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NOTES PAYABLE – RELATED PARTY
 6 Months Ended
Oct. 31, 2021
Debt Disclosure [Abstract]  
NOTES PAYABLE – RELATED PARTY

NOTE 5: NOTES PAYABLE – RELATED PARTY

 

Beginning in October 2019, the Company entered into several loan agreements with a related party entity controlled by the former shareholder of Slinger Bag Canada. Total outstanding borrowings from this related party as of April 30, 2021 amounted to $6,220,000, which was gross of total discounts of $76,777 and consisted of the following:

 

Note date  Maturity date  Interest rate   April 30, 2021 
6/1/2019  6/1/2021   9.5%  $1,700,000 
6/30/2020  6/30/2021   9.5%   120,000 
8 notes from 10/2019 – 8/2020  9/1/2021   9.5%   3,850,000 
9/15/2020  9/15/2021   9.5%   250,000 
11/24/2020  11/24/2021   9.5%   300,000 
Total notes payable          $6,220,000 

 

On May 26, 2021, the Company and the related party lender entered into a note conversion agreement (the “Note Conversion Agreement”) whereby the related party lender agreed to convert its total outstanding borrowings as of that date of $6,220,000 into 1,636,843 shares of the Company’s common stock. The Note Conversion Agreement contains a guarantee that the aggregate gross sales of the shares by the related party will be no less than $6,220,000 over the next three years and if the aggregate gross sales are less than $6,220,000 the Company will issue additional shares of common stock to the related party for the difference between the total gross proceeds and $6,220,000, which could result in an infinite number of shares being required to be issued.

 

The Company evaluated the conversion option of the notes payable to shares under the guidance in ASC 815, Derivatives and Hedging (“ASC 815”), and determined the conversion option qualified for equity classification. The Company also evaluated the profit guarantee under ASC 815 and determined it to be a make-whole provision, which is an embedded derivative within the host instrument. As the economic characteristics of the make-whole provision are dissimilar to the host instrument, the profit guarantee was bifurcated from the host instrument and stated as a separate derivative liability, which is marked to market at the end of each reporting period with the non-cash gain or loss recorded in the period as a gain or loss on derivative.

 

On the date of conversion the Company recognized a $5,118,435 loss on extinguishment of debt, which represented the difference between the $6,220,000 in notes payable that were converted and the fair value of the shares issued of $6,220,003, which were recorded in shares issued for conversion of notes payable – related party within shareholders’ equity, the derivative liability of $5,052,934, which was valued using a Black-Scholes option pricing model, and the write-off of the unamortized debt discount of $65,498. Amortization of the debt discounts during the three months ended July 31, 2021, prior to the notes’ conversion, was $11,279, which was recorded in amortization of debt discounts in the accompanying consolidated statements of operations.

 

 

Per the terms of the Note Conversion Agreement the accrued interest related to the notes payable was not converted into shares and is still due to the related party. The Company and the related party agreed that interest will continue to accrue on the outstanding accrued interest at a rate of 9.5% per annum and will be paid in full by May 25, 2022.

 

On July 23, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $500,000. The loan is to be repaid within 30 days of receipt and shall bear interest at a rate of 12% per annum.

 

On August 4, 2021, the Company entered into a loan agreement with its related party lender for borrowings of $500,000. The loan is to be repaid within 30 days of receipt and shall bear interest at a rate of 12% per annum.

 

On August 11, 2021, the Company repaid the outstanding principal and interest to its related party lender for the July 23, 2021 loan of $500,000 and the August 4, 2021 loan of $500,000.

 

On August 31, 2021, the Company’s related party lender cancelled the guarantee in the Note Conversion Agreement that the aggregate gross sales of its converted shares will be no less than $6,220,000. In connection with the elimination of the profit guarantee the derivative liability ceased to exist at that time. On August 31, 2021, the fair value of the derivative liability was remeasured using a Black-Scholes option pricing model and determined to be $2,185,185. The change in fair value of the derivative through August 31, 2021, was recognized as a gain on change in fair value of derivatives of $2,759,718 and $2,867,749 for the three and six months ended October 31, 2021, respectively, and the remaining value of the derivative of $2,185,185 was reclassified to additional paid-in capital as part of shareholders’ equity during the three months ended October 31, 2021 due to the related party nature of the transaction.

 

There were no outstanding borrowings from this related party as of October 31, 2021. Interest expense related to this related party for the three months ended October 31, 2021 and 2020 amounted to $22,495 and $144,085, respectively. Interest expense related to this related party for six months ended October 31, 2021 and 2020 amounted to $78,728 and $316,549, respectively. Accrued interest due to this related party as of October 31, 2021 and April 30, 2021 amounted to $821,925 and $747,636, respectively.