Newton Golf Company, Inc 10-Q for FY2023 Q3
Newton Golf Company, Inc. (NWTG)
About this 10-Q
Newton Golf Company, Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $95K
- up 97.9% from $48K a year earlier
- Net loss
- $1.2M
- compared with a net loss of $548K a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.05 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 | ||
| The
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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 ☐
As of October 31, 2023, there were shares of common stock outstanding.
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, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| 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, net | ||||||||
| Deferred offering costs | ||||||||
| Deposits | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll to executives | ||||||||
| Lease liability, current | ||||||||
| Equipment purchase obligation | ||||||||
| Loans payable – related parties | ||||||||
| Notes payable (past due) | ||||||||
| Customer deposits | ||||||||
| Total Current Liabilities | ||||||||
| Lease liability, net of current | ||||||||
| Total Liabilities | ||||||||
| Common stock subject to possible redemption ( shares at redemption price of $) | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity (Deficiency): | ||||||||
| Preferred stock $ par value, shares authorized, shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, and , shares issued and outstanding, respectively, excluding shares subject to possible redemption at December 31, 2022 | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficiency) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficiency) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-1 |
SACKS PARENTE GOLF, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expenses | ||||||||||||||||
| Interest, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ||||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per 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 CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
(Amounts rounded to nearest thousands, except share amounts)
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Common Stock | Common Stock Issuable | Additional Paid In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 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) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common Stock | Common Stock Issuable | Additional Paid In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| 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) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common Stock | Common Stock Issuable | Additional Paid In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Vesting of options | - | - | ||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock | Common Stock Issuable | Additional Paid In | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
| Balance, December 31, 2021 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Vesting of options | ||||||||||||||||||||||||||||
| Vesting of restricted stock | - | |||||||||||||||||||||||||||
| Modification of equity awards | ( | ) | ( | ) | ||||||||||||||||||||||||
| Shares issued on plan of conversion | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-3 |
SACKS PARENTE GOLF, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
(Amounts rounded to nearest thousands)
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Change in reserve for inventory obsolescence | ( | ) | ||||||
| Vesting of options | ||||||||
| Vesting of restricted stock | ||||||||
| Modification of equity awards | ||||||||
| Loss on extinguishment of debt | ||||||||
| Shares issued for services | ||||||||
| Changes in ROU asset | ||||||||
| Accrued interest | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaids and other current assets | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll to officers | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| License obligation | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| 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 financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash beginning of period | ||||||||
| Cash and cash equivalents and restricted cash end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common shares issued on conversion of convertible debt obligations | $ | $ | ||||||
| New right of use asset and lease liability | $ | $ | ||||||
| Property and equipment purchased with debt | $ | $ | ||||||
| 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, 2023 and 2022
(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.
Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included elsewhere in this report.
The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023.
Going Concern and Liquidity
The accompanying condensed 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.
During
the year ended December 31, 2022, the Company incurred a net loss of $
During
the nine months ended September 30, 2023, the Company closed its initial public offering (“IPO”) and received $
The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financing, and it expects to continue to rely on these sources of capital in the future.
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 of equity financing, or grant unfavorable terms in licensing future licensing agreements.
| F-5 |
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 and tangible and intangible 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.
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, 2023 and December 31, 2022, management determined that no allowance was necessary.
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.
