Newton Golf Company, Inc 10-Q for FY2024 Q3
Newton Golf Company, Inc. (NWTG)
About this 10-Q
Newton Golf Company, Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.21M
- up 1174.7% from $95K a year earlier
- Net loss
- $1.06M
- compared with a net loss of $1.2M a year earlier
- Diluted EPS
- -$0.73
- compared with -$0.94 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from ___________ to ____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State of incorporation) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large, accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 13, 2024, there were shares of common stock outstanding after giving effect to a 1 for 10 reverse split which became effective on July 30,2024.
TABLE OF CONTENTS
| i |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This Quarterly Report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are not historical facts but rather are plans and predictions based on current expectations, estimates, and projections about our industry, our beliefs, and assumptions.
We use words such as “may,” “will,” “could,” “should,” “anticipate,” “expect,” “intend,” “project,” “plan,” “believe,” “seek,” “assume,” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements because the matters they describe are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which they were made. Over time, our actual results, performance, or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our security holders. Except as required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) the development and protection of our brands and other intellectual property, (ii) the need to raise capital to meet business requirements, (iii) significant fluctuations in marketing expenses, (iv) the ability to achieve and expand significant levels of revenues, or recognize net income, from the sale of our products, (v) management’s ability to attract and maintain qualified personnel necessary for the development and commercialization of its planned products, (vi) the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees or the overall economy, and (vii) other information that may be detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission (“SEC”). Please consider our forward-looking statements in light of those risks as you read this Quarterly Report.
| ii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SACKS PARENTE GOLF, INC.
Condensed Balance Sheets
(Amounts rounded to nearest thousands, except share amounts)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net of reserve for obsolescence of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Software licensing agreement, net | ||||||||
| Deferred offering costs | ||||||||
| Deposits | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Lease liability, current | ||||||||
| Software licensing obligation, current | ||||||||
| Customer deposits | ||||||||
| Total Current Liabilities | ||||||||
| Software licensing fee obligation, net of current | ||||||||
| Lease liabilities, net of current | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Preferred stock, par value $, shares authorized; shares issued and outstanding, respectively | ||||||||
| Common stock, par value $, shares authorized; shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-1 |
SACKS PARENTE GOLF, INC.
Condensed Statements of Operations
(Amounts rounded to nearest thousands, except share amounts)
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | $ | |||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| LOSS PER COMMON SHARE - BASIC AND DILUTED | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING -BASIC AND DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-2 |
SACKS PARENTE GOLF, INC.
Condensed Statements of Shareholders’ Equity (Unaudited)
(Amounts rounded to nearest thousands, except share amounts)
| Shares | Amount |
Capital |
Deficit | Total | ||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount |
Capital |
Deficit | Total | ||||||||||||||||
| Balance, June 30, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Vesting of options | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Vesting of options | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, June 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Vesting of options | - | |||||||||||||||||||
| Proceeds from private sale of common stock | ||||||||||||||||||||
| Proceeds from public sale of common stock, net of expenses | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Vesting of options | - | |||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||
| Proceeds from private sale of common stock | ||||||||||||||||||||
| Proceeds from public sale of common stock, net of expenses | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-3 |
SACKS PARENTE GOLF, INC.
Condensed Statements of Cash Flows
(Amounts rounded to nearest thousands)
| 2024 | 2023 | |||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of deferred software licensing agreement | ||||||||
| Change in reserve for inventory obsolescence | ( | ) | ||||||
| Vesting of options | ||||||||
| Shares issued for services | ||||||||
| Right-of-use asset | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll to officers | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Customer deposits | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Software licensing obligation | ( | ) | ||||||
| Payment of equipment purchase obligation | ( | ) | ||||||
| Deferred offering costs | ( | ) | ||||||
| Proceeds from private sale of common stock subject to possible redemption | ||||||||
| Proceeds from public sale of common stock, net | ||||||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Proceeds from loans payable – related party | ||||||||
| Repayment of loans payable – related party | ( | ) | ||||||
| Proceeds from convertible debt obligations | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents at the beginning of period | ||||||||
| Cash and cash equivalents at the end of period | $ | $ | ||||||
| Supplemental cash flows disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
| Supplemental non-cash financing disclosures: | ||||||||
| New right of use asset and lease liability | $ | $ | ||||||
| Reclass of common stock subject to redemption to equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-4 |
SACKS PARENTE GOLF, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
For
the Three and Nine Months Ended September 30, 2024 and 2023
(Unaudited)
(Amounts rounded to nearest thousands, except share and per share amounts)
NOTE 1 – OPERATIONS AND LIQUIDITY
Sacks Parente Golf, Inc. (“we,” the “Company” or “SPG”) was formed in 2018 as Sacks Parente Golf Company, LLC, a Delaware limited liability company. On March 18, 2022 the Company converted into a Delaware corporation named Sacks Parente Golf, Inc. Pursuant to our Plan of Conversion, on March 18, 2022, all of the outstanding ownership interests in Sacks Parente Golf Company, LLC, and rights to receive such interest were converted into and exchanged for shares of capital stock of Sacks Parente Golf, Inc. The Company retroactively reflected the conversion as of the earliest periods presented herein.
