results of operations and negatively impact
our reputation. The global nature of our business means legal and compliance risks, such as anti-bribery, anti-corruption, fraud,
trade, environmental, competition, privacy and other regulatory matters, will continue to exist and additional legal proceedings
and other contingencies will arise from time to time, which could adversely affect us. In addition, the adoption of new laws or
regulations, or changes in the interpretation of existing laws or regulations, may result in significant unanticipated legal and
reputational risks. Any current or future legal or regulatory proceedings could divert management’s attention from our operations
and result in substantial legal fees.
The
success of our business depends, in part, on high-quality employees, including key personnel.
Our
success depends in part on the continued service of high-quality employees, including key executive officers and personnel. The
loss of the services of key individuals, or any negative perception with respect to these individuals, could harm our business.
Our success also depends on our ability to recruit, retain and engage our personnel sufficiently, both to maintain our current
business and to execute our strategic initiatives. Competition for employees in our industry is intense and we may not be successful
in attracting and retaining such personnel. In addition, shifts in U.S. immigration policy could negatively impact our ability
to attract, hire and retain highly skilled employees who are from outside the U.S.
The
sale of a large number of shares of common stock by our principal stockholder could depress the market price of our common stock.
As
of the date hereof, Yonah Kalfa beneficially owned approximately 82% of our common stock. The shares may become available for
resale, subject to the requirements of the U.S. securities laws. The sale or prospect of a sale of a substantial number of these
shares could have an adverse effect on the market price of our common stock.
If
our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be
adversely affected.
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable
under the circumstances, as provided in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities
and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and
estimates used in preparing our consolidated financial statements include those related to revenue recognition, inventory reserves,
contingent payments under endorsement contracts, accounting for property, plant and equipment and definite-lived assets, hedge
accounting for derivatives, stock-based compensation, income taxes and other contingencies. Our operating results may be adversely
affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating
results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Common
Stock.
We
may fail to meet market expectations, which could cause the price of our stock to decline.
Our
common stock is traded publicly and at any given time various securities analysts may follow our financial results and issue reports
on us. These reports include information about our historical financial results as well as analysts’ opinions of our future
performance, which may, in part, be based upon any guidance we have provided. Analysts’ estimates are often different from
our estimates or expectations. If our operating results are below the estimates or expectations of public market analysts and
investors, our stock price could decline. In the past, securities class action litigation has been brought against other companies
following a decline in the market price of their securities. If our stock price is volatile for any reason, we may become involved
in this type of litigation in the future. Any litigation could result in reputational damage, substantial costs and a diversion
of management’s attention and resources needed to successfully run our business.
If
we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the
ability of broker-dealers to sell our securities in the secondary market.
Companies
trading on the Over the Counter Bulletin Board must be reporting issuers under Section 12 of the Securities Exchange Act of 1934,
as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC
Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability
of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In
addition, we may be unable to get relisted on the OTC Bulletin Board, which may have an adverse material effect on the Company.
We
do not expect to pay dividends in the future; any return on investment may be limited to the value of our common stock.
We
do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will
depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors
may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital
base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare
and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole
discretion of our board of directors. If we do not pay dividends, our common stock may be less valuable because a return on your
investment will only occur if its stock price appreciates.
Authorization
of preferred stock.
We
may amend our Certificate of Incorporation to authorize the issuance of up to 50,000,000 shares of preferred stock with designations,
rights and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors may be empowered,
without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could
adversely affect the voting power or other rights of the holders of the common stock.
The
market price for our common stock may be particularly volatile given our status as a relatively unknown company, with a limited
operating history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your
common stock at or above your purchase price, which may result in substantial losses to you.
Our
stock price may be particularly volatile when compared to the shares of larger, more established companies that trade on a national
securities exchange and have large public floats. The volatility in our share price will be attributable to a number of factors.
First, our common stock will be compared to the shares of such larger, more established companies, sporadically and thinly traded.
As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price for our shares could decline precipitously in the event that
a large number of shares of our common stock are sold on the market without commensurate demand. Second, we are a speculative
or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced risk, more risk-averse investors may, under the
fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their
shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established
company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control
and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions
or projections as to what the prevailing market price for our common stock will be at any time. Moreover, the OTC Bulletin Board
is not a liquid market in contrast to the major stock exchanges. We cannot assure you as to the liquidity or the future market
prices of our common stock if a market does develop. If an active market for our common stock does not develop, the fair market
value of our common stock could be materially adversely affected.
Our
shares are subject to the U.S. “Penny Stock” Rules and investors who purchase our shares may have difficulty re-selling
their shares as the liquidity of the market for our shares may be adversely affected by the impact of the “Penny Stock”
Rules.
Our
stock is subject to U.S. “Penny Stock” rules, which may make the stock more difficult to trade on the open market.
A “penny stock” is generally defined by regulations of the U.S. Securities and Exchange Commission (“SEC”)
as an equity security with a market price of less than US$5.00 per share. However, an equity security with a market price under
US $5.00 will not be considered a penny stock if it fits within any of the following exceptions:
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(i)
the equity security is listed on NASDAQ or a national securities exchange;
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(ii)
the issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible
assets of at least US $5,000,000, or (b) average annual revenue of at least US $6,000,000; or
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(iii)
the issuer of the equity security has been in continuous operation for more than three years and has net tangible assets of
at least US $2,000,000.
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Our
common stock does not currently fit into any of the above exceptions.
If
an investor buys or sells a penny stock, SEC regulations require that the investor receive, prior to the transaction, a disclosure
explaining the penny stock market and associated risks. Furthermore, trading in our common stock will be subject to Rule 15g-9
of the Exchange Act, which relates to non-NASDAQ and non-exchange listed securities. Under this rule, broker/dealers who recommend
our securities to persons other than established customers and accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale. Securities are exempt from
this rule if their market price is at least $5.00 per share. Since our common stock is currently deemed penny stock regulations,
it may tend to reduce market liquidity of our common stock, because they limit the broker/dealers’ ability to trade, and
a purchaser’s ability to sell, the stock in the secondary market.
The
low price of our common stock has a negative effect on the amount and percentage of transaction costs paid by individual shareholders.
The low price of our common stock also limits our ability to raise additional capital by issuing additional shares. There are
several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced
stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased
on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced
stocks. Finally, broker’s commissions on low-priced stocks usually represent a higher percentage of the stock price than
commissions on higher priced stocks. As a result, the Company’s shareholders may pay transaction costs that are a higher
percentage of their total share value than if our share price were substantially higher.
Because
we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and experience further
dilution.
We
are authorized to issue up to 300,000,000 shares of common stock, of which 26,209,714 shares of common stock are issued and outstanding
as of the date hereof. Our Board of Directors has the authority to cause us to issue additional shares of common stock and to
determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the
stockholders may experience more dilution in their ownership of our stock in the future.
A
reverse stock split may decrease the liquidity of the shares of our common stock.
The
liquidity of the shares of our common stock may be affected adversely by a reverse stock split given the reduced number of shares
that will be outstanding following a reverse stock split, especially if the market price of our common stock does not increase
as a result of the reverse stock split.
Cautionary
Note
We
have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to
what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise.
Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.