| F-6 |
Revenue and costs of sales are recognized when control of the products transfers 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
| 2023 | 2022 | |||||||||||
Three Months Ended September 30, | ||||||||||||
| 2023 | 2022 | |||||||||||
| Net Sales Source | Revenue | Revenue | % Change | |||||||||
| Distributors | $ | $ | % | |||||||||
| Online Sales | - | % | ||||||||||
| Shipping | % | |||||||||||
| Sales discounts | ( | ) | ( | ) | - | % | ||||||
| Net Sales | $ | $ | % | |||||||||
| 2023 | 2022 | |||||||||||
Nine Months Ended September 30, | ||||||||||||
| 2023 | 2022 | |||||||||||
| Net Sales Source | Revenue | Revenue | % Change | |||||||||
| Distributors | $ | $ | % | |||||||||
| Online Sales | % | |||||||||||
| Shipping | % | |||||||||||
| Sales discounts | ( | ) | ( | ) | % | |||||||
| Net Sales | $ | $ | % | |||||||||
The following table presents our net sales by product lines for the period presented:
| 2023 | 2022 | |||||||
Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Product Line | Revenue | Revenue | ||||||
| Golf Putters | $ | $ | ||||||
| Accessories | ||||||||
| Shipping | ||||||||
| Sales discounts | ( | ) | ( | ) | ||||
| Net Sales | $ | $ | ||||||
| F-7 |
| 2023 | 2022 | |||||||
Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Product Line | Revenue | Revenue | ||||||
| Golf Putters | $ | $ | ||||||
| Accessories | ||||||||
| Shipping | ||||||||
| Sales discounts | ( | ) | ( | ) | ||||
| 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, 2023 and 2022, 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, 2023 | September 30, 2022 | |||||||
| Options | ||||||||
| Common stock subject to possible redemption | ||||||||
| 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 $
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 is a private company 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 agriculture technology 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. 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.
| F-8 |
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 deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $
Net
sales. During the three months ended September 30, 2023, one Company customer classified as a distributor, accounted for
During
the three months ended September 30, 2023,
During
the nine months ended September 30, 2023, two customers classified as a distributor accounted for
During
the nine months ended September 30, 2022, one customer classified as a distributor accounted for
| F-9 |
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 was effective for the Company beginning January 1, 2023. The Company does not believe the impact of the new guidance and related codification improvements had be material effect to its financial position, results of operations and cash flows.
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 lower of cost (first-in, first-out) or net realizable value, and net of reserves is comprised of the following:
SCHEDULE OF INVENTORY
| September 30, 2023 | December 31, 2022 | |||||||
| Raw materials, net | $ | $ | ||||||
| Finished goods, net | ||||||||
| Total | $ | $ | ||||||
At
September 30, 2023 and December 31, 2022, 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, 2023 | December 31, 2022 | |||||||
| Machinery & Equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense is included in selling, general and administrative expenses in the accompanying Statements of Operations. For the nine months
ended September 30, 2023 and 2022, depreciation expenses was $
NOTE 5 – ACCRUED PAYROLL TO EXECUTIVES
Several
executives, including the Company’s Chief Executive, Chief Technology, and Chief Financial Officer, elected to defer payment of
their employment compensation. The amounts due were unsecured, non-interest bearing, and with no formal terms of repayment. The aggregate
balance of the compensation owed to the senior executives was $
| F-10 |
NOTE 6 – EQUIPMENT PURCHASE OBLIGATION
On
April 1, 2022, the Company entered into an equipment purchase obligation (“Obligation”) in the amount of $
NOTE 7 – RELATED PARTY LOANS
Related party loans consist of the following at September 30, 2023 and December 31, 2022:
SCHEDULE OF RELATED PARTY LOANS
| September 30, 2023 | December 31, 2022 | |||||||
| Line of credit to related party – Akinobu Yorihiro (a) | $ | $ | ||||||
| Line of credit to related party – Tim Triplett (b) | ||||||||
| Line of credit to related party – GML Holdings (c) | ||||||||