Sacks Parente Golf, Inc. is a technology-forward golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, and other golf-related products. In consideration of its growth opportunities in shaft technologies, in April of 2022, the Company expanded its manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. It is the Company’s intent to manufacture and assemble substantially all products in the United States. The Company anticipates expansion into golf apparel and other golf-related product lines to enhance its growth. The Company’s future expansions may include broadening its offerings through mergers, acquisitions or internal developments of product lines that are complementary to its premium brand.
The Company currently sells its products through resellers, the Company’s websites, and distributors in the United States, Japan, and South Korea.
Going Concern and Liquidity
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the nine
months ended September 30, 2024, the Company incurred a net loss of $
At
September 30, 2024, the Company had cash and cash equivalents on hand in the amount of $
The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.
Nasdaq Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
On December 5, 2023, the Company received a deficiency letter from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that, for the preceding 30 consecutive business days, the closing bid price of the Company’s common stock remained below the minimum $ per share requirement for continued listing on The Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). The Company was provided a compliance period of 180 calendar days from the date of the letter, or until June 3, 2024, to regain compliance with the Bid Price Requirement.
| F-5 |
On June 4, 2024, the Company received a staff determination letter (the “Determination Letter”) from the Staff notifying the Company that it had not regained compliance with the Bid Price Requirement by June 3, 2024, and is not eligible for a second 180-day period due to the Company’s failure to comply with the minimum stockholders’ equity initial listing requirement of the Nasdaq Capital Market.
Pursuant
to the Determination Letter, the Company requested a hearing before a Hearings Panel (the “Panel”). The hearing request automatically
stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel
following the hearing.
Reverse Stock Split
On
July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of
Delaware to effect a reverse stock split of the Company’s common stock at a ratio of
As a result of the Reverse Split, every ten shares of common stock were automatically combined into one share of common stock. The authorized number of shares of common stock was not affected by the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. Proportionate adjustments for the Reverse Stock Split have been made to the per share exercise price and the number of shares issuable upon the exercise of warrants, the number of shares reserved for issuance under the Company’s equity plans, and all the then outstanding awards under the Company’s equity plans. The Reverse Stock Split will not change the par value of the common stock or modify any voting rights or other terms of the common stock.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivables, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, and assumptions made in valuing stock instruments issued for services.
Cash and Cash Equivalents
The Company’s cash consists of cash on deposit with banks. Cash equivalents represent money market funds or short-term investments with original maturities of three months or less from the date of purchase.
| F-6 |
Accounts Receivable
Accounts
receivable are generally recorded at the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability
of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s
inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces
the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment
of past due trade accounts receivable outstanding. The allowance for accounts receivable is established through a provision reducing
the carrying value of receivables. At September 30, 2024 and December 31, 2023, management determined that
Inventory
Inventory
is stated at the lower of cost or net realizable value, with cost determined on an average cost basis. We regularly review our inventory
quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand
and our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand
for our products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result
in cancellations of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates
of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete
inventory. At September 30, 2024 and December 31, 2023, management recorded a reserve for slow moving and potentially obsolete inventory
of $
Deferred Offering Costs
Deferred offering costs consist principally of legal, accounting, and underwriters’ fees incurred related to equity financing. These deferred offering costs are deferred and then charged against the gross proceeds received once the equity financing occurs or are charged to expense if the financing does not occur.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
Revenue and costs of sales are recognized when control of the products is transferred to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.
All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.
The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
The following table presents our net sales by revenue source, and the period-over-period percentage change, for the period presented:
SCHEDULE OF DISAGGREGATION OF REVENUE
| 2024 | 2023 | |||||||||||
Three Months Ended September 30, | ||||||||||||
| 2024 | 2023 | |||||||||||
| Net Sales Source | Revenue | Revenue | % Change | |||||||||
| Online sales | $ | $ | % | |||||||||
| Distributors and wholesalers | - | % | ||||||||||
| Net Sales | $ | $ | % | |||||||||
| 2024 | 2023 | |||||||||||
Nine months Ended September 30, | ||||||||||||
| 2024 | 2023 | |||||||||||
| Net Sales Source | Revenue | Revenue | % Change | |||||||||
| Online sales | $ | $ | % | |||||||||
| Distributors and wholesalers | % | |||||||||||
| Net Sales | $ | $ | % | |||||||||
| F-7 |
The following table presents our net sales by product lines for the period presented:
| 2024 | 2023 | |||||||||||
Three months Ended September 30, | ||||||||||||
| 2024 | 2023 | |||||||||||
| Net Sales by Product Line | Revenue | Revenue | % Change | |||||||||
| Newton Shafts | $ | $ | % | |||||||||
| Sacks Parente Putters | - | % | ||||||||||
| Net Sales | $ | $ | % | |||||||||
| 2024 | 2023 | |||||||||||
Nine months Ended September 30, | ||||||||||||
| 2024 | 2023 | |||||||||||
| Net Sales by Product Line | Revenue | Revenue | % Change | |||||||||
| Newton Shafts | $ | $ | % | |||||||||
| Sacks Parente Putters | % | |||||||||||
| Net Sales | $ | $ | % | |||||||||
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.
