UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: February 28, 2022

Or

☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 333-230690

(877) 571-5562

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

14,375,000 shares of Common Stock issued and outstanding as of April 18, 2022.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PACIFIC SPORTS EXCHANGE INC.

INTERIM FINANCIAL STATEMENTS

For the Six Months Ended February 28, 2022

(Unaudited)

INDEX TO UNAUDITED FINANCIAL STATEMENTS

PACIFIC SPORTS EXCHANGE INC.

Balance Sheets

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

PACIFIC SPORTS EXCHANGE INC.

Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

PACIFIC SPORTS EXCHANGE INC.

Statement of Changes in Stockholders’ Deficit

(Unaudited)

For the Six Months Ended February 28, 2022

For the Six Months Ended February 28, 2021

The accompanying notes are an integral part of these unaudited condensed financial statements.

PACIFIC SPORTS EXCHANGE INC.

Statements of Cash Flows

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

PACIFIC SPORTS EXCHANGE INC.

Notes to Unaudited Financial Statements

 Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements concern the Company’s anticipated results and developments in the Company’s operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

Any statement that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always using words or phrases such as “believes”, “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates”, or “intends”, or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further in this “Management’s Discussion and Analysis” section of this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Pacific Sports disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law. The Company advises readers to carefully review the reports and documents filed from time to time with the Securities and Exchange Commission (the “SEC”), particularly the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

As used in this Quarterly Report, the terms “we,” “us,” “our,” “Pacific Sports,” and the “Company,” mean Pacific Sports Exchange, Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars, unless otherwise indicated.

Management’s Discussion and Analysis is intended to be read in conjunction with the Company’s financial statements and the integral notes (“Notes”) thereto for the period ending February 28, 2022. The following statements may be forward-looking in nature and actual results may differ materially.

General Overview

We were incorporated in Delaware on July 2, 2018, to engage in the business of re-selling new and used tennis and golf equipment. We have since added used golf carts to our resale inventory and have begun engaging in consignment sales of tennis rackets. The concept is to source top-quality, in-demand equipment, and resell it to both domestic and international customers. Our Company has identified popular brands and models that retain value, in new and used condition, across the various markets in which we plan to sell.

We operate as an on-line only entity and utilize eBay Inc. (“eBay”) as our primary marketing channel. We will also optimize our own website for ‘global’ search terms and internally vend equipment through an expanding referral network of repeat customers.

On January 15, 2019, we issued 3,100,000 shares of common stock to 14 individuals pursuant to the provisions of Section 4(a)(2) of the Securities Act of 1933 (the “Act”) and Rule 506(b) of Regulation D promulgated by the Securities and Exchange Commission (“SEC”).

On June 19, 2020, we issued 1,000,000 shares of Common Stock for $20,000 to 7 individuals pursuant to our S-1 Registration Statement declared effective on September 30, 2019.

On September 6, 2020, pursuant to our S-1 Registration Statement declared effective on September 30, 2019, the Company issued 275,000 shares of Common Stock to unaffiliated 10 individuals, for total proceeds of $5,500.

Our principal executive office is located at 2149 Rio De Janeiro Ave., Punta Gorda, FL 33983, and our telephone number is (877) 571-5562. Our corporate website is www.pacificsportsexchange.com.

We have not been subject to any bankruptcy, receivership, or similar proceeding. We do not have any subsidiaries.

Description of Business

We specialize in the reselling of new and used tennis and golf equipment, including reselling used golf carts and engaging in consignment sales of tennis rackets. The concept is to source top-quality, in-demand equipment and resell it to both domestic and international customers. We have identified popular brands and models that retain their value in new and used condition.

To source in-demand equipment, our Company has established relationships with local Southwest Florida sports retailers to purchase their surplus end-of-season inventory and trade-ins. The Company also attends golf and tennis trade shows and monitors re-seller equipment events to pin-point trends in high-demand used equipment. Both Florida and California have been identified as premium geographic locations to search for and secure the desired supply of top-end equipment.

We currently operate as an on-line only entity and utilize eBay as our primary marketing channel. We will also optimize our own website for ‘global’ search terms and internally vend equipment to a worldwide market. Because the Company relies on third-party websites such as eBay to make its sales, such reliance on any third-party platform to generate revenues carries with it certain risks including but not necessarily limited to: the Company could violate the terms of service and lose its selling privileges, or the sites themselves could experience technical issues and/or fail. The Company will always strive to abide by the policies of any third-party platform and will endeavor to provide superior customer service. The Company will also look to improve the marketing and functionality of its own website, to act as a hedge against the risk of relying on third-party partners.