| Line of credit to related party – NXV (d) | ||||||||
| Secured promissory note to related party – Michael Keller (e) | ||||||||
| Total | $ | $ | ||||||
| (a) | ||
| (b) |
| F-11 |
| (c) | ||
| (d) | ||
| (e) |
NOTE 8 – NOTES PAYABLE
Notes payable consist of the following at September 30, 2023 and December 31,2022:
SCHEDULE OF NOTES PAYABLE
| September 30, 2023 | December 31, 2022 | |||||||
| Note payable (a) – past due | $ | $ | ||||||
| Note payable (b) – past due | ||||||||
| Note payable (c) – past due | ||||||||
| Note payable (d) – past due | ||||||||
| Total | $ | $ | ||||||
| F-12 |
| (a) | ||
| (b) | ||
| (c) | ||
| (d) |
NOTE 9 – 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 $
| F-13 |
The
Company’s lease liability balance was $
During
the nine months ended September 30, 2023 and 2022, lease costs totaled approximately $
As
of September 30, 2023, the weighted average remaining lease terms for operating lease is
NOTE 10 – SECURITIES PURCHASE AGREEMENT SUBJECT TO REDEMPTION
On
January 30, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with Speicher Limited (“Investor”)
to which the Investor agreed to purchase shares of the Company’s common stock in a private placement. The purchase price
per share of common stock was $, and the net proceeds to the Company was $
In accordance with the SPA, the Company granted the Investor the right to require the Company to repurchase the Investor’s shares of the Company’s common stock at a price of $ per share only on the event of default making the Listing unsuccessful and within five business days on receipt of written notice. If the Listing does not occur on or before August 31, 2023, as amended, and such failure to occur is not due to the Company’s Default, as defined in the SPA, then neither party shall owe the other any further payment under the SPA. The provision herein would require a potential cash settlement of the company which prohibits the presentation of this instrument as part of permanent equity. As such the amounts were reflected as a mezzanine financing at December 31, 2022.
The
right of the Investor to require the repurchase of its shares was extinguished as a result of the listing of the Company’s shares
on the Nasdaq Stock Market on August 15, 2023. As such, shares of common stock were reclassified as outstanding, and the $
NOTE 11 – STOCKHOLDERS’ DEFICIT
Recapitalization
On March 18, 2022, the Company converted into a Delaware corporation named Sacks Parente Golf, Inc. Pursuant to our Plan of Conversion, 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. All share and per shares amounts were retroactively restated as if the conversion occurred at the beginning of the earliest period presented.
In
accordance with a Plan of Conversion agreed to by each investor on March 18, 2022, The Company’s convertible debt obligations of
$
| F-14 |
Common Stock Issued for Services
On
March 6, 2023, the Company entered into a Management Services Agreement (“MSA”) with Steve Handy to serve in the role as
the Company’s Chief Financial Officer. As part of an agreement, the Company issued shares of restricted common stock with
immediate vesting, which the Company determined had a fair value of $
Common Stock Issued for Initial Public Offering
On
August 14, 2023, the Company entered into a 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 shares of common stock, at a price of $ per share. The offering closed on
August 17, 2023, and total proceeds received, net of fees, were $
Equity Incentive Plans
Summary of Options
SCHEDULE OF STOCK OPTIONS
| Weighted | ||||||||
| Number of | Average | |||||||
| Options | Exercise Price | |||||||
| Balance outstanding, December 31, 2022 | $ | |||||||
| Options granted | ||||||||
| Options forfeited | ( | ) | ||||||
| Balance outstanding, September 30, 2023 | $ | |||||||
| Balance exercisable, September 30, 2023 | $ | |||||||
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 March 6, 2023, the Company entered into a management services agreement with Steve Handy to serve in the role as the Company’s Chief Financial Officer through September 6, 2023. The Company granted Mr. Handy 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 nine-month period, and an expiration period of. 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, based on the Company’s current public offering price, the expected term of , volatility of %, dividend rate of %, and risk-free interest rate of%.
