Business context and reporting period
This is Slinger Bag Inc.’s unaudited Form 10-Q for the quarter and nine months ended January 31, 2020, its fiscal third quarter. The company had recently shifted from travel consulting to developing and selling the Slinger Launcher, a portable tennis ball machine. The filing metadata names AIRWA Inc.; the filing itself identifies the registrant as Slinger Bag Inc., so the issuer identity should be verified.
Financial results and position
- Revenue: $0 for both the three- and nine-month periods, as in the comparable 2019 periods. Accordingly, the filing reports no gross margin.
- Net loss: $450,224 for the quarter versus $3,472 a year earlier; $683,243 for nine months versus $16,041. Basic and diluted loss per share were $0.02 and $0.03, respectively.
- Expenses: Nine-month operating expenses were $605,515, including $127,310 selling and marketing, $275,036 general and administrative, and $203,169 transaction costs. Nine-month other expense was $77,728, including $64,273 related-party interest and $10,538 debt-discount amortization.
- Cash flow: Operating cash use was $2,013,283 for nine months, including a $1,524,101 inventory build and $290,792 increase in amounts due from related parties. Financing provided $2,025,000; investing cash flow was zero. Cash at January 31 was $13,711.
- Liquidity and debt: Current assets were $1,856,267, including $1,524,101 inventory and $297,246 due from related parties; current liabilities were $2,530,412. Working capital was therefore negative $674,145. Liabilities included $1.9 million of related-party notes, $81,967 net convertible debt, and a $53,571 derivative liability. Stockholders’ deficit was $674,145.
Changes versus prior comparable periods
Revenue remained zero, while losses and expenses rose substantially as the company funded marketing, development, business infrastructure, and acquisition-related costs. Interest-bearing borrowing began during the current period; prior-year results reported no interest expense. Cash increased from $1,994 at April 30, 2019, primarily through debt financing, despite significant operating cash use.
Outlook, risks, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern. It planned to fund the next twelve months with cash, related-party loans, and/or private stock placements, while stating expected resources would be adequate. No formal revenue or earnings guidance was provided.
- Product launch: Management said an affiliated campaign sold 3,100 units and was expected to generate approximately $862,000; this was not reported as revenue in these statements. The company reported that 4,000 product packages had shipped from China by January 15, with U.S. and Belgium deliveries and order fulfillment beginning in February.
- Supply-chain and pandemic risk: The company said its Chinese manufacturing facility had shut down because of coronavirus, risking significant production and delivery delays, lower revenue, and higher costs. Manufacturing dependence, long lead times, inventory risk, and limited alternative sourcing were also highlighted.
- Debt and dilution: Related-party loans carried rates of 12% to 24%, with significant amounts due July 15, 2020. A $125,000 convertible note bore 12% interest and converted at a discount to a defined stock-price measure. After quarter-end, the company issued another $125,000 convertible note, borrowed an additional $200,000 from the related party, and converted the earlier note into 369,354 shares.
- Other subsequent events: Slinger Bag Americas acquired Slinger Bag Ltd. on February 10, 2020. The company also increased authorized common shares to 300 million and effected a four-for-one forward split on February 25.
- Controls: Management concluded disclosure controls and procedures were ineffective and described steps to improve its accounting and reporting systems. The filing identifies material weaknesses as a risk.
Important facts for investors to verify
- Confirm the registrant and reporting period, given the AIRWA metadata versus the Slinger Bag Inc. filing text.
- Check whether campaign orders, shipped inventory, and subsequent fulfillment produce collected cash and recognized revenue, and how much inventory remains saleable.
- Verify related-party loan balances, interest rates, maturities, repayment capacity, and the availability of continued lender support.
- Assess the effect of the China factory shutdown and subsequent operating disruption on production, delivery schedules, costs, and liquidity.
- Review the terms and potential dilution from convertible notes, issuable shares, and the authorized-share increase.
- Track remediation of ineffective disclosure controls and the company’s progress toward resolving the stated going-concern uncertainty.