The principals of our Company have experience in both the sports of tennis and golf, and through this experience have identified high-value, high-margin equipment that resells profitably to both international and domestic customers. The goal is to create a unique supply chain that targets niche, valued products and their buyers. Serious golfers and tennis players are very particular about their equipment and will go to considerable lengths to secure what they are looking for in a quest to improve their game; this customer is our prime target market and our marketing approach will be to create a relationship (wherever possible) with this customer and become their ongoing equipment supplier through social media and electronic outreach.

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world and as a result of the outbreak, many companies have experienced disruptions in their operations and in markets served.

The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on business operations and financial results of the Company, including the timing and ability of the Company to collect accounts receivable and procure materials and supplies.

As an online-only reseller of new and used sports equipment we do not have employees or a physical retail location where customers shop. Those factors mitigate against the negative effects of COVID-19 on our operations. All sports equipment inventory we hold is thoroughly cleaned and sanitized upon our receipt thereof and will be thoroughly cleaned and sanitized again immediately prior to shipping such equipment to any buyer. For any equipment sold through us, but not held as inventory by us, we request the originating source of such equipment to thoroughly clean and sanitize all equipment prior to shipping the equipment to a buyer, and we also caution all buyers (whether buying inventory directly from us, or equipment from third-parties through us) to thoroughly clean and sanitize all equipment upon receipt of the same.

Although being an online only reseller of sports equipment with no physical “brick and mortar” retail site mitigates against the effects of COVID-19 on our operations, the previous and any current or future government issued “stay at home” orders, and the previous and any current or future closure, or limitations on the use, of gyms, athletic clubs, golf courses and other recreational facilities has had and will continue to have negative impacts our operations and ability to generate revenues from operations. The result of such orders and closures is that fewer people, both in the U.S. and around the World, are able (and/or willing) to engage in physical activities, and recreation, whether indoors or outdoors. While governmental restrictions continue to be lifted and more and more people are able to return to recreational activities, the potential still exists for future restrictions and closures due to different strains, or variants, of COVID-19, and the potential for the spread, and or resurgence, of the virus. Fewer people engaging in physical activities, and recreation, likely will mean fewer people in the market to purchase new and/or used sporting equipment which will have a materially negative affect on our ability to generate revenues from operations.

If we are unable to generate sufficient revenues from operations to grow our business, or even sustain operations, we will be forced to rely on raising capital through debt and/or equity financing. There are no guarantees we will be able to raise additional capital through debt and/or equity.

Results of Operations

The following summary of our results of operations should be read in conjunction with our financial statements for the three months ended February 28, 2022, and 2021, which are included herein.

Three months ended February 28, 2022, compared to three months ended February 28, 2021.

Net loss was $4,414 for the three months ended February 28, 2022, and $12,509 for the three months ended February 28, 2021. The decrease in net loss, for 2022, was primarily due to an increase in gross profit and decrease in operating expenses.

Cost of goods sold for the three months ended February 28, 2022, and 2021 was $0 and $1,906, respectively. Operating expenses for the three months ended February 28, 2022, and 2021 were $10,414 and $14,013, respectively. Operating expenses during the three months ended February 28, 2022, and 2021 were primarily attributed to general and administration expenses of $168 and $45 and professional fees of $10,246 and $13,968, respectively.

Six months ended February 28, 2022, compared to six months ended February 28, 2021.

 Net loss was $4,439 for the six months ended February 28, 2022, and $18,379 for the six months ended February 28, 2021. The decrease in net loss, for 2022, was primarily due to an increase in gross profit from consignment sales and decrease in operating expenses.

Cost of goods sold for the six months ended February 28, 2022, and 2021 was $1,138 and $11,381, respectively. Operating expenses for the six months ended February 28, 2022, and 2021 were $14,370 and $21,751, respectively. Operating expenses during the six months ended February 28, 2022, and 2021 were primarily attributed to general and administration expenses of $314 and $158 and professional fees of $14,056 and $21,593, respectively.

Liquidity and Capital

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business for the foreseeable future. There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or debt financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or debt financing are insufficient, our Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to our Company. If adequate working capital is not available to our Company, it may be required to curtail or cease its operations.

As of February 28, 2022, and August 31, 2021, we had the following balance sheet amounts:

As of February 28, 2022, our current and total assets were $732, consisting of cash of $195 and inventory of $537. As of August 31, 2021, our current and total assets were $12,131, consisting of cash of $10,507 and inventory of $1,624.