On September 7, 2023, the Company entered into an employment agreement with Steve Handy to serve in the role as the Company’s Chief Financial Officer. The Company granted Mr. Handy 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 (36) month period, and an expiration period of . 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-15 |
During
the nine months ended September 30, 2023 and 2022, the Company recognized approximately $
As of September 30, 2023, the outstanding and exercisable options have an intrinsic value of approximately $ and $ respectively. The aggregate intrinsic value was calculated as the difference between the estimated market value of $ per share as of September 30, 2023, and the exercise price of the outstanding options.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
On
August 12, 2023, the Company entered a non-binding letter of intent with Greater Asia Golf Promotions Limited (“GAGP”)
to appoint GAGP 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 $
NOTE 13 – SUBSEQUENT EVENTS
In September, 2023, the
Company’s Board of Directors appointed Gregory Campbell, the Company’s Chairman of the Board, to serve in the role as
the Company’s Executive Chairman. Mr. Campbell will receive monthly cash compensation of $
Effective
October 9, 2023, Scott White was appointed as the Company’s Chief Operating Officer. Under the terms of an offer letter, Mr. White
will receive a base salary of $
| F-16 |
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, 2022, 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
Sacks Parente Golf, Inc. (“we,” the “Company” or “SPG”) 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 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 $11,594,000 including an underwriting discount of 7% and a non-accountable expenses allowance of 1% based on the aggregate proceeds of the offering.
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 COVID-19 pandemic has resulted in a surge in golf participation and growth for our industry, but such 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 will require us to hire additional personnel and implement public company procedures and processes. We expect to 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.
| 1 |
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.
Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Net Sales
Our net sales increased $47,000, or 98%, to $95,000 during the three months ended September 30, 2023, compared to $48,000 during the three months ended September 30, 2022. The increase in net sales was primarily from sales to a distributor in South Korea, which represented approximately $47,000, or 50% of our net sales during the nine months ended September 30, 2023, which did not occur in the prior year period.
Cost of goods sold
Cost of goods sold represents primarily our material, component, and license fees for manufacturing our products sold and changes in inventory reserves for slow-moving or potentially obsolete products. Our cost of goods sold increased by $29,000 to $56,000 for the three months ended September 30, 2023, compared to $27,000 for the three months ended September 30, 2022. Our gross margin was 41% and 44% for the three months ended September 30, 2023 and 2022, respectively. The decrease in gross margin was due to the increase in sales and the change in inventory reserve as compared to the prior year period.
Operating expenses
Operating expenses include selling, general and administrative expenses, and research and development costs.
Our selling, general and administrative expenses increased approximately $675,000 to $1.2 million during the three months ended September 30, 2023, compared to $520,000 during the three months ended September 30, 2022. The increase in selling, general and administrative expenses was from increased legal and professional fees of $224,000, increased public company related costs of $135,000, increased employee related expenses of $121,000, increased stock based compensation costs of $95,000, and increased sales and marketing related expense of $55,000 over the prior year period. The remaining increase in expenses of approximately $45,000 was from routine changes in our selling, general and administrative expenses accounts to support our operations.
Research and development costs include advisors, consultants, and product design and development. Research and development expenses decreased $18,000 to $15,000 during the three months ended September 30, 2023, compared to $33,000 during the three months ended September 30, 2022. The decrease in research and development costs in the current year period was from the difference in the timing of new product development activities as compared to the prior year period.
Loss from operations
Loss from operations increased to $1.2 million for the three months ended September 30, 2023, compared to a loss from operations of $532,000 for the three months ended September 30, 2022. The increase in our loss from operations was due to our increased operating expenses, offset by increased gross profit, as discussed above.
Interest expense
Interest expense was $26,000 for the three months ended September 30, 2023, compared to $16,000 for the three months ended September 30, 2022.
Net loss
Net loss increased $649,000 to $1.2 million during the three months ended September 30, 2023, compared to $548,000 for the three months ended September 30, 2022. The increase in our net loss was from increased operating expenses, increased interest expense, offset by increased gross profit, as discussed above.
| 2 |
Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022
Net Sales
Our net sales increased $75,000, or 48%, to $232,000 during the nine months ended September 30, 2023, compared to $157,000 during the nine months ended September 30, 2022. The increase in net sales was primarily from sales to a distributor in South Korea, which represented approximately $90,000, or 39% of our net sales during the nine months ended September 30, 2023, which did not occur in the prior year period.