For the nine months ended September 30, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
September 30, 2024 | September 30, 2023 | |||||||
| Stock options | ||||||||
| Total | ||||||||
Advertising Costs
Advertising
costs are expensed as incurred and are included in selling, general and administrative expense. Advertising costs aggregated $
Research and Development
Research
and development expenses consist primarily of personnel costs, prototype expenses, and consulting services associated with research and
development equipment. Research and development costs are expensed as incurred. Research and development costs were $
The Company periodically issues stock options to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.
| F-8 |
The fair value of each option is estimated using the Black-Scholes option-pricing model. The Company was a private company through August 14, 2023, and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the consumer products industry with characteristics similar to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
Prior to August 14, 2023, the common shares of the Company were not publicly traded. As such, during the period, the Company estimated the fair value of common stock using an appropriate valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, guideline public company information, the prices at which the Company sold its common stock to third parties in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used in the valuations could result in different fair values of stock options at each valuation date, as applicable.
Fair Value of Financial Instruments
The Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure their fair value. Accounting Standards Codification Section 820 defines the following levels of subjectivity associated with the inputs:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3—Unobservable inputs based on the Company’s assumptions.
The carrying amounts of financial assets and liabilities, such as cash, accounts receivable, inventory, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.
Concentrations of Risk
Cash
Balances. The Company’s cash balances on deposits with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $
Accounts
Receivable. At September 30, 2024, two customers accounted for more than
Net
sales. During the three months ended September 30, 2024, no customer accounted for more than 10% of net sales. No other customers
exceeded 10% of net sales. During the three months ended September 30, 2023, a Company customer classified as a distributor, accounted
for
During
the three months ended September 30, 2024, more than
| F-9 |
During
the nine months ended September 30, 2024, no customer exceeded 10% of net sales. During the nine months ended September 30, 2023, the
Company’s two largest customers classified as distributors accounted for
During
the nine months ended September 30, 2024, approximately
Segments
Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company has one component. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment for the manufacture and distribution of its products.
Recent Accounting Pronouncements
Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 3 – INVENTORY
Inventory is valued at the average cost or net realizable value, and net of reserves is comprised of the following:
SCHEDULE OF INVENTORY
September 30, 2024 | December 31, 2023 | |||||||
| Raw materials, net | $ | $ | ||||||
| Finished goods, net | ||||||||
| Total | $ | $ | ||||||
At
September 30, 2024 and December 31, 2023, inventory presented above is net of a reserve for slow moving and potentially obsolete inventory
of $
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
September 30, 2024 | December 31, 2023 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Automobile | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expenses are included in selling, general and administrative expenses in the accompanying Condensed Statements of Operations. For the
nine months ended September 30, 2024 and 2023, depreciation expenses was $
| F-10 |
NOTE 5 – SOFTWARE LICENSING OBLIGATION
In
October 2023, the Company entered into a software licensing agreement with Oracle America, Inc (“Oracle”) for its NetSuite
Enterprise Resource Planning (ERP) software (“NetSuite”). The Company agreed to license NetSuite for thirty-six (36) months
and utilize Oracle’s professional services to assist in the implementation of NetSuite. The cost of the license fee was $
The
Company recorded the $
During
the year ended December 31, 2023, the Company made no payments, leaving a software license obligation balance was $
Future payments under the software license obligation are as follows:
SCHEDULE OF SOFTWARE LICENSE OBLIGATION
| Years Ending December 31, | Amount | |||
| 2024 - remaining | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total payments | ||||
| Less: current portion | ( | ) | ||
| Non-current portion | $ | |||
NOTE 6 – LEASE LIABILITIES
The Company determines whether a contract is, or contains, a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company leases its office and warehouse locations, and certain warehouse equipment. Leases with an initial term of 12 months or less are not included on the balance sheets.
