Business context and reporting period
This unaudited Form 10-Q is for Slinger Bag Inc. and its three months ended July 31, 2021, compared with the three months ended July 31, 2020. The company sells the Slinger Launcher and related sporting goods, and is developing products and services for other sports. The request metadata names AIRWA Inc.; the filing itself identifies Slinger Bag Inc., so the issuer identity should be verified.
Financial performance and position
| Metric | Three months ended July 31, 2021 | Comparable 2020 period |
|---|---|---|
| Net sales | $2.54 million | $0.56 million |
| Gross income (loss) | $0.79 million; 30.9% gross margin | $(0.37) million; (65.8)% gross margin |
| Operating loss | $(2.49) million | $(1.46) million |
| Net loss | $(3.44) million | $(1.37) million |
| Cash used in operating activities | $(0.10) million | $(1.59) million |
| Cash and cash equivalents at period end | $1.01 million | $0.10 million |
At July 31, 2021, current assets were $7.89 million and current liabilities were $22.82 million, a working capital deficit of approximately $14.92 million. Total liabilities were $22.84 million, including $14.54 million of derivative liabilities. Accumulated deficit was $32.26 million. The filing reports no income-tax provision. Interest paid in the quarter was $50,833.
Material changes versus the prior period
- Sales rose $1.97 million, or 349%, with increased website and distributor orders. Gross results improved from a loss to positive gross income; management attributed the prior-year gross loss to discounted crowdfunding orders, upgraded fulfillment products and higher import duties.
- Operating expenses increased $2.19 million to $3.28 million. Selling and marketing rose 134%, general and administrative expense rose 215%, and research and development rose 519%, reflecting increased marketing, staffing and services compensation, and AI-app development.
- Net loss increased $2.06 million. Results included a $5.12 million debt-extinguishment loss and a $4.33 million noncash gain from changes in derivative fair value.
- Cash from operations improved, but remained negative; inventory and prepaid expenses increased. Financing provided $0.50 million from a related-party loan, while investing used $0.30 million for a loan to PlaySight.
- The company acquired Foundation Sports on June 21, 2021, recording $3.55 million of purchase consideration, including goodwill of $1.24 million and acquired intangible assets.
Outlook, risks and unusual items
- Management states there is substantial doubt about the company’s ability to continue as a going concern, citing its accumulated deficit and anticipated losses. It expects to rely on cash, related-party loans and/or private placements; financing availability and terms are uncertain.
- Management expected $1.24 million of deferred revenue for unshipped orders to be recognized when fulfilled during the year ending April 30, 2022. The filing describes planned product launches for pickleball, paddle and soft tennis in calendar 2022, and an AI tennis app launch later in 2021; these are plans, not guaranteed outcomes.
- After quarter-end, the company closed an $11 million gross private placement of 8% senior convertible notes and warrants, then used net proceeds to repay the $2 million, 15% note. Purchasers converted $2 million of principal and accrued interest into shares on August 30, 2021. These transactions and other warrant/share conversions could materially affect debt and dilution.
- Profit-guarantee provisions tied to converted shares created substantial derivative liabilities. Subsequent cancellations of guarantees and warrant conversions were expected to eliminate $8.36 million and $4.94 million of derivative liabilities, respectively, in the quarter ending October 31, 2021.
- Internal control over financial reporting was not effective at July 31, 2021. Material weaknesses included inadequate segregation of duties, limited accounting resources and inventory-control deficiencies; remediation was still in progress.
- The company disclosed no material pending legal proceedings and no material changes to previously reported risk factors. It reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the correct issuer: the filing is for Slinger Bag Inc., while the request metadata says AIRWA Inc.
- Assess near-term liquidity and the going-concern risk, including repayment terms for related-party borrowing and the effect of post-quarter financing proceeds and repayments.
- Review the convertible-note and warrant terms, share conversions, price protections and potential dilution, including the effect of subsequent events on outstanding shares.
- Track whether deferred orders ship and convert to revenue, and whether sales growth supports improved operating results and cash generation.
- Monitor derivative-liability accounting and confirm the reported subsequent derecognition amounts and timing.
- Check whether management remediates the disclosed control weaknesses, especially inventory accounting and reporting processes.