Feed to the latest filings at the SEC
Date Filed : Aug 05, 2022
RegistrationStatement No. 333-____
SECURITIESAND EXCHANGE COMMISSION
THESECURITIES ACT OF 1933
SACKSPARENTE GOLF, INC.
(Exactname of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
SacksParente Golf, Inc.
551Calle San Pablo
(Addressand telephone number of registrant’s principal executive offices)
2140S. Dupont Hwy
(Name,address, including zip code, and telephone number, including area code, of agent for service)
David Ficksman, Esq.
William P. Hubbard, Esq.
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
Tel.: (310) 553-4441
Richard A. Friedman, Esq.
Stephen A. Cohen, Esq.
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, NY 10112-0015
Tel.: (212) 653-8700
Approximatedate of commencement of proposed sale to the public:
Assoon as practicable after the effective date of this registration statement becomes effective.
Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933 check the following box: ☒
Ifthis Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. ☐
Ifthis Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Ifthis Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany 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.
Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
Theregistrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until theregistrant shall file a further amendment which specifically states that this registration statement shall thereafter become effectivein accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such dateas the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
ThisRegistration Statement contains two prospectuses, as set forth below.
TheResale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:
Wehave included in this Registration Statement a set of alternate pages after the back cover page of the Public Offering Prospectus (the“Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus.The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The ResaleProspectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the AlternatePages and will be used for the resale offering by Speicher Limited.
Theinformation in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registrationstatement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor doesit seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subjectto Completion, dated August 5, 2022
Shares of Common Stock
SACKS PARENTE GOLF, INC.
Thisis an initial public offering of shares of our Common Stock. Prior to this offering, there has been no public market for our Common Stock.It is currently estimated that the initial public offering price per share will be between $___ and $___. We have applied for listingof our common stock on The Nasdaq Capital Market under the symbol “SPGC”.
Theactual public offering price per share will be determined between us and the underwriters at the time of pricing and may be at a discountto the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of thefinal offering price.
Investingin our securities involves risks. See “Risk Factors” beginning on page .
Neitherthe Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determinedif this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Theunderwriter expects to deliver the shares on or about _____, 2022.
THEBENCHMARK COMPANY, LLC
Prospectusdated _______, 2022
Wehave not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than thosecontained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We takeno responsibility for and can provide no assurance as to the reliability of, any other information that others may give to you.
Youshould rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give informationthat is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securitiesin any jurisdiction where the offer or sale is not permitted. The selling stockholders are offering to sell and seeking offers to buyour common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as ofthe date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of these securities.
Alltrademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience,the trademarks and trade names in this prospectus are referred to without the ® and TM symbols, but such references shouldnot be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rightsthereto.
Thefollowing summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the moredetailed information and financial statements included elsewhere in this prospectus. It does not contain all the information that maybe important to you and your investment decision. You should carefully read this entire prospectus, including the matters set forth under“Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”and our financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless context requires otherwise,references to “we,” “us,” “our,” or the “Company” refer to Sacks Parente Golf, Inc.
Descriptionof Our Operations, Principal Activities and Key Factors
SacksParente Golf, Inc. (“we,” the “Company” or “SPG”) is a technology-forward golf company, with a growingportfolio of golf products, including putting instruments, golf shafts, golf grips, and other golf-related products. In April 2022, inconsideration of our growth opportunities in shaft technologies, we expanded our manufacturing business to include advanced premium golfshafts by opening a new shaft manufacturing facility in St. Joseph, MO. We intend to manufacture and assemble substantially all productsin the United States. We anticipate expanding into golf apparel and other golf related product lines to enhance our growth. Our futureexpansions may include broadening our offerings through mergers, acquisitions or internal developments of product lines that are complementaryto our premium brand.
Wedesign, manufacture and sell technology-forward, high-quality golf equipment, which is comprised of putting instruments, golf shafts,golf grips and related product groups. We design our golf products to fit golfers of all skill levels, amateur and professional, andour products are designed with the goal of conforming to the Rules of Golf as published by the United States Golf Association (“USGA”)and the ruling authority (“The R&A”).
Ourequipment includes putting instruments, golf shafts and grips. Our putting instruments are generally made of steel, aluminum, titaniumalloys, carbon fiber, tungsten, and various other materials, including our patented magnesium face plate technologies. All of our productsare currently sold under the SPG brand, but we intend to private label and sell certain components to interested third parties.
Ourshaft and putter technology has been shown by The Golf Lab, a Canadian golf research and education provider, to improve players’ability to make putts, feel of the putter head, stroke, face angle at impact, and consistency for distance control. Our management believesthat our proprietary shaft designs can enhance the performance of players’ putters as well as drivers and other golf clubs. Further,our management believes that these innovative designs, along with our proprietary manufacturing techniques, create performance improvementsover traditional golf shafts.
Ourproducts are sold in the Americas, Asia, Latin America and Europe through multiple channels including wholesale, retail and online throughour websites.
Thegolf industry overall has benefitted from exceptionally strong growth and positive market trends since the middle of 2020, as Golf Datatechreported in “2021 National Golf Rounds Played”. The onset of the COVID-19 pandemic in early 2020 and its impact onthe economy initially harmed businesses in the golf industry, as with businesses in most other industries. However, participation ingolf underwent a resurgence due to the ability of people to play the game and interact while remaining socially distant in a safe, outdoorsetting. Research by the National Golf Foundation (“NGF”) published in January 2022 shows overall golf participation increasedby 600,000 to 37.5 MM in 2021 with growth split evenly between on-and off-course. As such, our industry began to experience significantgrowth in sales. Well-established companies were able to capitalize quickly on the renewed interest in the sport, while newer companiessuch as ours struggled with supply chain problems that were beyond our control. When the US Government blocked all imports from Myanmar,our source for carbon fiber shafts was instantly eliminated. With no supplier for shafts, our ability to deliver product and grow channelsof distribution was materially impacted. However, our management adapted and within 12 months overcame this issue by opening our owncarbon fiber shaft manufacturing facility in St. Joseph, MO. Further we have added additional suppliers for putter heads located in theUS to help mitigate the risk of a repeat event. With these changes now implemented we believe we are positioned to rapidly grow.
Webelieve that the golf industry will continue its resurgence, as people have discovered, or rediscovered, this great game. A rapid growthin off-course, golf-themed venues has further added to the overall growth of golf and led to increased golf participation. This “golfentertainment” and off-course golf phenomenon has contributed to an increased number of new players to the sport. Research by theNGF provides that in 2021, 12.4 million people participated exclusively in off-course golf activities at places such as driving ranges,indoor gold simulators, or golf entertainment venues. Further, 17.8 million people who did not play golf in 2021 said they are “veryinterested” in playing golf on a golf course, and according to the NGF, this increase in the pool of potential golfers is attributablein part to the growth and popularity of off-course golf. We believe that this newfound focus on golf provides a strong underlying foundationfor continued growth in the industry as a whole.
Webelieve our technology-forward products, combined with a successful global expansion strategy, will result in both short-term and long-termpositive results that will outpace the industry average.
Lookingahead, we may continue to explore additional opportunities for growth through strategic mergers and acquisitions that help strengthenour brand and business, and reinforce our goal to re-write the status quo in the newly burgeoning golf industry.