Cost of goods sold
Cost of goods sold represents primarily our material, component, and license fees for manufacturing our products sold and changes in inventory reserves for slow-moving or potentially obsolete products. Our cost of goods sold increased by $64,000 to $134,000 for the nine months ended September 30, 2023, compared to $70,000 for the nine months ended September 30, 2022. Our gross margin was 42% and 55% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in gross margin was due to the increase in sales and the change in inventory reserve as compared to the prior year period.
Operating expenses
Operating expenses include selling, general and administrative expenses, and research and development costs.
Our selling, general and administrative expenses increased approximately $329,000 to $2.8 million during the nine months ended September 30, 2023, compared to $2.4 million during the nine months ended September 30, 2022. Our increase in selling, general and administrative expenses was from a $806,000 decrease in stock based compensation expense, offset by increased employee related expenses of $528,000, increased public company related costs of $231,000, increased legal and professional fees of $215,000, increased sales and marketing related expenses of $40,000, and an increase of approximately $121,000 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 advisors, consultants, and product design and development. Research and development expenses increased $15,000 to $58,000 during the nine months ended September 30, 2023, compared to $43,000 during the nine months ended September 30, 2022. The increase in research and development costs in the current year period was from our new product development activities.
Loss from operations
Loss from operations increased to $2.7 million for the nine months ended September 30, 2023, compared to $2.4 million for the nine months ended September 30, 2022. The increase in our loss from operations was due to our increased operating expenses, offset by increased gross profit, as discussed above.
Loss on extinguishment of debt
In accordance with a Plan of Conversion agreed to by each investor on March 18, 2022, our convertible debt obligations of $1,050,000 were converted into 1,517,865 shares of the Company’s common stock, with a fair value of $1,624,000. The difference between the fair value of the common stock and the convertible debt obligation was $574,000, which was recorded as a loss on extinguishment of debt. No similar transaction occurred in the current year period.
Interest expense
Interest expense was $68,000 for the nine months ended September 30, 2023, compared to $23,000 for the nine months ended September 30, 2022. The increase in interest expense was from increased debt balances as compared to the prior year period.
| 3 |
Net loss
Net loss decreased $196,000 to $2.8 million during the nine months ended September 30, 2023, compared to $3.0 million for the nine months ended September 30, 2022. The decrease in net loss was due to decreased stock based compensation costs, increased gross profit, the recording of a loss on extinguishment of debt in the prior year period, offset by increased operating costs, and increased interest expense, as discussed above.
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, | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (3,805,000 | ) | $ | (575,000 | ) | ||
| Investing activities | (101,000 | ) | (75,000 | ) | ||||
| Financing activities | 10,503,000 | 611,000 | ||||||
| Net increase (decrease) in cash | $ | 6,597,000 | $ | (39,000 | ) | |||
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 totaled $3.8 million, compared to net cash used in operating activities for the nine months ended September 30, 2022 of $575,000. The increase in net cash used in operations for the nine months ended September 30, 2023, was primarily to fund our net loss, the payment of accrued compensation for our officers of $1.1 million, prepayments and deposits of $750,000, adjusted by changes in stock based compensation expense, with the remaining change related to our working capital accounts.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 totaled $101,000, compared to net cash used in investing activities for the nine months ended September 30, 2022 of $75,000. Net cash used in investing activities was for the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 was $10.5 million, which included net proceeds after commissions and expenses of $11.0 million from our initial public offering, proceeds of $180,000 received in the private placement of common stock, proceeds of $81,000 from loans, $230,000 for deferred offering costs related to our initial public offering, offset by loan repayments to related parties of $557,000, repayment of notes payables of $445,000, and $15,000 repayment of our equipment purchase obligation.