On
April 1, 2022, the Company entered a facility lease for a
The
Company’s ROU asset balance was $
The
Company’s lease liability balance was $
During
the nine months ended September 30, 2024 and 2023, lease costs totaled approximately $
| F-11 |
As
of September 30, 2024, the weighted average remaining lease terms for operating lease is
Future minimum lease payments under the leases are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| Years Ending December 31, | Amount | |||
| 2024 - remaining | $ | |||
| 2025 | ||||
| Total payments | ||||
| Less: Amount representing interest | ( | ) | ||
| Present value of net minimum lease payments | ||||
| Less: Current portion | ( | ) | ||
| Non-current portion | $ | |||
NOTE 7 – STOCKHOLDERS’ DEFICIT
Equity Incentive Plans
Summary of Options
SCHEDULE OF STOCK OPTIONS
| Weighted | ||||||||
| Number of | Average | |||||||
| Options | Exercise Price | |||||||
| Balance outstanding, December 31, 2023 | $ | |||||||
| Options granted | $ | |||||||
| Options forfeited | ( | ) | $ | |||||
| Balance outstanding, September 30, 2024 | $ | |||||||
| Balance exercisable, September 30, 2024 | $ | |||||||
SCHEDULE OF OUTSTANDING OPTIONS AND EXERCISABLE PRICE
| Outstanding | Exercisable | |||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||
| Exercise Price | Life | Average | Average | |||||||||||||||||||
| Per Share | Shares | (Years) | Exercise Price | Shares | Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
On January 1, 2024, the Company’s Board of Directors appointed Jane Casanta to the Company’s Board of Directors. The Board granted Ms. Casanta options to purchase shares of common stock under the Company’s 2022 Equity Incentive Plan, at an exercise price of $ per common share, vesting for a thirty-six () month period, and an expiration period of . The grant of options was for board service to be rendered for the year ended December 31, 2024. The total fair value of these options at grant date was approximately $, which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value of our stock price of $ per share, the expected term of , volatility of %, dividend rate of %, and risk-free interest rate of %.
| F-12 |
On July 18, 2024 (the “Meeting Date”), the Compensation Committee of the Board of Directors of the Company discussed the appointment of Gregor Campbell as the Company’s permanent Executive Chairman retroactive to July 1,2024 (the “Appointment Date”). The appointment was not effective until the Company received from all directors a counterpart copy of the resolutions regarding the details of his compensation agreement, the last of which was received on July 26, 2024. On the Meeting Date, he was also granted an option (the “Option”) to purchase shares of the Company’s Common Stock at an exercise price of $ per share which was the closing price on the Nasdaq Stock Market on the Meeting Date. The Option terminates on the earlier of from the Meeting Date or nine months from Mr. Campbell’s separation date from the Company and vests monthly over months commencing on the Meeting Date. The total fair value of these options at grant date was $, which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value of our stock price of $ per share, the expected term of , volatility of %, dividend rate of %, and risk-free interest rate of %.
On September 9, 2024 (the “Meeting Date”), the Compensation Committee of the Board of Directors of the Company confirmed and ratified the appointment of Douglas Samuelson as the Company’s Chief Financial Officer. On the Meeting Date, he was also granted an option (the “Option”) to purchase shares of the Company’s Common Stock at an exercise price of $ per share which was the closing price on the Nasdaq Stock Market on the Meeting Date. The Option terminates from the Meeting Date and will vest months after the vesting commencement date and 1/36 of the total shares will vest at the end of each month thereafter subject to continued employment through each vesting date. The total fair value of these options at grant date was $, which was determined using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: fair value of our stock price of $ per share, the expected term of , volatility of %, dividend rate of %, and risk-free interest rate of %.
During the nine months ended September 30, 2024 and 2023, the Company recognized approximately $ and $ of compensation expense, respectively, relating to vested stock options. As of September 30, 2024, the aggregate amount of unvested compensation related to stock options was approximately $ which will be recognized as an expense as the options vest in future periods through December 2026.
As of September 30, 2024, the outstanding and exercisable options had an intrinsic value of $. The aggregate intrinsic value was calculated as the difference between the estimated market value of $ per share as of September 30, 2024, and the exercise price of the outstanding options.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
On
August 12, 2023, the Company entered a non-binding letter of intent with Greater Asia Golf Promotions Limited as its non-exclusive distributor
of the Company’s products in the territory of Asia excluding Japan and Korea for a one-year term. The Company plans to spend up
to $
On
May 9, 2024, the Company entered into a Distributor Agreement with Greater Asia Golf Promotions Limited and released the $
NOTE 9 – SUBSEQUENT EVENTS
On
October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the
offering, issuance and sale of up to shares of the Company’s common stock at a public offering price of $ per share.
The offering closed on October 10, 2024. The gross and net proceeds to the Company for the offering were approximately $
| F-13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Financial Statements and notes thereto and our Annual Report for the year ended December 31, 2023, including the audited Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.
Company Overview
We are a technology-forward golf company, with a growing portfolio of golf products, including putting instruments, golf shafts, golf grips, and other golf related products. In consideration of our growth opportunities in shaft technologies, in April of 2022, we expanded our manufacturing business to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. It is our intent to manufacture and assemble substantially all products in the United States. We anticipate expansion into golf apparel and other golf related product lines to enhance our growth. Our future expansions may include broadening our offerings through mergers, acquisitions or internal developments of product lines that are complementary to our premium brand.