RisksAssociated with Our Business
Ourbusiness is subject to a number of risks of which you should be aware of before making an investment decision. These risks are discussedmore fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. Some ofthe risks involved with the offering include the following:
RisksRelated to Our Industry and Business
RisksRelated to Operations, Manufacturing, and Technology
RisksRelated to Regulations
Risksrelated to our Common Shares:
RisksRelated to Tax and Financial Matters
Implicationsof Being an Emerging Growth Company and a Smaller Reporting Company
Weare an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April2012, and we will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we havemore than $1.07 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 millionof equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertibledebt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. For so long aswe remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reportingrequirements, including not being required to have our internal control over financial reporting audited by our independent registeredpublic accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executivecompensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory voteon executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have providedonly two years of audited financial statements and have not included all of the executive compensation-related information that wouldbe required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the informationyou receive from other public companies in which you hold stock.
Inaddition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying withnew or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standardsuntil those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition periodto comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerginggrowth companies. As a result, we will not be subject to the same implementation timing for new or revised accounting standards as otherpublic companies that are not emerging growth companies which may make comparison of our financial statements to those of other publiccompanies more difficult. As a result of this election, the information that we provide in this prospectus may be different than theinformation you may receive from other public companies in which you hold equity interests.
Weare also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended. We may continue to be a smaller reportingcompany even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures availableto smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value ofour voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our secondfiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market valueof our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our secondfiscal quarter. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of auditedfinancial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and,similar to emerging growth companies, if we are a smaller reporting company with less than $100 million in annual revenue, we would notbe required to obtain an attestation report on internal control over financial reporting issued by our independent registered publicaccounting firm.
Wewere formed in 2018 as Sacks Parente Golf Company, LLC, a Delaware limited liability company. On March 18th, 2022, we converted intoa Delaware corporation named Sacks Parente Golf, Inc. Pursuant to our Plan of Conversion, all of the outstanding ownership interestsin Sacks Parente Golf Company, LLC, and rights to receive such interest were converted into and exchanged for shares of common stockof Sacks Parente Golf, Inc.
Thenumber of shares of common stock outstanding is based on 11,250,000 shares of our common stock outstanding as of March 31, 2022, assumingan initial public offering price of $______ per share, which is the midpoint of the price range set forth on the cover page of this prospectusand excludes as of such date:
SelectedSummary Consolidated Financial Data
Thefollowing tables summarize our historical financial data as of and for the periods indicated. We derived the summary statement of operationsdata for the years ended December 31, 2021 and 2020 and our summary balance sheet data as of December 31, 2021 set forth below from ouraudited financial statements contained elsewhere in this prospectus. We derived the summary statement of operations data for the threemonths ended March 31, 2022 and 2021 and our summary balance sheet data as of March 31, 2022 from our unaudited condensed financial statementscontained elsewhere in this prospectus, and such summary information is not necessarily indicative of results to be expected for thefull year. The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements and,in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly ourfinancial position as of March 31, 2022 and the results of operations for the three months ended March 31, 2022 and 2021. You shouldread this data together with our financial statements and related notes included elsewhere in this prospectus and the information underthe caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The summary financialdata included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectusand are qualified in their entirety by those financial statements and related notes. Our historical results are not necessarily indicativeof our future results.
Inthe table below, amounts are rounded to nearest thousands, except share and per share amounts.
Inthe table below, amounts are rounded to nearest thousands.
Aninvestment in our common stock involves a high degree of risk. Before making an investment decision, you should give careful considerationto the following risk factors, in addition to the other information included in this prospectus, including our financial statements andrelated notes, before deciding whether to invest in shares of our common stock. The occurrence of any of the adverse developments describedin the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects.In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
RisksRelated to Our Industry and Business
Areduction in the number of rounds of golf played or in the number of golf participants could adversely affect sales.
Wecurrently generate the majority of our revenues from the sale of golf putting instruments, golf shafts, golf grips and related gear.The demand for golf-related products in general, as well as the demand for golf-related soft goods, is directly related to the numberof golf participants and the number of rounds of golf being played by these participants. If golf participation decreases or the numberof rounds of golf played decreases, sales of our products may be adversely affected. In the future, the overall dollar volume of themarket for golf-related products may not grow or may decline.
Inaddition, the demand for golf products is directly related to the popularity of magazines, cable channels and other media dedicated togolf, television coverage of golf tournaments and attendance at golf events. We depend on the exposure of our products through advertisingand the media or at golf tournaments and events. Any significant reduction in television coverage of, or attendance at, golf tournamentsand events (whether as a result of COVID-19 incidences, related restrictions or otherwise) or any significant reduction in the popularityof golf magazines or golf television channels, could reduce the visibility of our brand and could adversely affect sales.
Wemay have limited opportunities for future growth in sales of golf products.
Inorder for us to significantly grow sales of golf putting instruments or golf shafts, we must either increase our share of the marketfor golf putters or golf shafts, develop markets in geographic regions historically underrepresented by our products, or the overallmarket for golf equipment or golf shafts must grow. We currently have no significant share of worldwide sales of golf equipment and golfshafts and the golf industry is very competitive. As such, gaining market share quickly or at all is difficult. Therefore, opportunitiesfor additional market share may be limited given the challenging competitive nature of the golf industry, and the overall dollar volumeof worldwide sales of golf equipment or golf shafts may not grow or may decline.
Wemay face increased labor costs or labor shortages that could slow growth and adversely affect our business, results of operations andfinancial condition.
Laboris a primary component in the cost of operating our business. If we face labor shortages or increased labor costs because of inflation,increased competition for employees, higher employee turnover rates, the impact of the ongoing COVID-19 pandemic or other pandemics,increases in the federally-mandated or state-mandated minimum wage, changes in exempt and non-exempt status, or other employee benefitscosts (including costs associated with health insurance coverage or workers’ compensation insurance), our operating expenses couldincrease and our growth could be adversely affected. With specific regard to inflationary pressures, the annual inflation rate inthe US accelerated to 9.1% in June of 2022, the highest since November of 1981. We are focusing on this issue now as we have alreadyseen some increases in material costs for various metals and carbon fiber, and costs associated with shipping and receiving goods. Wemay see additional pressure on labor costs, both inside the Company and from suppliers as they face these same issues. For the moment,we are able to maintain the price point of all of our products without material reduction in margins.
Furthermore,the successful operation of our business depends upon the ability to attract, motivate and retain a sufficient number of qualified executives,managers and skilled employees. From time to time, there may be a shortage of skilled labor in certain of the communities in which weoperate. Shortages of skilled labor may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactorynumber of qualified employees, which could disrupt the ability to get product to market, to produce products, to acquire suitable companiesor partners and adversely impact some or all of our operations and our profitability. Furthermore, competition for qualified employees,particularly in markets where such shortages exist, could require us to pay higher wages, which could result in higher labor costs. Companiesin the golf industry have also historically experienced relatively high turnover rates, which may also result in higher labor costs.Accordingly, if we are unable to recruit and retain sufficiently qualified individuals, our business, results of operations, financialcondition and growth prospects could be materially and adversely affected.
Inaddition, immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new immigrationlegislation is enacted, such laws may contain provisions that could increase our costs in recruiting, training and retaining employees.Also, although our hiring practices comply with the requirements of federal law in reviewing employees’ citizenship or authorityto work in the United States, changes or adaptations to these laws may negatively impact our business.
