Business context and reporting period
The supplied filing is Slinger Bag Inc.’s unaudited Form 10-Q for the quarter and six months ended October 31, 2019, not a filing identified as AIRWA Inc. The company changed its name from Lazex Inc. in September 2019 and shifted its focus from travel services to developing and selling the Slinger Launcher, a portable tennis-ball launcher. It acquired Slinger Bag Americas and, on October 31, gained control of Slinger Bag Canada; the Canadian entity had no assets, liabilities, or operating history at that date. The filing says Slinger Bag Ltd.’s related product-development and marketing costs are not included in the reported consolidated results.
Financial performance and liquidity
| Metric | Three months ended Oct. 31, 2019 | Six months ended Oct. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| General and administrative expenses | $186,823 | $228,019 | $6,052 and $12,569, respectively |
| Interest expense | $5,000 | $5,000 | $0 |
| Net loss | $191,823 | $233,019 | $6,052 and $12,569, respectively |
| Operating cash used | Not stated | $189,297 | $10,568 used for six months |
At October 31, cash was $312,697, current assets were $351,621, current liabilities were $575,542, and the working capital deficit was $223,921. The balance sheet included a $500,000 related-party note payable; total stockholders’ deficit was $223,921. No revenue was reported, so revenue-based margins are not meaningful.
Six-month financing cash flow was $500,000 from the related-party note. Cash increased by $310,703 from $1,994 at April 30, 2019. The company reported no investing cash flows. A $38,924 receivable from related parties was outstanding at October 31.
Material changes versus prior comparable periods
Operating expenses and losses rose substantially from 2018, which management attributed mainly to costs of completing the Slinger Bag Americas transaction and building infrastructure for the business. The company borrowed $500,000 from a related-party entity in October at 12% annual interest, due on demand. The former majority shareholder’s $10,114 non-interest-bearing, on-demand balance was forgiven in connection with the transaction. The filing also records 3,047,500 shares issuable under an affiliate-related agreement, expected to be issued before the end of fiscal 2020; they were excluded from diluted loss per share as antidilutive.
Outlook, risks, contingencies, and unusual items
- Going concern: The filing states there is substantial doubt about the company’s ability to continue as a going concern, citing accumulated deficit of $266,110 and anticipated further losses. Management expects to fund the next twelve months using cash, related-party loans, and/or private placements; it says financing may not be available on acceptable terms.
- Subsequent financing: On December 3, 2019, the company borrowed an additional $500,000 from the same related-party entity at 12%, due on demand. This post-quarter borrowing is not included in October 31 balance-sheet debt.
- Business plans: Management plans to develop the launcher and pursue e-commerce and distributor sales, with further spending expected on inventory, research and development, and marketing. The filing provides no quantified revenue or earnings guidance.
- Execution and operating risks: The company had no revenue, a limited operating history, and dependence on future financing. Risks include product acceptance, competition, intellectual-property protection, reliance on manufacturers and suppliers in China, long supply-chain lead times, inventory forecasting, international operations, and currency and trade-policy changes.
- Controls and reporting: Management concluded disclosure controls and procedures were not effective at period end. It described post-quarter steps to improve systems and controls, with a goal of effectiveness during the quarter ending January 31, 2020. The filing also identifies material-weakness remediation as a risk.
- Reporting item to check: The equity statement lists quarterly net loss as $191,832 in one line, while the income statement and other disclosures report $191,823. The filing text does not explain this discrepancy.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing names Slinger Bag Inc., whereas the request metadata names AIRWA Inc.
- Check the terms, balances, accrued interest, and repayment status of both demand notes, including the December 3, 2019 borrowing.
- Assess the going-concern warning against the company’s cash needs, operating plan, and ability to obtain further funding.
- Verify the status and dilution implications of the 3,047,500 shares issuable under the affiliate agreement, and the accounting for the related $837,313 affiliate amount.
- Review progress on ineffective disclosure controls and the stated remediation plan, and reconcile the $9 net-loss discrepancy in the equity statement.
- Determine whether Slinger Bag Ltd.’s product-development and marketing activity or costs are expected to be consolidated, and when the company expects to begin generating revenue.