On August 14, 2023, we entered into an underwriting agreement with The Benchmark Company for the purchase of shares of the Company’s common stock, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange Commission. In the offering, the Company sold 3,200,000 shares of common stock, at a price of $4.00 per share. The offering closed on August 17, 2023, and total proceeds received, net of fees, were $11.6 million including an underwriting discount of 7% and a non-accountable expenses allowance of 1% based on the aggregate proceeds of the offering.
Recent Events
Secondary Public Offering
On October 8, 2024, the Company entered into an underwriting agreement with Aegis Capital Corp. as the sole underwriter relating to the offering, issuance and sale of up to 366,000 shares of the Company’s common stock, $0.01 par value per share, at a public offering price of $2.00 per share. The offering closed on October 10, 2024. The gross and net proceeds to the Company for the offering were approximately $732,000, and $536,000, respectively, after deducting the underwriting discounts and commissions and estimated offering expenses. The offering of the securities described above was made pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-281664), filed with the Securities and Exchange Commission (the “SEC”) on August 20, 2024 and amended on September 10, 2024, which was declared effective by the SEC on September 23, 2024, and the base prospectus included therein, as supplemented by the preliminary prospectus supplement filed with the SEC on October 8, 2024 and the final prospectus supplement with the SEC on October 10, 2024.
Newton Shafts
On November 20, 2023, we announced a significant expansion of our product portfolio. We introduced “Newton,” the Company’s latest business division and the Company’s first foray into the world of golf club shafts. The Newton Motion driver shaft, the first Newton shaft to debut in the market, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter and longer shots with reduced effort.
On April 4, 2024, we announced another expansion of our product portfolio, the Newton Motion fairway wood shaft, which like the Newton Motion driver shaft discussed above, is a carbon fiber shaft designed to enhance a golfer’s performance by promoting straighter and longer shots with reduced effort.
The Newton shafts are manufactured at our manufacturing and assembly facility in St. Joseph, Missouri
Nasdaq Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard
On December 5, 2023, the Company received a deficiency letter from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that, for the preceding 30 consecutive business days, the closing bid price of the Company’s common stock remained below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). The Company was provided a compliance period of 180 calendar days from the date of the letter, or until June 3, 2024, to regain compliance with the Bid Price Requirement.
On June 4,2024, the Company received a staff determination letter (the “Determination Letter”) from the Staff notifying the Company that it had not regained compliance with the Bid Price Requirement by June 3, 2024, and is not eligible for a second 180-day period due to the Company’s failure to comply with the minimum stockholders’ equity initial listing requirement of The Nasdaq Capital Market.
| 1 |
Pursuant to the Determination Letter, the Company requested a hearing before a Hearings Panel (the “Panel”). The hearing request automatically stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel following the hearing. By letter dated June 24,2024, the Company was notified that the Panel granted the Company a temporary exception to regain compliance with the Bid Price Requirement subject to the following milestones: (1) on or before July 31,2024, the Company must effect a reverse stock split and, thereafter maintain a $1.00 closing bid price for a minimum of ten consecutive business days; and (2) on or before August 13,2024, the Company must demonstrate compliance with the Bid Price requirement by evidencing a closing bid price of $1.00 or more for a minimum of ten consecutive trading sessions. As set forth below, the Company effected a reverse stock split on July 30,2024. By letter dated August 13,2024 from the Nasdaq Office of General Counsel, the Company was informed that it has regained compliance with the minimum bid price requirement of $1.00 per share under Nasdaq Listing Rule 5550(a)(2).
Reverse Stock Split
On July 18, 2024, the Company filed a Certificate of Amendment to amend its Certificate of Incorporation with the Secretary of State of Delaware to effect a reverse stock split of the Company’s common stock at a ratio of 1-for-10 shares (the “Reverse Stock Split”). The Reverse Stock Split became effective as of 12:01 a.m. Eastern Time on July 30, 2024 and the Company’s common stock began trading on The Nasdaq Capital Market on a post-split basis under its existing trading symbol.
As a result of the Reverse Split, every ten shares of common stock were automatically combined into one share of common stock. The authorized number of shares of common stock was not affected by the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split, as all fractional shares were rounded up to the next whole share. Accordingly, all share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. Proportionate adjustments for the Reverse Stock Split have been made to the per share exercise price and the number of shares issuable upon the exercise of warrants, the number of shares reserved for issuance under the Company’s equity plans, and all the then outstanding awards under the Company’s equity plans. The Reverse Stock Split will not change the par value of the common stock or modify any voting rights or other terms of common stock.
Key Factors Affecting Our Performance
Seasonality and General Trends in Golf Participation
Because golf is a seasonal sport, our sales are cyclical and unlikely to remain consistent from quarter to quarter. Further, if golf participation decreases or the number of rounds of golf played decreases generally, for any or no reason, sales of our products may be adversely affected. In the future, the overall dollar volume of the market for golf-related products may not grow or may decline. The recent COVID-19 pandemic has resulted in a surge in golf participation and growth for our industry, but such a trend may not continue, and future trends are difficult to predict.
