Business context and reporting period
This is Slinger Bag Inc.’s unaudited Form 10-Q for the quarter ended October 31, 2021 (its fiscal second quarter) and the six months then ended. The filing identifies the registrant as Slinger Bag Inc.; this differs from the request metadata naming AIRWA Inc. Slinger sells sporting goods, led by its portable tennis-ball launcher and related accessories.
Financial results and liquidity
| Metric | Three months ended Oct. 31, 2021 | Six months ended Oct. 31, 2021 |
|---|---|---|
| Net sales | $5.40 million | $7.94 million |
| Gross income / gross margin | $2.08 million / 38.6% | $2.87 million / 36.2% |
| Operating loss | $35.10 million | $37.59 million |
| Net loss | $38.83 million | $42.26 million |
Quarterly sales rose 106% year over year; six-month sales rose 149%. Management attributed growth to increased website orders and international distributor shipments. Quarterly gross margin was slightly lower year over year, partly due to freight and duty costs; the six-month margin improved from 21.0% in the prior-year period, which included discounted crowdfunding sales and elevated fulfillment and import costs.
General and administrative expense was $36.20 million for the quarter, including $32.38 million of share-based compensation expense tied to warrants issued to employees. Other notable six-month items included a $9.13 million non-cash gain from changes in derivative fair value, $7.10 million loss on extinguishment of debt, $3.69 million loss on issuance of convertible notes, and $2.65 million of debt-discount amortization. These financing and valuation items materially affected reported losses.
For the six months, operating cash use was $6.00 million, investing cash use was $1.40 million (the PlaySight loan), and financing provided $8.21 million. Cash was $1.75 million at October 31, 2021, versus $0.93 million at April 30. Current assets were $13.19 million and current liabilities $24.91 million, a working-capital deficit of $11.71 million. Inventory was $8.58 million.
The company had $11.00 million principal outstanding under 8% convertible notes due August 6, 2022; their reported net book value was $2.63 million after discounts. The balance sheet also showed $14.87 million of current derivative liabilities and $821,925 accrued interest owed to a related party. The prior $2.00 million secured note and $6.22 million related-party principal were repaid or converted; no borrowings remained on those facilities at period end.
Changes, outlook, and risks
- Foundation Sports was acquired in June for consideration valued at $3.55 million, including goodwill and intangible assets.
- After quarter-end transactions were agreed for Gameface and PlaySight, with closings expected in the quarter ending January 31, 2022, subject to conditions. Consideration includes substantial potential share issuance; the PlaySight agreement also provides for transaction costs and earn-out shares.
- Management said it expects to fund operations over the next 12 months with available cash, related-party loans and/or private placements, and stated that existing working capital, further advances and anticipated cash flow are expected to be adequate. The filing nevertheless reports substantial doubt about the company’s ability to continue as a going concern, given its $71.08 million accumulated deficit, expected further losses and reliance on financing. It has no bank credit facilities.
- Management plans product development and marketing investment, including launchers for other sports and an AI tennis application targeted for 2022. These are plans, not guaranteed outcomes; the filing provides no quantified revenue or earnings guidance.
- Internal control over financial reporting was deemed ineffective at October 31, 2021. Continuing material weaknesses include inadequate segregation of duties and oversight, insufficient accounting resources, and inventory-control deficiencies. Remediation efforts were still being implemented.
- Key risks include raising capital on acceptable terms, dilution from equity or convertible financing, meeting acquisition-related obligations, execution of product and growth plans, and the potential loss of rights under business agreements if requirements or payments are not met. The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm issuer identity and ticker: the filing is for Slinger Bag Inc., not AIRWA Inc.
- Review the convertible notes’ conversion, redemption, price-protection and warrant provisions, and assess potential dilution and repayment needs before their August 2022 maturity.
- Assess the assumptions behind the $14.87 million derivative liability and the large non-cash gains and losses affecting earnings.
- Track cash burn, inventory and working-capital needs against the going-concern warning and management’s stated 12-month funding expectation.
- Check whether Gameface and PlaySight closed, their final consideration and share issuance, and whether the acquisitions meet expected milestones.
- Monitor remediation of material weaknesses, particularly inventory accounting and financial-reporting oversight.