Business context and reporting period
This filing is for Slinger Bag Inc., a sporting-goods company focused on its portable tennis-ball launcher and related products. The 10-Q covers the fiscal quarter and six months ended October 31, 2020, compared with the periods ended October 31, 2019. The filing does not identify Airwa Inc. as the registrant; investors should confirm the company and filing match their intended research.
Financial performance and position
| Metric | Three months ended Oct. 31, 2020 | Six months ended Oct. 31, 2020 |
|---|---|---|
| Net sales | $2.620 million | $3.185 million |
| Gross profit / margin | $1.040 million / 39.7% | $668,403 / 21.0% |
| Operating expenses | $1.243 million | $2.332 million |
| Loss from operations | $(202,553) | $(1.664) million |
| Net loss | $(2.524) million | $(3.898) million |
| Net loss per share, basic and diluted | $(0.10) | $(0.15) |
There were no sales in the comparable 2019 periods. The six-month gross margin was lower than the second-quarter margin because first-quarter shipments included discounted crowdfunding orders, higher-cost deluxe units and tennis balls, and increased U.S. import duties. Management said substantially all initial crowdfunding orders had been fulfilled by the start of the second quarter.
- Cash and liquidity: Cash was $652,871 at October 31, 2020, versus $79,847 at April 30, 2020. Current assets were $3.190 million and current liabilities $9.171 million, leaving a working-capital deficit of approximately $5.981 million.
- Cash flow, six months: Operating activities used $1.544 million; investing activities provided no cash; financing activities provided $2.120 million. Cash increased by $573,024.
- Debt and liabilities: Reported total liabilities were $9.593 million. Notes payable totaled $6.420 million before discounts: $4.100 million owed to a related party and $2.320 million of other notes. The filing’s debt maturity table lists $5.920 million due within one year and $500,000 in one to three years. Accrued related-party interest was $455,516.
- Equity: Stockholders’ deficit was $6.403 million, with an accumulated deficit of $14.127 million. At October 31, 26.610 million common shares were outstanding and 6.921 million additional shares were issuable under the Montsaic agreement. Warrants exercisable for 16.025 million shares were also outstanding.
Material changes and unusual items
- Quarterly sales began to generate positive gross profit after the company largely completed lower-margin crowdfunding fulfillment; six-month results still reflect the first-quarter gross loss.
- Operating expenses increased year over year as sales, marketing and development activity grew and public-company filing costs were incurred. Six-month operating expenses rose to $2.332 million from $941,908.
- Net loss included a $1.999 million noncash loss on extinguishment of related-party debt, following an interest-rate amendment supported by warrants, and a $51,412 induced-conversion loss. A $566,667 derivative gain partly offset other expenses in the six-month period.
- Related-party borrowing increased. In September, the lender reduced interest on outstanding loans to 9.5% and extended their maturity to September 1, 2021; the company issued warrants for 2.5 million shares as consideration. A separate $250,000 loan also carried warrants.
- On December 3, 2020, Montsaic assigned $1.820 million of notes and related share rights to the company’s existing related-party lender. Other subsequent events included a $300,000 related-party borrowing on November 24 and an agreement to acquire the Slinger trademark for cash, shares and warrants.
Outlook, risks and controls
Management said it expects future sales to generate positive gross profit and reported production capacity of 5,000 units per month, with 11,250 launchers shipped from China and another 10,000 in production as of October 31. It described distributor agreements and product-development plans, including planned pickleball and padel launchers, but provided no quantified revenue or earnings guidance. The stated potential value of the Dunlop distribution arrangement is up to $100 million in purchases through 2025; this is a contractual purchase opportunity, not reported revenue or a guarantee of sales.
The company disclosed substantial doubt about its ability to continue as a going concern, citing its accumulated deficit and expected further losses. Management planned to fund the next 12 months using cash, related-party loans and/or private equity placements; it also warned additional financing may not be available on acceptable terms and could dilute shareholders. The filing reports no formal commitment for ongoing related-party support and no bank credit lines.
Management concluded disclosure controls and procedures were not effective. Material weaknesses included inadequate segregation of duties and oversight, limited accounting resources, inventory-control deficiencies, and delayed reconciliations and reporting. Remediation was underway but the weaknesses were not considered remediated as of October 31, 2020. Other stated risks include dependence on financing and acquisition-agreement obligations, execution of growth plans, commodity and production costs, environmental and tax matters, and the company’s history of losses.
Important facts for investors to verify
- Confirm the registrant: the supplied filing is for Slinger Bag Inc., despite the request metadata naming Airwa Inc.
- Review near-term debt maturities, interest terms and repayment capacity, including the related-party debt and the subsequent assignment of Montsaic notes.
- Assess the going-concern disclosure, cash runway, financing assumptions and any dilution from potential equity or warrant issuance.
- Validate distributor minimum purchases and the status of the stated Dunlop opportunity against executed contract terms and actual orders.
- Track gross margins, inventory levels, deferred revenue fulfillment and the remediation of material weaknesses in financial reporting controls.