TheCOVID-19 pandemic has had, and is expected to continue to have, a material and adverse effect on our business, financial condition andresults of operations.
Theoutbreak of COVID-19 created considerable instability and disruption in the U.S. and world economies. In March 2020, the World HealthOrganization declared COVID-19 a global pandemic, and domestic and international governmental authorities around the world have issuedorders, mandates, decrees and directives (collectively, “COVID Orders”), including travel restrictions, “stay-at home”orders and “social distancing” measures and business shutdowns. These measures have adversely affected workforces, customers,consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn inmany markets around the world.
Inaddition, the COVID-19 pandemic caused disruption in our supply as well as distribution chains for our golf equipment and therefore wehave begun to invest in our own US based manufacturing operations for production of our products. These changes in manufacturing locationsand costs could create adverse effects to the costs of goods sold thereby making our products non-competitive in price or cause materialreductions in gross margins that ultimately lead to lower profitability.
Further,we have been, and may continue to be, negatively impacted by the heightened governmental regulations and travel advisories, recommendationsby the U.S. Department of State, the Centers for Disease Control and Prevention and similar foreign authorities, and travel bans andrestrictions, each of which has significantly impacted businesses of all types. We cannot predict how this may affect our future plans,our ability to scale sales and or distribution with continued concerns over safety and/or depressed consumer sentiment due to adverseeconomic conditions, including but not limited to inflation and higher unemployment.
Weare unable to accurately predict the impact that the COVID-19 pandemic or its variants and the resulting disruptions will have on anyof our operations going forward due to the currently unknowable duration, scope and severity of the COVID-19 pandemic or it’s variantsand the timing and effectiveness of vaccines and their distribution. Also, we are unable to accurately predict the impact of the ongoinggovernmental regulations that have been imposed or new regulations that may be imposed in response to this or other pandemics. Demandfor our products and services may weaken for a significant length of time and we cannot predict if and when such demand will return tonormal levels. In the event of a nonpayment, default or bankruptcy by a failing distribution partner, our cash flows may be adverselyimpacted, costs may be incurred to protect our contractual rights, and we may be unable to recognize the revenue that we would otherwiseexpect to receive from such party.
Althoughwe took actions to significantly reduce costs, maximize liquidity and strengthen our operating and financial position, to weather thepandemic, there can be no assurance that in the future, such actions will be able to counteract global economic impacts of another COVID-19pandemic or other variant pandemics. If we experience a decline in revenues, cash flows or earnings due to COVID-19 or the like, we mayhave difficulty paying interest and principal amounts due on credit facilities or other indebtedness and meeting certain of the financialcovenants contained in such credit facilities that we will have established. Also, since additional financing will be required to implementour business plan, such financing may not be available to us on acceptable terms, or at all. While it is premature to predict the ultimateimpact of these developments, we expect results in the near-term and beyond may be adversely impacted. Furthermore, when global conditionsreturn to a normal state, we may experience difficulties establishing or growing additional operations in an effective manner.
Tothe extent a pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heighteningmany of the other risks described in this section and “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” below, including, without limitation, risks relating to changes in demand for our products or the supply of thecomponents and materials used to make our products, potential levels of indebtedness, need to generate sufficient cash flows to serviceour potential indebtedness, ability to comply with the obligations and financial covenants contained in credit facilities, availabilityof adequate capital, the ability to execute our strategic plans, U.S. trade, tax or other policies that restrict imports or increaseimport tariffs, ability to successfully expand into retail locations, regulatory restrictions that prevent materials or product imports.In addition, if in the future there is a further outbreak of COVID-19 or a variation thereof, or an outbreak of another highly infectiousor contagious disease or other health concern, we may be subject to similar risks as posed by COVID-19.
Unfavorableeconomic conditions, including as a result of the COVID-19 pandemic, inflation or otherwise, could have a negative impact on consumerdiscretionary spending and therefore negatively impact our results of operations, financial condition and cash flows.
Ourproducts are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing tomake discretionary purchases of golf products and to spend on leisure and out-of-home entertainment during favorable economic conditionsand when consumers are feeling confident and prosperous. Any actual or perceived deterioration or weakness in general, regional or localeconomic conditions, unemployment levels, the job or housing markets, consumer debt levels or consumer confidence, as well as other adverseeconomic or market conditions due to COVID-19, inflation, or otherwise may lead to customers having less discretionary income to spendon entertainment and recreational activities, and may result in significant fluctuations and spending patterns year to year. Discretionaryspending is also affected by many other factors, including general business conditions, interest rates, the availability of consumercredit, taxes and consumer confidence in future economic conditions. Purchases of our products and services could decline during periodswhen disposable income is lower, or during periods of actual or perceived unfavorable economic conditions, including as a result of theCOVID-19 pandemic. A significant or prolonged decline in general economic conditions or uncertainties regarding future economic prospectsthat adversely affect consumer discretionary spending, whether in the United States or in our international markets, could result inreduced sales of our products, which in turn would have a negative impact on our results of operations, financial condition and cashflows.
Asevere or prolonged economic downturn could adversely affect our wholesale customers’ financial condition, their levels of businessactivity and their ability to pay trade obligations.
Weprimarily sell our products to consumers online, retailers and wholesalers directly, through distribution and certain other outlets,like golf fitters. We perform credit evaluations of larger distribution customers’ financial condition and generally require nocollateral from these customers. However, a severe or prolonged downturn in the general economy could adversely affect the retail marketwhich in turn, would negatively impact the liquidity and cash flows of these distribution customers, including the ability of such customersto obtain credit to finance purchases of our products and to pay their trade obligations. In addition, as a result of COVID-19 relatedrestrictions or public safety measures, many retail stores have been and may continue to operate in a more limited capacity, which couldresult in fewer consumers purchasing our products. This could result in increased delinquent or uncollectible accounts for some of ourcustomers. A failure by these customers to pay on a timely basis a significant portion of outstanding account receivable balances wouldadversely impact our results of operations, financial condition and cash flows.
Weface intense competition in all of our markets, and if we are unable to compete effectively, it could have a material adverse effecton our business, results of operations, financial condition and growth prospects.
Ourgolf putting instruments, golf shaft products, grips and other products exist in a highly competitive marketplace, that is served bya number of well-established and well-financed companies with recognized brand names. In particular four major competitors enjoy themajority of U.S. market share in golf.
Withrespect to golf equipment sales, new product introductions, price reductions, consignment sales, extended payment terms, “closeouts”, tour and advertising spending by competitors continue to generate intense market competition. Furthermore, downward pressureon pricing in the market for products like ours could have a significant adverse effect on our business.
Withrespect to golf shaft sales, our competitors do incur significant costs in the areas of advertising, tour and other promotional support.We believe to be competitive, we also will incur significant expenses in tour, advertising and promotional support. In addition, we haveinvested, and may continue to invest in the future, significant capital into upgrades in our manufacturing and assembly facilities, includingour new golf shaft manufacturing facility in St. Joseph, MO to remain on the forefront of technological and competitive innovation. Unlessthere is a change in competitive conditions, these competitive pressures and increased costs could adversely affect the profitabilityof our business.
Ifwe are unable to grow or if competitors copy our intellectual property forcing high legal costs to defend our patents, scaling our businesscould be materially adversely affected and our business, financial condition and results of operations could suffer.
