Sacks Parente Golf(SPGC) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements This section presents the unaudited condensed financial statements for Sacks Parente Golf, Inc., including the balance sheets, statements of operations, changes in stockholders' deficiency, cash flows, and accompanying notes, covering the three months ended March 31, 2024, and 2023 Condensed Balance Sheets The condensed balance sheets show the company's financial position at March 31, 2024, and December 31, 2023, detailing assets, liabilities, and equity | Metric | March 31, 2024 ($) | December 31, 2023 ($) | | :-------------------------- | :------------- | :------------------ | | Cash and cash equivalents | $4,083,000 | $5,338,000 | | Total Current Assets | $4,683,000 | $5,835,000 | | Total Assets | $5,289,000 | $6,394,000 | | Total Current Liabilities | $489,000 | $475,000 | | Total Liabilities | $593,000 | $604,000 | | Total Stockholders' Equity | $4,696,000 | $5,790,000 | | Accumulated deficit | $(11,510,000) | $(10,317,000) | Condensed Statements of Operations The condensed statements of operations present the company's financial performance for the three months ended March 31, 2024, and 2023, including sales, expenses, and net loss | Metric | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | % Change | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Net Sales | $350,000 | $90,000 | 289% | | Cost of goods sold | $144,000 | $46,000 | 213% | | Gross profit | $206,000 | $44,000 | 368% | | Selling, general and administrative expense | $1,271,000 | $916,000 | 39% | | Research and development expense | $190,000 | $25,000 | 660% | | Total operating expenses | $1,461,000 | $941,000 | 55% | | Loss from operations | $(1,255,000) | $(897,000) | 40% | | Interest income (expense), net | $62,000 | $(20,000) | -410% | | Net Loss | $(1,193,000) | $(917,000) | 30% | | Loss per share – basic and diluted | $(0.08) | $(0.08) | 0% | | Weighted average number of shares outstanding | 14,595,870 | 10,798,834 | 35% | Condensed Statements of Changes in Stockholders' Deficiency This statement details changes in stockholders' equity from December 31, 2023, to March 31, 2024, reflecting net loss and stock vesting | Metric | December 31, 2023 ($) | March 31, 2024 ($) | | :-------------------------- | :---------------- | :--------------- | | Total Stockholders' Equity | $5,790,000 | $4,696,000 | | Net Loss (Q1 2024) | - | $(1,193,000) | | Vesting of restricted stock (Q1 2024) | - | $99,000 | Condensed Statements of Cash Flows The condensed statements of cash flows summarize cash movements from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 | Cash Flow Activity | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | | :----------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,151,000) | $(186,000) | | Net cash used in investing activities | $(104,000) | $- | | Net cash provided by financing activities | $- | $45,000 | | Net decrease in cash | $(1,255,000) | $(141,000) | | Cash and cash equivalents end of period | $4,083,000 | $30,000 | Notes to Condensed Financial Statements These notes provide additional details and explanations for the condensed financial statements, covering operations, accounting policies, and specific accounts NOTE 1 – OPERATIONS AND LIQUIDITY Sacks Parente Golf, Inc. is a technology-forward golf company manufacturing golf products in the US, facing going concern doubts due to net losses and cash usage, and a Nasdaq delisting notice for not meeting the minimum bid price requirement - Company manufactures golf products (putting instruments, golf shafts, golf grips, and other golf-related products) in the United States and plans expansion into golf apparel and other product lines[23] - Company sells products through resellers, its websites, and distributors in the United States, Japan, and South Korea[24] - Incurred a net loss of $1,193,000 and used $1,151,000 cash in operations for the three months ended March 31, 2024, raising substantial doubt about the Company's ability to continue as a going concern within one year[26] | Metric | March 31, 2024 ($) | | :----------------------- | :------------- | | Cash and cash equivalents | $4,083,000 | | Expected cash duration | At least 10 months | - Received a Nasdaq notice on December 5, 2023, for non-compliance with the minimum bid price requirement ($1.00 per share), with a compliance period until June 3, 2024[29][30] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the