# Newton Golf Company, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Newton Golf Company, Inc.](/companies/nwtg.md) (CIK 1934245)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 15:54 ET
- Period: 2023-09-30
- Accession: 0001493152-23-040376
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1934245/000149315223040376/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1934245/000149315223040376/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $95.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $232.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $56.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $134.0k | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $39.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $98.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $15.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $58.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $2.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$2.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $26.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $68.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$1.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$2.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 12,674,298 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 11,442,597 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$3.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $101.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $6.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $7.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $8.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $410.0k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $419.0k | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $7.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,529 characters.

*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.

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.

### 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.

### 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):

| Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| 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.

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.”

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.

## Controls and procedures

As filed, 3,028 characters.

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.

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.

## Risk factors

As filed, 163 characters.

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.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-040376. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.