Ifwe are unable to successfully manage the introduction of new products that perform and satisfy changing consumer preferences, it couldsignificantly and adversely impact financial performance and prospects for future growth.
Ourgolf products, like those of our competitors, generally have a life cycle. Depending on the product, it is considered typical, withinthe industry, that revenue from a new product rises and peaks within a three year period, with sales occurring at a higher rate in thefirst two years than in the third. Factors driving a product life cycle include the rapid introduction of competitive products, consumerdemands for the latest technology or a professional who uses the product and is victorious in a major tournaments. In this marketplace,it is reasonable to assume our annual revenues can be affected each year by the introduction of new products, those that are in theirfirst two years of the product life cycle, and successful professional use.
Thesemarketplace conditions raise a number of issues that we must successfully manage. For example, we must properly anticipate consumer preferencesand design products that meet those preferences while also complying with restrictions imposed on golf equipment by the Rules of Golf(see further discussion of the Rules of Golf below) or our new products will not achieve sufficient market success to compensate forthe usual decline in sales experienced by products already in the market. Second, our research and development, third- party designand prototyping services and external suppliers will face constant pressures to design, develop, source and supply new productsthat perform better than the predecessors, many of which incorporate new or otherwise untested technology, suppliers or materials.Third, for new products to generate equivalent or greater revenues than their predecessors, they must either maintain the same or highersales levels with the same or higher pricing, or exceed the performance of their predecessors in one or both of those areas. Fourth,the relatively short window of opportunity for launching and selling new products requires great precision in forecasting demand andassuring that supplies are ready and delivered during the critical selling periods.
Finally,the rapid changeover in products creates a need to monitor and manage the closeout of older products both at retail and in our own inventory.Should we not successfully manage the frequent introduction of new products that satisfy consumer demand, our results of operations,financial condition and cash flows could be significantly adversely affected.
Ourgolf equipment, golf gear and other related golf business products could have a concentrated customer base. The loss of a major customercould have a significant effect on our sales.
Ona consolidated basis, we will attempt to allow no single customer to account for more than 10% of our revenues. However, this goal maynot be achievable if significant markets are controlled by one major customer. In which case the failure of the one could adversely affectbusiness, financial condition and results of operations.
Currently we have two customers, when combined,could at times, based on their ordering habits, make up more than 10% of our business. However, we believe this percentage of revenue,focused on one or two customers, will be significantly reduced by the end of 2023.
Ourbusiness depends on a strong brand and related reputation, and if we are not able to build, maintain and enhance our brand or build astrong reputation, our sales may be adversely affected.
Oursuccess depends in part on our ability to build, maintain, and enhance a brand image and reputation. Maintaining, promoting and enhancingour brand may require us to make substantial investments in areas such as product innovation, product quality, intellectual propertyprotection, marketing and employee training, and these investments may not have the desired impact on our brand image and reputation.Our business could be adversely impacted if we fail to achieve any of these objectives or if the brand reputation or image of any ofour products is tarnished or receives negative publicity.
Inaddition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine consumerconfidence and reduce demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.Also, as we seek to grow our presence in existing, and expand into new, geographic or product markets, consumers in these markets maynot accept our brand image and may not be willing to pay a premium to purchase our products as compared to other brands. We anticipateas we continue to grow our presence in existing markets and expansion into new markets, further developing our brand may become increasinglydifficult and expensive. If we are unable to maintain or further develop the image of our brand, it could materially adversely affectbusiness, financial condition and results of our operations.
Inaddition, there has been a marked increase in the use of social media platforms and other forms of internet-based communications thatprovide individuals and businesses with access to a broad audience of consumers and other interested persons. The availability of informationon social media platforms is virtually immediate, as is its potential impact to affected individuals and businesses. Many social mediaplatforms immediately publish the content posted by their subscribers and participants, often without filters or checks on the accuracyof the content posted. Accordingly, our use of social media vehicles, whereby customers, Associates, franchisees, licensees or otherthird parties could using negative publicity, damage the our brand or our reputation and have a material adverse effect on our business,financial condition and results of operations.
Internationalpolitical instability and terrorist activities may decrease demand for our products and disrupt our business.
Terroristactivities and armed conflicts, such as Ukraine, including escalation of hostilities arising out of any global conflict, could have anadverse effect on the United States or worldwide economy and could cause decreased demand for our products as consumers’ attentionand interests are diverted from golf and become focused on issues relating to these events. If such events disrupt domestic or internationalair, ground or sea shipments, or the operation of our manufacturing facilities, our ability to obtain the materials and components necessaryto manufacture products and to deliver customer orders would be harmed, which would have a significant adverse effect on our resultsof operations, financial condition and cash flows. Such events can also negatively impact tourism, which could adversely affect our salesto retailers at resorts and other vacation destinations. In addition, the occurrence of political instability and/or terrorist activitiesgenerally restricts travel to and from the affected areas, making it more difficult in general to manage our international relationshipsand operations. In particular, escalating political tensions could adversely impact macroeconomic conditions, give rise to regional instabilityand result in heightened economic sanctions from the U.S. and the international community in a manner that adversely affects our business.
Ourbusiness could be harmed by the occurrence of natural disasters or other emergencies, including the COVID-19 pandemic or other pandemicdiseases.
Theoccurrence of a natural disaster, such as an earthquake, tornado, tsunami, fire, flood or hurricane, or the further outbreak of a pandemicdisease, such as COVID-19 or a variant thereof, could significantly adversely affect our business. A natural disaster or a pandemic diseasecould significantly adversely affect the demand for our products, our ability to manufacture our products, as well as the supply of thecomponents and materials used to make our products. Demand for golf products also could be negatively affected as consumers in the affectedregions restrict their recreational activities and as tourism to those areas declines. If our suppliers experienced a significant disruptionin their business as a result of a natural disaster or other emergency, including the COVID-19 pandemic or a further outbreak, our abilityto obtain the necessary components to make products could be significantly adversely affected. In addition, the occurrence of a naturaldisaster or the outbreak of a pandemic disease generally restricts travel to and from the affected areas, making it more difficult ingeneral to manage operations. In the case of the COVID-19 pandemic, for example, travel and tourism has been restricted or limited aroundthe world, resulting in various business disruptions.
Ourbusiness and operating results are subject to seasonal fluctuations, which could result in fluctuations in our operating results andstock price.
Ourbusiness, and the golf industry in general, is subject to both seasonal and non-seasonal fluctuations. In the golf equipment business,first-quarter sales may generally represent sales of products online and to certain golf retail channels for the new golf season. Oursecond and third-quarter sales may generally represent sales online and reorder business for our products. Sales of products during thesecond and third quarters may be significantly affected not only by the sell-through of our products that were sold into the channelduring the first quarter but also by the sell-through of products by our competitors. Retailers can be reluctant to reorder our productsin significant quantities if they already have excess inventory of our products or our competitors. Our sales during the fourth quartermay be generally less than those of the other quarters because in many of our key regions fewer people are playing golf during that timeof year due to cold weather. Furthermore, we generally announce new golf product lines in the fourth quarter to allow retailers to planfor the new golf season. Such early announcements of new products could cause golfers, and therefore our customers, to defer purchasingadditional golf equipment until our new products are available. Such deferments could have a material adverse effect on sales of currentproducts or result in closeout sales at reduced prices.