Public Company Costs
Effective August 17, 2023, our Common Stock was registered with the SEC and listed on The Nasdaq Capital Market, which requires us to hire additional personnel and implement public company procedures and processes. We incur additional annual expenses as a public company for internal controls compliance and public company reporting obligations, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Impact of Inflation
Recent inflationary trends have led to a moderate increase in some of the component parts used to manufacture our products. To date, we have not passed the increase in cost to our consumers. Continued prolonged periods of inflationary pressure on some or all costs may result in increased costs to produce our products that could have an adverse effect on profits from sales of these products or require us to increase prices for our products that could adversely affect consumer demand for our products.
| 2 |
While we have not had significant other disruptions that materially impacted our financial results, we continue to seek and expand the number of qualified domestic vendors used to source materials.
Comparison of the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Our sales, cost of goods sold, operating expenses, and net loss from operations for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 were as follows (amounts are rounded to nearest thousands):
| Three Months Ended September 30, 2024 | Three Months September 30, | % Change | ||||||||||
| Net Sales | $ | 1,211,000 | $ | 95,000 | 1,175 | % | ||||||
| Cost of goods sold | 406,000 | 56,000 | 625 | % | ||||||||
| Gross profit | 805,000 | 39,000 | 1,964 | % | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 201,000 | 15,000 | 1,240 | % | ||||||||
| Selling, general and administrative | 1,694,000 | 1,195,000 | 42 | % | ||||||||
| Total operating expenses | 1,895,000 | 1,210,000 | 57 | % | ||||||||
| Loss from operations | (1,090,000 | ) | (1,171,000 | ) | -7 | % | ||||||
| Interest income (expense), net | 30,000 | (26,000 | ) | -215 | % | |||||||
| Net loss | $ | (1,060,000 | ) | $ | (1,197,000 | ) | -11 | % | ||||
Net Sales
Our net sales increased $1,116,000, or 1,175%, to $1,211,000 during the three months ended September 30, 2024, compared to $95,000 during the three months ended September 30, 2023. The increase in net sales was from the introduction of our Newton Motion driver shaft product line in November 2023, and our Newton Motion fairway shaft product line in April 2024. For the three months ended September 30, 2024, we generated $1,182,000 of net sales from the Newton Motion shafts, and we generated approximately 95% of our net sales through our websites.
Cost of goods sold
Cost of goods sold represents primarily our material, labor, components, and changes in inventory reserves for slow-moving or potentially obsolete products. Our cost of goods sold increased by $350,000 to $406,000 for the three months ended September 30, 2024, compared to $56,000 for the three months ended September 30, 2023 due to our increase in net sales. Our gross margin was 66% and 41% for the three months ended September 30, 2024 and 2023, respectively. The increase in gross margin was due to the change in product mix sold as compared to the prior year period.
Operating expenses
Operating expenses include selling, general and administrative expenses, and research and development costs.
Selling, general and administrative expenses include employee costs, legal and professional fees, sales and marketing expenses, stock based compensation, public company expenses, rent, depreciation and other general expenses. Our selling, general and administrative expenses increased approximately $499,000 to $1.7 million during the three months ended September 30, 2024, compared to $1.2 million during the three months ended September 30, 2023. The increase in selling, general and administrative expenses was from increased employee related expenses, increased public company related costs, increased advertising expense, and from routine changes in our selling, general and administrative expenses accounts to support our operations, as compared to the prior year period.
| 3 |
Research and development costs include employee costs, consultants, licensing fees, and product design and development costs. Research and development expenses increased $186,000 to $201,000 during the three months ended September 30, 2024, compared to $15,000 during the three months ended September 30, 2023. The increase in research and development costs were due to costs incurred to test and refine prior to the commercialization of our Newton Motion fairway wood shaft product, which was launched in early April 2024. In addition, beginning in October 2023, the employment costs of our Chief Technology Officer and Vice President of Research & Development were recorded as a component of our research and development expenses, which we previously recorded to selling general and administrative expenses.
Loss from operations
Loss from operations decreased from $1.2 million for the three months ended September 30, 2023, compared to $1.1 million for the three months ended September 30, 2024. The decrease in our loss from operations was due to our increased net sales and gross profit, offset by increased operating expenses as discussed above.
Interest income (expense), net
Interest income was $30,000 for the three months ended September 30, 2024, compared to interest expense of $26,000 for the three months ended September 30, 2023. The decrease in interest expense was due to our paying off our debt with the proceeds received from our initial public offering in August 2023, and the increase in interest income was due to interest earned on our bank balances, as compared to the prior year period.
Net loss
Net loss decreased from $1.2 million for the three months ended September 30, 2023, compared to $1.1 million for the three months ended September 30, 2024. The decrease in our net loss was due to our increased net sales and gross profit, offset by increased operating expenses, as discussed above.