Net cash provided by financing activities for the nine months ended September 30, 2022 was $611,000, which included proceeds of $420,000 received in the private placement of common stock, proceeds of $150,000 from the sale of convertible debt obligations, and net proceeds of $300,000 from loans, offset by $230,000 paid for deferred offering costs related to our planned initial public offering, and a $29,000 repayment of our equipment purchase obligation.
Liquidity and Capital Resources
The accompanying condensed 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.
| 4 |
During the year ended December 31, 2022, the Company incurred a net loss of $3,505,000 and used cash in operations of $785,000 and had a shareholders’ deficit of $1,882,000 as of December 31, 2022. As reflected in the accompanying condensed financial statements, during the nine months ended September 30, 2023, the Company incurred a net loss of $2,786,000 and used cash in operations of $3,805,000.
During the nine months ended September 30, 2023, the Company closed its initial public offering (“IPO”) and received $11,029,000 of net proceeds after expenses. At September 30, 2023, the Company had cash and cash equivalents on hand in the amount of $6,768,000. Due to the funds received through our IPO, and the $600,000 cash received that was reclassified to additional paid in capital (see Note 10), the Company had shareholders’ equity of $7,553,000 at September 30, 2023. The Company now expects its cash on hand at September 30, 2023, will last for at least the next 12 months.
The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financing, and it expects to continue to rely on these sources of capital in the future.
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 of equity financing, or grant unfavorable terms in licensing future licensing agreements.
Off-Balance Sheet Arrangements
At September 30, 2023 and December 31, 2022, 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.
Revenue Recognition
We account for revenue recognition in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.”
| 5 |
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.
Inventories
Inventories are valued at the lower of cost or net realizable value, which includes a reserve for excess, obsolete and/or unmarketable inventory. We estimate the reserve based upon current inventory levels, sales trends and historical experience as well as management’s estimates of market conditions and forecasts of future product demand, all of which are subject to change. The calculation of our reserve for excess, obsolete and/or unmarketable inventory requires management to make assumptions and to apply judgment regarding inventory aging, forecasted consumer demand and pricing, regulatory (USGA and R&A) rule changes, the promotional environment and technological obsolescence. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the reserve. However, if estimates regarding consumer demand are inaccurate or change, we may need to increase its inventory allowance, which could significantly adversely affect we operating results.
Cost of Products
Our cost of products is comprised primarily of material, component and license fees. Historically, our manufacturing costs, primarily material and component costs, are variable in nature and will fluctuate with sales volumes. Generally, the relative significance of the components cost of products do not vary materially from period to period. However, with the current inflation pressures on current economic outlook, this could change.
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 Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023, 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
| 6 |
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, 2023, 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.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are engaged from time to time in the defense of lawsuits arising out of the ordinary course and conduct of our business. There is no action, suit, proceeding, inquiry, or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company, threatened against our Company, our common stock, or of our Company or our officers or directors in their capacities as such.
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.
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Item 5. Other Information
During
the nine months ended September 30, 2023, 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
| 8 |
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 13, 2023 | By: | /s/ Timothy Triplett |
| Chief Executive Officer | ||
| Date: November 13, 2023 | By: | /s/ Steve Handy |
| Steve Handy | ||
| Chief Financing Officer and Principal Financial Officer |
| 9 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy Triplett, 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 13, 2023 | /s/ Timothy Triplett |
| Timothy Triplett | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Steve Handy, 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 13, 2023 | /s/ Steve Handy |
| Steve Handy | |
| 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 ending September 30, 2023 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Timothy Triplett., Chief Executive 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 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 13, 2023 | By: | /s/ Timothy Triplett |
| Timothy Triplett | ||
| Chief Executive Officer | ||
| (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 ending September 30, 2023 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), Steve Handy, 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 13, 2023 | By: | /s/ Steve Handy |
| Steve Handy | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||