Inaddition, due to the seasonality of our business, our business can be significantly adversely affected by unusual or severe weather conditions.Unfavorable weather conditions generally result in fewer golf rounds played, which generally results in reduced demand for all golf products.Furthermore, catastrophic storms can negatively affect golf rounds played both during the storms and afterward, as storm damaged golfcourses are repaired and golfers focus on repairing the damage to their homes, businesses and communities.
Changesin equipment standards under applicable Rules of Golf could adversely affect our business.
Weseek to have all our putting instruments, grips and shafts meet the standards published by the USGA and The R&A in the Rules of Golfbecause these standards are generally followed by golfers, both professional and amateur, within their respective jurisdictions. TheUSGA publishes rules that are generally followed in the United States, Canada and Mexico, and The R&A publishes rules that are generallyfollowed in most other countries throughout the world. However, the Rules of Golf as published by The R&A and the USGA are virtuallythe same and are intended to be so pursuant to a Joint Statement of Principles issued in 2001.
Inthe future, existing USGA and/or R&A standards may be altered in ways that adversely affect the sales of our current or future products.If a change in rules were adopted and caused one or more of our current or future products to be nonconforming, our sales of such productswould be adversely affected.
Oursales and business could be materially and adversely affected if professional athletes, celebrities and other endorsers do not endorseor use our products.
Wehave and will establish relationships with professional athletes, celebrities and other endorsers in order to evaluate and promote ourbranded products. We have currently and will in the future enter into endorsement arrangements with members of the world’s variousprofessional tours. These tours are known as the PGA Champions Tour, the PGA Tour, the LPGA Tour, the PGA European Tour, the Japan GolfTour, the Korn Ferry Tour, the Epson Tour, The PGA Latin America Tour. We will also enter into endorsements with celebrities to promoteour brand. While most endorsers fulfill their contractual obligations without issue, some have been known to stop using a sponsor’sproducts despite contractual commitments. If certain of our endorsers were to stop using our products contrary to their endorsement agreements,or if any such endorser is or becomes the subject of negative publicity, our business could be adversely affected in a material way bythe negative publicity or lack of endorsement.
Webelieve that professional usage of our golf putting instruments, golf shafts and golf grips contributes to retail sales. We thereforespend a significant amount of money to secure professional usage of our products. Many other companies, however, also aggressively seekthe patronage of these professionals and offer many inducements, including significant cash incentives and specially designed products.There is a great deal of competition to secure the representation of tour professionals. As a result, it is expensive to attract andretain such tour professionals. The inducements offered by other companies could result in a decrease in usage of our products by professionalgolfers or limit our ability to attract other tour professionals. A decline or refusal of use by professional players of our products,or a significant increase in the cost to attract or retain endorsers, could have a material adverse effect on our sales and our business.
Anysignificant changes in U.S. trade or other policies that block, or restrict imports or increase import tariffs could have a materialadverse effect on results of operations.
Someof our components are manufactured in foreign nations. In recent years, the U.S. government has implemented substantial changes to U.S.trade policies, including import restrictions, increased import tariffs and changes in U.S. participation in multilateral trade agreements,such as the United States-Mexico-Canada Agreement to replace the former North American Free Trade Agreement. The U.S. government hasassessed supplemental tariffs on certain goods imported from China, resulting in China’s assessment of retaliatory tariffs on certainimports of U.S. goods into China and block imports from Myanmar. In addition, the United States has assessed or proposed supplementaltariffs and quantitative restrictions on U.S. imports of certain products from other countries as well. U.S. trade policy continues toevolve in this regard. Such changes could prevent or make it difficult or more expensive for us to obtain the components needed for newproducts, which could affect our sales. Further tariff increases could require us to increase prices, which likely would decrease customerdemand for our products. Retaliatory tariff and trade measures imposed by other countries could affect our ability to export productsand therefore adversely affect sales. Any significant changes in current U.S. trade or other policies that restrict imports or increaseimport tariffs could have a material adverse effect upon results of our operations.
Ourcurrent senior management team and other key executives are critical to our success, and the loss of, and failure to adequately replace,any individual executive, or manager, could significantly harm our business.
Ourability to build and maintain a competitive position is dependent to a large degree on the efforts and skills of the senior officers,and certain key managers. Our executives are experienced and highly qualified with strong reputations in their industries, and we believeour management team enables us to pursue our strategic goals. The success our business is dependent upon the management and leadershipskills of our senior management team and other key personnel. Certain key personnel may not be easily replaced, and may have knowledgein processes, manufacturing techniques, materials science, etc. where the loss of such a person, or persons, may limit our ability toachieve our strategic goals. Competition for these employees and their individuals’ talents is intense, and we may not be ableto attract and retain a sufficient number of qualified personnel in the future. The loss of one or more of these senior officers couldhave a material adverse effect on our business and ability to achieve our strategic goals.
RisksRelated to Our Intellectual Property
Failureto adequately enforce our intellectual property rights could adversely affect our reputation and sales.
Thegolf industry, in general, has been characterized by widespread imitation of designs, or technological improvements. We have an activeprogram of monitoring, investigating and enforcing our proprietary rights against companies and individuals who market or manufacturecounterfeits and “knockoff” products or copy intellectual property. We will assert our rights against infringers of our patents,copyrights, trademarks and trade dress. However, these efforts may not be successful in reducing sales of golf products by these infringers.Additionally, other golf club manufacturers may be able to produce successful golf clubs which imitate our designs without infringingany of our copyrights, patents, trademarks or trade dress. As an example, we have already successfully defended the Ultra Low BalancePoint utility patent along with our license partners in 2020.
Wemay become subject to intellectual property claims or lawsuits that could cause it to incur significant costs or pay significant damagesor that could prohibit us from selling our products.
Competitorsin the golf equipment industry seek to obtain patent, trademark, copyright or other protection of their proprietary rights and designsfor golf equipment, golf shafts and other products as do we. From time to time, third parties may claim in the future that our productsinfringe upon their proprietary rights. We would evaluate any such claims and, where appropriate, would seek to obtained licenses orother business arrangements. To date, there have been no interruptions in our business as a result of any claims of infringement. However,in the future, intellectual property claims could force us to alter existing products or withdraw them from the market or could delaythe introduction of new products.
Variouspatents have been issued to our competitors in the golf industry and these competitors may assert that our golf products infringe theirpatent or other proprietary rights. If our golf products were found to infringe third-party intellectual property rights, we may be unableto obtain a license to use such technology, and it could incur substantial costs to redesign products, withdraw them from the market,and/or to defend legal actions.
Weare exposed to risks associated with doing business globally and manufacturing in the USA.
Currentlywe sell and distribute products in markets around the world, such as the Americas, Asia and Europe. These activities have and will continueto result in investments in inventory, accounts receivable, employees, corporate infrastructure and manufacturing facilities. There area limited number of suppliers for the manufacturer of components in the United States, and we are dependent on these suppliers and vendors.We have some components provided by vendors located outside of the United States and if these components were unavailable it could havea materially adverse affect on our operations, financial performance and condition. The operation of foreign distribution in our internationalmarkets, as well as our management of relationships with international suppliers and vendors, will require the dedication of our managementand other Company resources. We currently assemble all of our products and manufacture some of our products in the United States.