Comparison of the Nine months Ended September 30, 2024 Compared to the Nine months Ended September 30, 2023
Our sales, cost of goods sold, operating expenses, and net loss from operations for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 were as follows (amounts are rounded to nearest thousands):
| Nine months Ended September 30, 2024 | Nine months September 30, | % Change | ||||||||||
| Net Sales | $ | 2,374,000 | $ | 232,000 | 923 | % | ||||||
| Cost of goods sold | 874,000 | 134,000 | 552 | % | ||||||||
| Gross profit | 1,500,000 | 98,000 | 1,431 | % | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 598,000 | 58,000 | 931 | % | ||||||||
| Selling, general and administrative | 4,449,000 | 2,758,000 | 61 | % | ||||||||
| Total operating expenses | 5,047,000 | 2,816,000 | 79 | % | ||||||||
| Loss from operations | (3,547,000 | ) | (2,718,000 | ) | 31 | % | ||||||
| Interest income (expense), net | 139,000 | (68,000 | ) | -304 | % | |||||||
| Net loss | $ | (3,408,000 | ) | $ | (2,786,000 | ) | 22 | % | ||||
| 4 |
Net Sales
Our net sales increased $2.1 million, or 923%, to approximately $2.4 million during the nine months ended September 30, 2024, compared to $232,000 during the nine months ended September 30, 2023. The increase in net sales was from the introduction of our Newton Motion driver shaft product line in November 2023, and our Newton Motion fairway shaft product line in April 2024. For the nine months ended September 30, 2024, we generated $2,120,000 of net sales from the Newton Motion shafts, and we generated approximately 89% of our net sales through our websites.
Cost of goods sold
Cost of goods sold represents primarily our material, labor, components, and changes in inventory reserves for slow-moving or potentially obsolete products. Our cost of goods sold increased by $740,000 to $874,000 for the nine months ended September 30, 2024, compared to $134,000 for the nine months ended September 30, 2023, due to our increase in net sales. Our gross margin was 63% and 42% for the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin was due to the change in product mix sold and changes to our inventory reserves as compared to the prior year period.
Operating expenses
Operating expenses include selling, general and administrative expenses, and research and development costs.
Selling, general and administrative expenses include employee costs, legal and professional fees, sales and marketing expenses, stock-based compensation, public company expenses, rent, depreciation and other general expenses. Our selling, general and administrative expenses increased approximately $1.7 million to $4.4 million during the nine months ended September 30, 2024, compared to $2.8 million during the nine months ended September 30, 2023. The increase in selling, general and administrative expenses was from increased employee related expenses, increased public company related costs, increased advertising expense, and from routine changes in our selling, general and administrative expenses accounts to support our operations, as compared to the prior year period.
Research and development costs include employee costs, consultants, licensing fees, and product design and development costs. Research and development expenses increased $540,000 to $598,000 during the nine months ended September 30, 2024, compared to $58,000 during the nine months ended September 30, 2023. The increase in research and development costs were due to costs incurred to test and refine prior to the commercialization of our Newton Motion fairway wood shaft product, which was launched in early April 2024. In addition, beginning in October 2023, the employment costs of our Chief Technology Officer and Vice President of Research & Development were recorded as a component of our research and development expenses, which we previously recorded to selling general and administrative expenses.
Loss from operations
Loss from operations increased to $3.5 million for the nine months ended September 30, 2024, compared to $2.7 million for the nine months ended September 30, 2023. The increase in our net loss was due to our increased operating expenses, offset by increased gross profit, as discussed above.
Interest income (expense), net
Interest income was $139,000 for the nine months ended September 30, 2024, compared to interest expense of $68,000 for the nine months ended September 30, 2023. The decrease in interest expense was due to our paying off our debt with the proceeds received from our initial public offering in August 2023, and the interest earned on our bank balances, as compared to the prior year period.
Net loss
Net loss increased to $3.4 million for the nine months ended September 30, 2024, compared to $2.8 million for the nine months ended September 30, 2023. The increase in our net loss was due to our increased operating expenses, offset by increased gross profit, as discussed above.
| 5 |
Liquidity and Capital Resources
The following table summarizes our cash flows for the periods indicated (amounts are rounded to nearest thousands):
Nine months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (3,431,000 | ) | $ | (3,805,000 | ) | ||
| Investing activities | (463,000 | ) | (101,000 | ) | ||||
| Financing activities | (131,000 | ) | 10,503,000 | |||||
| Net increase (decrease) in cash | $ | (4,025,000 | ) | $ | 6,597,000 | |||
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 totaled $3.4 million, compared to net cash used in operating activities for the nine months ended September 30, 2023 of $3.8 million. The decrease in net cash used in operations for the nine months ended September 30, 2024, was primarily related to cash used to repay our accrued payroll to officers.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 totaled $463,000, and was for the purchase of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2023 totaled $101,000, and was for the purchase of property and equipment.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2024 totaled $131,000, and was for repayment of our software licensing obligation and deferred offering costs. Net cash provided by financing activities for the nine months ended September 30, 2023 was $10.5 million, which primarily related to proceeds of $11.1 million received from the public sale of our common stock.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
On August 14, 2023, we entered into an underwriting agreement with The Benchmark Company for the purchase of shares of the Company’s common stock, in an offering of securities registered under an effective registration statement filed with the Securities and Exchange Commission. In the offering, the Company sold 320,000 shares of common stock, at a price of $40.00 per share. The offering closed on August 17, 2023, and total proceeds received, net of fees, were $11,594,000 including an underwriting discount of 7% and a non-accountable expenses allowance of 1% based on the aggregate proceeds of the offering.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the nine months ended September 30, 2024, we incurred a net loss of $3.4 million and used cash in operations of $3.4 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, expressed substantial doubt about the Company’s ability to continue as a going concern.