company's key accounting policies, including the use of estimates, cash and cash equivalents, accounts receivable, inventory valuation, revenue recognition, loss per common share, advertising costs, research and development, stock-based compensation, fair value of financial instruments, concentrations of risk, and segment reporting - Inventory is stated at the lower of cost or net realizable value, with a reserve for slow-moving and potentially obsolete inventory of $51,000 at March 31, 2024, and $98,000 at December 31, 2023[35] - Revenue is recognized when control of products is transferred to the customer, generally upon shipment, with no significant post-shipment performance obligations or returns allowed except for damaged products[37][39] Net Sales by Revenue Source (Three Months Ended March 31) | Net Sales Source | 2024 Revenue ($) | 2023 Revenue ($) | % Change | | :----------------------- | :----------- | :----------- | :------- | | Online sales | $320,000 | $38,000 | 742% | | Distributors and wholesalers | $30,000 | $52,000 | -42% | | Net Sales | $350,000 | $90,000 | 289% | Net Sales by Product Line (Three Months Ended March 31) | Net Sales by Product Line | 2024 Revenue ($) | 2023 Revenue ($) | % Change | | :------------------------ | :----------- | :----------- | :------- | | Newton Shafts | $290,000 | $- | 100% | | Sacks Parente Putters | $60,000 | $90,000 | -33% | | Net Sales | $350,000 | $90,000 | 289% | - Advertising costs aggregated $381,000 for Q1 2024, a significant increase from $38,000 for Q1 2023[43] - Research and development costs were $190,000 for Q1 2024, up from $25,000 for Q1 2023[44] - For Q1 2024, no customer accounted for more than 10% of accounts receivable or net sales, with over 90% of net sales in the United States. In Q1 2023, two distributors accounted for 48% and 10% of net sales, with 48% of net sales in South Korea and 52% in the United States[50][51] NOTE 3 – INVENTORY Inventory increased from $248,000 at December 31, 2023, to $336,000 at March 31, 2024, with a decrease in the reserve for obsolescence Inventory Composition | Inventory Type | March 31, 2024 ($) | December 31, 2023 ($) | | :--------------- | :------------- | :---------------- | | Raw materials, net | $137,000 | $74,000 | | Finished goods, net | $199,000 | $174,000 | | Total | $336,000 | $248,000 | - Inventory is net of a reserve for slow-moving and potentially obsolete inventory of $51,000 at March 31, 2024, and $98,000 at December 31, 2023[55] NOTE 4 – PROPERTY AND EQUIPMENT Net property and equipment increased to $441,000 at March 31, 2024, from $379,000 at December 31, 2023, driven by additions to machinery, equipment, and leasehold improvements, alongside increased depreciation expense Property and Equipment, Net | Asset Category | March 31, 2024 ($) | December 31, 2023 ($) | | :----------------------- | :------------- | :---------------- | | Machinery and Equipment | $371,000 | $334,000 | | Leasehold Improvements | $92,000 | $46,000 | | Automobile | $42,000 | $42,000 | | Accumulated depreciation | $(64,000) | $(43,000) | | Property and equipment, net | $441,000 | $379,000 | - Depreciation expenses were $21,000 for Q1 2024, compared to $5,000 for Q1 2023[56] NOTE 5 – SOFTWARE LICENSING OBLIGATION The company entered a 36-month software licensing agreement with Oracle for NetSuite ERP in October 2023, incurring $136,000 in costs. As of March 31, 2024, the deferred software licensing asset was $102,000, and the obligation was $131,000, with payments starting April 2024 - Entered a 36-month software licensing agreement with Oracle for NetSuite ERP in October 2023, with an aggregate cost of $136,000[57] - Deferred software licensing balance was $102,000 at March 31, 2024, after recording additional costs of $21,000 and amortization expense of $29,000 during the quarter[58] - Software license obligation balance was $131,000 at March 31, 2024, with a current portion of $54,000 and a long-term portion of $77,000[59] Future Payments Under Software License Obligation | Years Ending December 31, | Amount ($) | | :------------------------ | :----- | | 2024 - remaining | $36,000 | | 2025 | $54,000 | | 2026 | $41,000 | | Total payments | $131,000 | NOTE 6 – LEASE LIABILITIES The company leases office and warehouse facilities, with the St. Joseph, Missouri facility lease extended to December 2025. As of March 31, 2024, the ROU asset and lease liability were both $58,000, with total lease costs remaining consistent