Asa result of our international business, we are exposed to increased risks inherent in conducting business outside of the United States.These risks include the following:
●Adversechanges in foreign currency exchange rates can have a significant effect upon our results of operations, financial condition and cashflows;
●Increaseddifficulty in protecting our intellectual property rights and trade secrets;
●Unexpectedgovernment action or changes in legal or regulatory requirements;
●Social,economic or political instability;
●Theeffects of any anti-American sentiments on our brand or sales of our products;
●Increaseddifficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions,including but not limited to the U.S. Foreign Corrupt Practices Act (the “FCPA”), local international environmental, healthand safety laws, and increasingly complex regulations relating to the conduct of international commerce, including import/export lawsand regulations, economic sanctions laws and regulations and trade controls;
●changesin international labor costs and other costs of doing business internationally;
●Increaseddifficulty in controlling and monitoring foreign vendor operations from the United States, including increased difficulty in identifyingand recruiting qualified personnel for our foreign operations; and
●Increasedexposure to interruptions in land based, air carrier or ocean shipping services.
Anysignificant adverse change in these and other circumstances or conditions relating to international operations could have a significantadverse effect on our operations, financial performance and condition.
Wehave international sales and international supply chains where unfavorable changes in foreign currency exchange rates could have a significantnegative impact on our results of operations.
Aportion of our component inventory purchases and a portion of our sales come from international markets. As a result, we will conducttransactions in various currencies worldwide. We expect international business, and the number of transactions that we will conduct inforeign currencies, to become significant. Conducting business in such currencies exposes us to fluctuations in foreign currency exchangerates relative to the U.S. dollar.
Ourfinancial results are reported in U.S. dollars, and as a result, transactions conducted in foreign currencies must be translated intoU.S. dollars for reporting purposes based upon the applicable foreign currency exchange rates. Fluctuations in these foreign currencyexchange rates therefore may positively or negatively affect our reported financial results and can significantly affect period-over-periodcomparisons.
Theeffect of the translation of foreign currencies on our financial results could be significant. We therefore may engage in hedging activitiesto mitigate the annual impact of the translation of foreign currencies on our financial results. These hedging activities may reduce,but will not eliminate, the effects of foreign currency fluctuations. The extent to which our hedging activities mitigate the effectsof foreign currency translation varies based upon many factors, including the amount of transactions being hedged. Other factors thatcould affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets and theavailability of hedging instruments. Since the hedging activities are designed to reduce volatility, they not only reduce the negativeimpact of a stronger U.S. dollar but also reduce the positive impact of a weaker U.S. dollar. Our future financial results could be significantlyaffected by the value of the U.S. dollar in relation to the foreign currencies in which we conduct business.
Foreigncurrency fluctuations may also affect the prices at which products are sold in international markets. Therefore, we adjust pricing basedin part upon fluctuations in foreign currency exchange rates. Significant unanticipated changes in foreign currency exchange rates makeit more difficult for us to manage pricing in international markets. If we are unable to adjust pricing in a timely manner to counteractthe effects of foreign currency fluctuations, our pricing may not be competitive in the marketplace and our financial results in internationalmarkets could be adversely affected.
Anydifficulties from strategic acquisitions or strategic partnerships we pursue or consummate, could adversely affect business, financialcondition and our results of operations.
Wemay acquire companies, businesses and products or product lines that complement or augment our existing business or planned growth markets.Integrating any newly acquired business, or partnership, is typically expensive and time-consuming. Integration efforts often take asignificant amount of time, place a significant strain on managerial, operational and financial resources and could prove to be moredifficult or expensive than predicted. The diversion of management’s attention and any delay or difficulties encountered in connectionwith any such acquisitions could result in the disruption of on-going business or inconsistencies in standards and controls that couldnegatively affect our ability to maintain third-party relationships. Moreover, we may need to raise additional funds through public orprivate debt or equity financing, or issue additional shares, to continue operating the business, which may result in dilution for stockholdersor the incurrence of indebtedness.
Aspart of our efforts to acquire companies, businesses or products or to enter into other significant transactions, we will conduct business,legal and financial due diligence with the goal of identifying and evaluating material risks involved in such transactions. Despite ourefforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intendedadvantages of the transaction. If we fail to realize the expected benefits from a transaction, whether as a result of unidentified risks,integration difficulties, complexities associated with managing the combined business, performance shortfalls at one or both of the companiesas a result of the diversion of management’s attention caused by completing the transaction and integrating the companies’operations, COVID-19-related disruptions, litigation with current or former employees and other events, our business, financial conditionand results of operations could be adversely affected.
Ifwe inaccurately forecast demand for our products, we may manufacture either insufficient or excess quantities, which, in either case,could adversely affect our financial performance.
Weplan our manufacturing capacity based upon forecasted demand for our products. Forecasting demand for our products is very difficultgiven the manufacturing lead times and the amount of specifications involved. For example, we must forecast how many putting instrumentswe will sell, but also (1) the quantity of each model, (2) the quantity of the different components in each model, and (3) for each modelthe style of grip, the number of left handed and right handed versions, and the style of shaft and hosel type. The nature of our businessallows for some control over our manufacturing capacity if actual demand for a product or products exceed or are less than forecasteddemand. However, if actual demand for a product or products exceeds the forecasted demand, we may not be able to produce sufficient quantitiesof products in time to fulfill actual demand, which could limit our sales and adversely affect financial performance. On the other hand,if actual demand is less than the forecasted demand for a product or products, we could produce excess quantities, resulting in excessinventories and related obsolescence charges that could adversely affect our financial performance.
Ourplanned international business expansions could adversely affect results if they fail to successfully transition and grow revenue.
Aswe plan to expand our footprint, into Asia, Latin America, and Europe, we could be harmed if we fail to successfullytransition the business processes to a larger global scale. Our initial international expansion target is Asia,more specifically Japan, Korea and other growth areas within the region, and requires significant investment of capital andhuman resources. Since brick and mortar retail stores are still strong in many parts of Asia, the distribution structure and itscosts and operations are significantly different from those in the USA. As we increase the number of distributors, it is likely thatthe number of retail outlets throughout the region will also increase, in which case we will be required to add staff and devoteadditional management attention. This international attention, by the management team and other employees who would otherwise be solelyfocused on the core USA business, creates significant risk. If our globalization efforts fail to produce increases in revenue, orthe transition is not managed effectively, we may experience, loss of investments, or excessive inventories and undue costs thatcould harm our business, financial condition and results of operations.
Wedepend on single source or a limited number of suppliers for some of the components of in our products, and the loss of any of thesesuppliers could harm our business.
Weare currently dependent on a limited number of suppliers for CNC milled components and carbon fiber for our shafts, some of which couldhave limited sourcing options. Furthermore, some of our products require specially developed manufacturing techniques and processes whichmake it difficult to identify and utilize alternative suppliers quickly. In addition, many of our suppliers may not be well capitalizedand prolonged unfavorable economic conditions could increase the risk that they will go out of business. If current suppliers are unableto deliver putter components, materials or other components, or if we are required to transition to other suppliers, we could experiencesignificant production delays or disruption to our business. We also depend on a single or a limited number of suppliers for the materialsused to make our golf grips. Many of these materials are designed and customized to our specifications. Any delay or interruption insuch supplies could have a material adverse impact on our golf grip or shaft business. If we experience any such delays or interruptions,we may not be able to find adequate alternative suppliers at a reasonable cost or without significant disruption to our business.