As of February 28, 2022, our total liabilities of $54,822 were all current liabilities, which consisted of accounts payable and accrued liabilities of $44,122 and due to related parties of $10,700. As of August 31, 2021, liabilities consisted of $61,782 accounts payable and accrued liabilities.

Working Capital

The following table presents our working capital (deficit) position as at February 28, 2022 and August 31, 2021:

As of February 28, 2022, we had a working capital deficiency of $54,090 compared to working capital deficiency of $49,651 as of August 31, 2021. As of February 28, 2022, we had current assets of $732 (August 31, 2021 - $12,131) and current liabilities of $54,822 (August 31, 2021 - $61,782).

Cash Flow

We fund our operations with cash generated from sales, capital contributions, debt, and issuances of shares of our Common Stock.

The following table presents our cash flow for the six months ended February 28, 2022, and 2021:

Cash Flows from Operating Activities

For the six months ended February 28, 2022, net cash used in operating activities was $21,012 compared to $14,938 used during the six months ended February 28, 2021. For the six months ended February 28, 2022, we had a net loss of $4,439, which was increased by a change in working capital of $16,573. For the six months ended February 28, 2021, we had a net loss of $18,379, which was reduced by a change in working capital of $3,441.

Cash Flows from Financing Activities

For the six months ended February 28, 2022, and 2021, we received $10,700 advance from related party and $4,000 from the issuance of Common Stock, respectively.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

We prepare our financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) of the United States, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material. 

Revenue recognition

Revenue is earned from the reselling of new and used sports equipment. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfils its obligations pursuant to each of its equipment sales transactions:

The Company operates as an on-line only retailer and utilizes eBay as its prime marketing channel. The Company currently relies on eBay, a third-party marketplace, to facilitate its sales. Such reliance on any third-party platform to generate revenues carries with it certain risks, including but not necessarily limited to: the Company could violate the terms of service and lose its selling privileges, or the sites themselves could experience technical issues and/or fail. The Company always strives to abide by the policies of any third-party platform and endeavours to provide superior customer service.

Typical sales transactions are usually fulfilled within twenty-four (24) hours of completing the transaction online. Contracts stating the transaction price and our performance obligation to deliver the ordered products are deemed to be entered into on eBay at the time the customer submits payment, which is conducted through the PayPal payment platform. Due to the instantaneous nature of a customer submitting an order online at a stated price and the same (or next)-day shipment of product, the Company does not anticipate that variable consideration or contract assets or liabilities will arise in the normal course of business.

Revenues are recognized based on the sales contract price, net of sales taxes, when control of the promised goods are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. Our contracted prices primarily include cost of inventory, shipping and handling, eBay commission fee and our margin, which varies depending on each item. We may provide incentives to our customers from time-to-time, including discounts, coupons and rewards, which are treated as a reduction in revenue. The Company does not accept returns and clearly indicates this in our listings. However, if a customer receives an item that is not as described in the eBay listing, we must follow the eBay money-back guarantee policy which obligates us to issue a full refund within three (3) business days. We do not provide an estimate for returns as we do not anticipate any returns in the normal course of business.

Consignment Sales

The Company, as a consignee, provides a service to sell tennis racquets through its online marketplace with eBay. The Company retains a percentage of the proceeds received as payment for its consignment items, which the Company refers to as its ‘‘take rate.’’ The Company recognizes consignment revenue upon shipment of the consigned good to a customer as its performance obligation of providing consignment services to the consignor is satisfied at that point. The Company reports consignment revenue on a net basis as an agent and not the gross amount collected from a customer. Title to the consigned goods remain with the consignor until transferred to a customer subsequent to purchase of the consigned goods. In any event of damage or loss of consignment items, the Company will recognize an expense and will pay all related disbursements. The Company does not take title of consigned goods at any time.

Other Sales

The Company purchases used golf carts as their own inventory for resale. The Company reports revenue on a gross basis from amounts collected from the customer upon transferring the product to the buyer.

Cost of goods sold includes the following expenses: inventory costs and expenses related to eBay fees, repair and shipping services. 

Recent Accounting Pronouncements

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2022. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the period ended February 28, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The specific material weakness identified by our management was ineffective controls over certain aspects of the financial reporting process because of a lack of a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial reporting requirements and inadequate segregation of duties. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our Company’s annual or interim financial statements would not be prevented or detected on a timely basis.

We expect to be materially dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses in our disclosure controls and procedures and internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the quarter ended February 28, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we area party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on us.

Item 1A. Risk Factors

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC.

_____________

* Filed herewith

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.