year-over-year - The facility lease in St. Joseph, Missouri, for manufacturing advanced premium golf shafts, was amended and extended to December 2025, with monthly rent of approximately $3,000[62] - Right-of-use (ROU) asset balance was $58,000 as of March 31, 2024, reduced by $7,000 during the quarter[63] - Lease liability balance was $58,000 as of March 31, 2024, with a current portion of $31,000 and a long-term portion of $27,000[64] - Lease costs totaled approximately $25,000 for both the three months ended March 31, 2024, and 2023[65] Future Minimum Lease Payments | Years Ending December 31, | Amount ($) | | :------------------------ | :----- | | 2024 | $27,000 | | 2025 | $36,000 | | Total payments | $63,000 | NOTE 7 – STOCKHOLDERS' DEFICIT The company granted 40,000 stock options to a new board member in Q1 2024, recognized $99,000 in stock-based compensation expense, and has $800,000 in unvested compensation remaining. As of March 31, 2024, outstanding options totaled 2,601,603 with an average exercise price of $0.92, but had no intrinsic value Summary of Stock Options (March 31, 2024) | Metric | Number of Options (shares) | Weighted Average Exercise Price ($) | | :-------------------------- | :---------------- | :------------------------------ | | Balance outstanding | 2,601,603 | $0.92 | | Balance exercisable | 1,495,547 | $1.00 | - Granted 40,000 options to a new Board member, Jane Casanta, on January 1, 2024, at an exercise price of $0.69 per share, with a fair value of approximately $22,145[68] - Recognized $99,000 of compensation expense related to vested stock options for Q1 2024, compared to $63,000 for Q1 2023[69] - As of March 31, 2024, approximately $800,000 of unvested compensation related to stock options remains to be recognized through December 2026[69] - Outstanding and exercisable options had no intrinsic value as of March 31, 2024, based on an estimated market value of $0.60 per share[70] NOTE 8 – COMMITMENTS AND CONTINGENCIES The company has a non-binding letter of intent with Greater Asia Golf Promotions Limited for distribution in Asia (excluding Japan and Korea), with $500,000 transferred to escrow for joint marketing expenses, pending a definitive distribution agreement - Entered a non-binding letter of intent with Greater Asia Golf Promotions Limited for non-exclusive distribution in Asia (excluding Japan and Korea) for a one-year term[71] - Plans to spend up to $2,500,000 to fund joint marketing expenses, with $500,000 transferred to an escrow account as the first payment, pending negotiation and execution of a distribution agreement[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity for the three months ended March 31, 2024, compared to the prior year, highlighting significant revenue growth driven by new product introductions, increased operating expenses, and ongoing liquidity challenges Company Overview Sacks Parente Golf, Inc. is a technology-forward golf company manufacturing products in the US, which completed a public offering in August 2023 - Sacks Parente Golf, Inc. is a technology-forward golf company manufacturing putting instruments, golf shafts, golf grips, and other golf-related products in the United States, with plans for expansion into golf apparel and other product lines[74] - Completed a public offering on August 17, 2023, selling 3,200,000 shares of common stock at $4.00 per share, generating total net proceeds of $11,594,000[75] Recent Events Recent events include the introduction of the new 'Newton' product line and a Nasdaq delisting notice for minimum bid price non-compliance - Introduced 'Newton,' a new business division, and launched the Newton Motion driver shaft in November 2023, followed by the Newton Motion fairway wood shaft in April 2024, both manufactured in St. Joseph, Missouri[76][77] - Received a Nasdaq delisting notice on December 5, 2023, for failing to meet the minimum bid price requirement ($1.00 per share), with a compliance period until June 3, 2024[77][79] Key Factors Affecting Our Performance Key factors influencing performance include golf's seasonal nature, increased public company expenses, and inflationary pressures on component costs - Sales are cyclical due to the seasonal nature of golf, and a decrease in golf participation could adversely affect product sales[81] - Incurs additional annual expenses as a public company since August 17, 2023, for internal controls compliance, public company reporting, directors' and