Asignificant disruption in the operations of the our assembly and golf shaft manufacturing facilities could have a material adverse effecton our sales, profitability and results of operations.
Asignificant disruption at any of our assembly or golf shaft manufacturing facilities or distribution centers in the United States orin regions outside the United States could materially and adversely affect our sales, profitability and results of operations. Our manufacturing,and assembly facilities or distribution centers may be subject to a number of risks related to computer viruses, the proper operationof software and hardware, electronic or power interruptions, and other system failures. Risks associated with upgrading or expandingthese facilities may significantly disrupt or increase the cost of our operations, which may have an immediate, or in some cases prolonged,impact on our margins. Difficulties in implementing new or upgraded technology or operational systems, could disrupt our operations andcould materially and adversely affect our financial condition, results of operations or cash flows.
Adisruption in the service or a significant increase in the cost of our primary delivery and shipping services for our products and componentparts or a significant disruption at shipping ports could have a material adverse effect on our business.
Weuse United Parcel Service (“UPS”) for substantially all ground shipments of products to U.S. customers. We have and willcontinue to consider other carriers for domestic shipments, and we use air carriers, ocean shipping services and the like, for our internationalshipments of products. Furthermore, many of the components we use to build our putters, including heads and components and carbon fiberfor shafts, are shipped to our locations via air carrier and ship services. During the year ended December 31, 2021, international shippingto the United States was disrupted and delayed due to congestion in west coast ports. If there is any continued or additional significantinterruption in service by such providers or at airports or shipping ports, we may be unable to engage alternative suppliers or to receiveor ship goods through alternate sites in order to deliver our products, components or materials in a timely and cost-efficient manner.As a result, we could experience manufacturing delays, increased manufacturing and shipping costs and lost sales as a result of misseddelivery deadlines and product demand cycles. Any significant interruption in UPS or other carrier services, air carrier services, shipservices or at airports or shipping ports could have a material adverse effect on our business. Furthermore, if the cost of deliveryor shipping services were to increase significantly and the additional costs could not be covered by product pricing, our operating resultscould be materially adversely affected.
Thecosts and availability of finished products, product components and raw materials could affect our operating results.
Thecosts and availability of the finished products, product components and raw materials needed in our products can be volatile as a resultof numerous factors, including general, domestic, and international economic conditions; labor costs; production levels; competition;consumer demand; import duties; tariffs; and currency exchange rates. In 2022, we have already experienced increases in the cost ofspecific materials, such as aluminum, brass, stainless/carbon steel, and tungsten. Although these increases have had minimal effect todate, if the current inflationary trend were to continue it could affect our margins and retail pricing. This volatility could significantlyaffect the availability and cost of these items for us which could have a material adverse effect on our business, financial conditionand results of operations.
Thematerials and components that we use, and that are used by our suppliers, involve raw materials, including aluminum, magnesium, stainlesssteel, carbon steel, synthetic rubbers, thermoplastics, carbon fiber and pre-preg, for the manufacturing of our golf shafts, titaniumalloys, and other materials, epoxy resins for the assembly of our golf equipment, can experience significant price fluctuations or shortages.These raw materials or components, including the costs to transport such materials or components, the uncertainty of currency fluctuationsagainst the U.S. dollar, increases in labor rates, trade duties or tariffs, and/or the introduction of new and expensive raw materials,could materially adversely affect our business, financial condition and results of operations. In addition, prolonged periods of inflationarypressure on some or all costs may result in increased costs to produce our products that could have an adverse effect on profits fromsales of these products, or require us to increase prices for our products that could adversely affect consumer demand for our products.
Someof our components are manufactured outside of the United States, which requires these products to be transported by third parties, sometimesover large geographical distances. Shortages in ocean, land or air shipment capacity and volatile fuel costs can result in rapidly changingtransportation costs or an inability to transport products in a timely manner. Similarly, disruption to shipping and transportation channelsdue to labor disputes could cause us to rely more heavily on alternative modes of transportation to achieve timely delivery to customers,resulting in significantly higher freight costs. Because prices of our products are already seen online, prior to shipment, as changesin transportation and other costs may be difficult to predict, we may not be able to pass all or any portion of these higher costs onto our customers or adjust our pricing structure in a timely manner in order to remain competitive, either of which could have a materialadverse effect on our business, financial condition and results of operations.
Wemay be subject to product warranty claims that require the replacement or repair of products sold. Such warranty claims could adverselyaffect our results of operations and relationships with our customers.
Wemanufacture and/or distribute a variety of products that have a two-year warranty policy for certain golf equipment. From time to time,such products may contain manufacturing defects or design flaws that are not detected prior to sale, particularly in the case of newproduct introductions or upon design changes to existing products. The failure to identify and correct manufacturing defects and productdesign issues prior to the sale of those products could result in product warranty claims that result in costs to replace or repair anysuch defective products. Because our products are sold to fitters/retailers for broader consumer distribution and/or to customers/distributorswho buy in large quantities, there could be significant costs associated with such product warranty claims, including the potential forcustomer dissatisfaction that may adversely affect our reputation and relationships with customers, which may result in lost or reducedsales.
Ourgrowth initiatives require significant capital investments and there can be no assurance we will realize a positive return on these investments.
Initiativesto drive sales and scale our business will require investment in, for example, technological improvements to our manufacturing or assemblyfacilities, marketing programs with special displays or unique offerings, or special product limited editions, all involve many riskswhich could result in, among other things, business interruptions and increased costs, any of which may result in our inability to realizereturns on these capital investments. Expansion of business processes or facilities, including a significant expansion or technical upgradesfor our golf shaft manufacturing facility in St Joseph, MO, all require significant capital investment. If we have insufficient salesor are unable to realize the full potential of our capital investment, it may not realize a positive return on investment, which couldimpact our margins and have a significant adverse effect on our results of operations, financial condition and cash flows.
Salesof our products by unauthorized retailers or distributors could adversely affect our authorized distribution channels and harm our reputation.
Someof our products find their way to unauthorized outlets or distribution channels. This “gray market” for our products canundermine authorized retailers and foreign wholesale distributors who promote and support the sales of our products, and can injure ourimage in the minds of our customers and consumers. While we may have to take lawful steps to limit commerce of our products in the “graymarket” in both the United States and abroad, it is unlikely that we could completely stop such commerce. In such case we couldincur damage to distributor relationships which could materially adversely affect our business, financial condition and results of operations.
Werely on research and development, technical innovation and high-quality products to successfully compete.
Technicalinnovation and quality control in product design and manufacturing processes is essential to our success in the golf industry. Researchand development play a key role in technical innovation and our competitive advantage. We rely upon experts in various fields to workwith us to develop materials, processes, components that give our products performance advantages over our competition. We also dependon others who test the performance of our products. While we believe we are developing and creating the very best innovations for ourproducts, if we fail to continue to introduce technical innovation in our products, or if we are unable to effectively utilize new technologies,and materials, consumer demand for our products could fail to materialize, or decline, and if we experience problems with the qualityof our products, we may incur substantial brand damage and expense to remedy the problems, any of which could materially adversely affectour business, financial condition and results of operations.
Werely on information systems that assist in the management of our manufacturing, inventory, distribution, engineering, sales and otherfunctions. If our information systems were to fail to perform these functions adequately or if we experienced an interruption in operation,including a breach in cyber security, our business and results of operations could suffer.