At September 30, 2024, we had cash and cash equivalents on hand in the amount of $1.3 million. Management expects its cash on hand on September 30, 2024, to last for at least the next 3 months.
| 6 |
The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.
Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations and may elect to take advantage of other reduced reporting obligations in the future.
For so long as we are an emerging growth company, we will not be required to:
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); | |
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; | |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and pay ratio; and | |
| ● | disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As a result, the Company may adopt new or revised accounting standards by the date private companies are required to comply.
Off-Balance Sheet Arrangements
At September 30, 2024 and December 31, 2023, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our consolidated financial statements, which have been prepared and audited in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenues and expenses, as well as related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an ongoing basis, we review our estimates to ensure that the estimates appropriately reflect changes in our business and new information as it becomes available.
Management believes the critical accounting estimates discussed below affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements.
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Revenue Recognition
We account for revenue recognition in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.”
The amount of revenue we recognize is based on the amount of consideration we expect to receive from customers. The amount of consideration is the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as sales programs, sales promotions and price concessions that we offer, as described further below. These estimates are based on amounts earned or expected to be claimed by customers on the related sales, and are therefore recorded to the respective net revenue, trade accounts receivable, and sales program liability accounts.
We may offer short-term sales program incentives, which include sell-through promotions and price concessions or price reductions. Sell-through promotions are generally offered throughout a product’s life cycle, which varies from two to three years but could be shorter or longer. Price concessions or price reductions are generally offered at the end of the product’s life cycle. The estimated variable consideration related to these potential programs will be based on a rate that includes historical and forecasted data. We may record a reduction to net revenues using this rate at the time of the sale. We will monitor this rate against actual results and forecasted estimates and adjusts the rate as necessary in order to reflect the amount of consideration it expects to receive from its customers.
We also may record an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable in the period that the related sales are recorded. The cost recovery of inventory associated with this reserve will be accounted for in other current assets. Sales returns will be estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. We also may offer certain customers sales programs that would allow for specific returns. We may record a return reserve for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program.
Stock-Based Compensation
The Company periodically issues stock options to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.
The fair value of each option or warrant grant is estimated using the Black-Scholes option-pricing model. The Company was a private company through August 14, 2023, and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the consumer products industry with characteristics similar to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
Prior to August 14, 2023, the common shares of the Company were not publicly traded. As such, during the period, the Company estimated the fair value of common stock using an appropriate valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, guideline public company information, the prices at which the Company sold its common stock to third parties in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used in the valuations could result in different fair values of stock options at each valuation date, as applicable.
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Recently Issued Accounting Pronouncements
See Note 2 of the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure control and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Executive Chairman and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings that are pending against the Company or that involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on the Company’s business or financial condition.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During
the nine months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
Item 6. Exhibits
The following exhibits are filed herewith as a part of this report.
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SACKS PARENTE GOLF, INC. | ||
| Date: November 14, 2024 | By: | /s/ Greg Campbell |
| Executive Chairman and Principal Executive Officer | ||
| Date: November 14, 2024 | By: | /s/ Doug Samuelson |
| Doug Samuelson | ||
| Chief Financial Officer and Principal Accounting Officer |
| 11 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Greg Campbell, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sacks Parente Golf, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2024 | /s/ Greg Campbell |
| Greg Campbell | |
| Executive Chairman | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Doug Samuelson, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sacks Parente Golf, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 14, 2024 | /s/ Doug Samuelson |
| Doug Samuelson | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Sacks Parente Golf, Inc., a Delaware corporation (the “Company”) for the period ended September 30, 2024 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Greg Campbell, Executive Chairman of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| SACKS PARENTE GOLF, INC. | ||
| Date: November 14, 2024 | By: | /s/ Greg Campbell |
| Greg Campbell | ||
| Executive Chairman | ||
| (Principal Executive Officer) | ||
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Sacks Parente Golf, Inc. a Delaware corporation (the “Company”) for the period ended September 30, 2024 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Doug Samuelson, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge and belief:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| SACKS PARENTE GOLF, INC. | ||
| Date: November 14, 2024 | By: | /s/ Doug Samuelson |
| Doug Samuelson | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||