officers' liability insurance, and administrative resources[82] - Recent inflationary trends have led to a moderate increase in component parts costs, which the company has not yet passed on to consumers, potentially impacting future profits or requiring price increases[83] Comparison of the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023 This section compares the company's financial results for the three months ended March 31, 2024, against the same period in 2023, detailing changes in key financial metrics | Metric | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | % Change | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Net Sales | $350,000 | $90,000 | 289% | | Cost of goods sold | $144,000 | $46,000 | 213% | | Gross profit | $206,000 | $44,000 | 368% | | Selling, general and administrative | $1,271,000 | $916,000 | 39% | | Research and development | $190,000 | $25,000 | 660% | | Total operating expenses | $1,461,000 | $941,000 | 55% | | Loss from operations | $(1,255,000) | $(897,000) | 40% | | Interest income (expense), net | $62,000 | $(20,000) | -410% | | Net loss | $(1,193,000) | $(917,000) | 30% | Net Sales Net sales surged by 289% to $350,000 in Q1 2024, primarily driven by the successful introduction of the Newton Motion driver shaft product line, which generated $290,000 in online sales - Net sales increased by $260,000, or 289%, to $350,000 during Q1 2024, compared to $90,000 in Q1 2023[86] - The increase was primarily due to the introduction of the Newton Motion driver shaft product line in November 2023, which generated $290,000 in online sales[86] Cost of goods sold Cost of goods sold increased by 213% to $144,000 in Q1 2024, commensurate with higher net sales. Gross margin improved to 59% from 49% due to changes in product mix and inventory reserves - Cost of goods sold increased by $98,000 to $144,000 for Q1 2024, compared to $46,000 for Q1 2023, due to increased net sales[87] - Gross margin improved to 59% for Q1 2024 from 49% for Q1 2023, attributed to changes in product mix sold and inventory reserves[87] Operating expenses Total operating expenses increased by 55% to $1.46 million in Q1 2024, driven by significant increases in both selling, general and administrative (SG&A) expenses and research and development (R&D) costs - Selling, general and administrative expenses increased by approximately $355,000 to $1.3 million during Q1 2024, due to increased employee-related expenses, public company costs, and advertising[89] - Research and development expenses increased by $165,000 to $190,000 during Q1 2024, due to costs for testing and refining the Newton Motion fairway wood shaft and reclassification of Chief Technology Officer and Vice President of Research & Development employment costs[90] Loss from operations Loss from operations increased by 40% to $1.3 million in Q1 2024, primarily due to the substantial rise in operating expenses, partially offset by increased gross profit - Loss from operations increased to $1.3 million for Q1 2024, compared to $897,000 for Q1 2023, driven by increased operating expenses, offset by increased gross profit[91][92] Interest income (expense), net The company shifted from a net interest expense of $20,000 in Q1 2023 to a net interest income of $62,000 in Q1 2024, primarily due to paying off debt with IPO proceeds and earning interest on bank balances - Interest income was $62,000 for Q1 2024, compared to interest expense of $20,000 for Q1 2023, due to debt repayment from the August 2023 IPO proceeds and interest earned on bank balances[94] Net loss Net loss increased by 30% to $1.2 million in Q1 2024, primarily due to higher operating expenses, despite improvements in gross profit and a shift to net interest income - Net loss increased by $276,000 to $1.2 million during Q1 2024, compared to $917,000 for Q1 2023, due to increased operating expenses, partially offset by increased gross profit and decreased interest expense[95] Liquidity and Capital Resources The company experienced a significant net decrease in cash of $1.255 million in Q1 2024, primarily due to increased cash used in operations and investing activities. With a net loss and cash usage, the company faces substantial doubt about its ability to continue as a going concern beyond 10 months without additional financing Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :----------------------- | :------------- | :------------- | | Operating activities | $(1,151,000) | $(186,000) | | Investing activities | $(104,000) | $- | | Financing activities | $- | $45,000 | | Net decrease in cash | $(1,255,000) | $(141,000) | - Net cash used in operating activities for Q1 2024 totaled $1,151,000, an increase from $186,000 in Q1 2023, primarily to fund net loss and changes in working capital[97] - Net cash used in investing activities for Q1 2024 totaled $104,000 for software licensing and property/equipment, with no investing activities in Q1 2023[98] - No financing activities occurred in Q1 2024, compared to $45,000 provided in Q1 2023 from a private placement of common stock and equipment purchase obligation repayment[99] - Incurred a net loss of $1,193,000 and used $1,151,000 cash in operations during Q1 2024, raising substantial doubt about the Company's ability to continue as a going concern within one year[102] - Cash and cash equivalents on hand were $4,083,000 at March 31, 2024, expected to last for at least the next 10 months[103] - The company is an 'emerging growth company' (EGC) and takes advantage of reduced reporting and disclosure obligations[105][106] - The Company did not have any off-balance sheet arrangements at March 31, 2024, and December 31, 2023[107] Critical Accounting Policies and Estimates This section details critical accounting policies and estimates, including revenue recognition and stock-based compensation, which involve significant management judgment - Revenue recognition involves making estimates and judgments for variable consideration, including sales returns, discounts, allowances, sales programs, sales promotions, and price concessions, based on historical and forecasted data[111][112][113] - Stock-based compensation fair value is estimated using the Black-Scholes option-pricing model, with expected stock volatility based on publicly traded peer companies due to the company being private until August 2023[114][115][116] Recently Issued Accounting Pronouncements Management assesses that recent accounting pronouncements have no material impact on the company's current or future financial statements - Management believes that 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 to have a material impact on the Company's present or future financial statements[53][117] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Sacks Parente Golf, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[118] Item 4. Controls and Procedures As of March 31, 2024, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the quarter. Management acknowledges inherent limitations in control systems - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[119] - There were no changes in the Company's internal control over financial reporting during Q1 2024 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[120] - Management acknowledges the inherent limitations on the effectiveness of controls, stating that a control system can provide only reasonable, not absolute, assurance[121][122] PART II – OTHER INFORMATION Item 1. Legal Proceedings There are no pending legal proceedings against the company that management believes would have a material adverse effect on its business or financial condition - There are no legal proceedings pending against the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on the Company's business or financial condition[123] Item 1A. Risk Factors As a smaller reporting company, Sacks Parente Golf, Inc. is not required to provide specific risk factor disclosures under this item - As a smaller reporting company, the Company is not required to provide the information under this item[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds occurred during the period[125] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities occurred[126] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[127] Item 5. Other Information During Q1 2024, none of the company's directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - During the three months ended March 31, 2024, none of the Company's directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements[128] Item 6. Exhibits This section lists the exhibits filed as part of the report, including certifications under the Sarbanes-Oxley Act and Inline XBRL Taxonomy Extension documents - The report includes certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[130] - Inline XBRL Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, along with the Cover Page Interactive Data File, are filed as exhibits[130]