Allof our major operations, including manufacturing, inventory, distribution, sales and accounting, are dependent upon information systems.All information systems are vulnerable to damage or interruption from:
●Earthquake, fire, flood, hurricane and other natural disasters;
●Powerloss, computer systems failure, Internet and telecommunications or data network failure; and
●Hackers, computer viruses, software bugs or glitches.
Anydamage or significant disruption in the operation of any of our information systems, the failure of our IT vendors’ to performas expected, the failure to successfully integrate the information technology systems of a businesses that we may acquired or any securitybreach to any of our information systems (including financial or credit/payment frauds) would disrupt our business, which may resultin decreased sales, increased overhead costs, excess inventory and product shortages and otherwise adversely affect our reputation, operations,financial performance and condition.
Cyber-attacks,unauthorized access to, or accidental disclosure of, consumer personally-identifiable information, that we or our vendors collect throughour websites or stores on servers may result in significant expense and negatively impact our reputation and business.
Todaythere is serious concern and awareness of the security of personal information transmitted over the Internet, consumer identity theftand user privacy. While we have implemented security measures, our computer systems and those of our third party vendors and their datasecurity systems and services, may nevertheless be susceptible to electronic or physical computer break-ins, viruses, fraud, and otherdisruptions and security compromises involving the loss or unauthorized access of confidential information because technologies usedto obtain unauthorized access to or sabotage systems are constantly evolving, change frequently, and generally are not recognized untilthey are launched against a target. Any perceived or actual unauthorized or inadvertent disclosure of personally-identifiable information,whether through a compromise of our own or our third party vendors’ networks by an unauthorized party, employee theft, misuse orerror or otherwise, could harm our reputation, impair our ability to attract website visitors, require us to notify payment processors,if payment card information is accessed or compromised, compel us to comply with federal and/or state breach notification laws and foreignequivalents, subject us to costly mandatory corrective action, or subject us to claims or litigation arising from damages suffered byconsumers, all of which could adversely affect our operations, financial performance and condition.
RisksRelated to Governmental Regulations
Weare subject to many federal, state, local and foreign laws, as well as other statutory and regulatory requirements, with which compliancecan be both costly and complex. Our failure to comply with, or adapt to changes in these laws or requirements, could have an adverseimpact on our business.
Wesubject to federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements.
●the ADA and similar state laws;
●dataprivacy and cybersecurity laws;
●environmental,health and human safety laws and regulations, including COVID Orders;
●FCPAand other similar anti-bribery and anti-kickback laws; and
●laws regarding sweepstakes and promotional contests.
Weare also subject to U.S. financial services regulations, a myriad of consumer protection laws, including economic sanctions, laws andregulations, anticorruption laws, escheat regulations and data privacy and security regulations. Changes to legal rules and regulations,or interpretation or enforcement of them, could increase our cost of doing business, affect our competitive abilities, and increase thedifficulty of compliance. Failure to comply with regulations may have an adverse effect on our business, including the limitation, suspensionor termination of services provided to, or by, third parties, and the imposition of penalties or fines.
Regulationsrelated to “conflict minerals” require us to incur additional expenses and could limit the supply and increase the cost ofcertain metals used in manufacturing our products.
TheCommission’s rules require disclosure related to sourcing of specified minerals, known as conflict minerals, that are necessaryto the functionality or production of products manufactured or contracted to be manufactured by public companies. The rules require companiesto, under specified circumstances, undertake due diligence, disclose and report whether or not such minerals originated from the DemocraticRepublic of Congo or an adjoining country. Our products may contain some of the specified minerals. As a result, we may incur additionalexpenses in connection with complying with the rules, including with respect to any due diligence that is required under the rules. Inaddition, the Commission’s implementation of the rules could adversely affect the sourcing, supply and pricing of materials usedin our products. There may only be a limited number of suppliers offering “conflict free” conflict minerals, and we cannotbe certain that we will be able to obtain necessary “conflict free” minerals from such suppliers in sufficient quantitiesor at competitive prices and we may not be able to sufficiently verify the origins of the relevant minerals used in certain componentsof our products through the due diligence procedures that we implement, which could harm our reputation.
Weare subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increased costs or restrictionsof operations in the future.
Ourlocations and operations are subject to a number of environmental, health and safety laws and regulations in each of the jurisdictionsin which our facilities are operating. These laws and regulations govern, among other things, air emissions, water discharges, handlingand disposal of solid and hazardous substances and wastes, soil and groundwater contamination and employee health and safety. Our failureto comply with such environmental, health and safety laws and regulations could result in substantial civil or criminal fines or penaltiesor enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or correctivemeasures, installation of pollution control equipment or other actions. Liability under environmental laws has been interpreted to bejoint and several unless the harm is divisible and there is a reasonable basis for allocating the responsibility.
Wemay also be subject to similar liabilities and claims in connection with locations at which hazardous substances, contaminates or wasteswe generated have been stored, treated, otherwise managed, or disposed. As a result, any of these events, and the environmental conditionsat or related to current or former properties or operations, and/or the costs of complying with current or future environmental, healthand safety requirements (which have become more stringent and complex over time), could materially adversely affect our business, financialcondition and results of operations.
Changesin, or any failure to comply with, data privacy laws, regulations, and standards may adversely affect our business.
Dataprivacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions. The regulatoryframework for data privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain and continue evolvingfor the foreseeable future. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the futureadopt additional, laws and regulations affecting data privacy. In the United States, these include rules and regulations promulgatedunder the authority of federal agencies, such as the Federal Trade Commission (FTC), and state attorneys general and legislatures andconsumer protection agencies. For example, the FTC Act grants the FTC authority to enforce against unfair or deceptive practices, whichthe FTC has interpreted to require companies’ practices with respect to personal information comply with the commitments postedin their privacy policies. With respect to the use of personal information for direct marketing purposes, the Controlling the Assaultof Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act), establishes specific requirements for commercial email messagesand specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source orcontent, and obligates, among other things, the sender of commercial emails to provide recipients with the ability to opt out of receivingfuture commercial emails from the sender. Further, the Telephone Consumer Protection Act (TCPA) restricts telemarketing and the use oftechnologies that enable automatic calling and/or messaging without proper customer consent, and is a particularly highly litigated issue.Many states in the United States have recently enacted statutes and rules governing the ways in which businesses may collect, use, andretain personal information. One such example is the California Consumer Privacy Act (“CCPA”), which came into effect in2020. In addition, the California Privacy Rights Act (“CPRA”) was passed in November 2020 and will take effect in January2023 (with respect to information collected from and after January 2022), and will significantly modify the CCPA, including by creatinga new state agency that will be vested with authority to implement and enforce the CCPA and CPRA. Moreover, other states, including Nevada,Virginia and Colorado, have passed and may continue to pass similar privacy-related laws whose restrictions and requirements differ fromthose of California, which could require us to design, implement and maintain different types of state-based, privacy-related compliancecontrols and programs simultaneously in multiple states. Similar laws relating to data privacy and security have been proposed at thefederal level as well. Such laws have potentially conflicting requirements that could make compliance even more challenging, requireus to expend significant resources to come into compliance, and restrict our ability to process certain personal information. Internationally,many jurisdictions in which we operate have established or enhanced their own data security and privacy legal framework with which weor our customers must comply, including but not limited to, the European Union’s General Data Protection Regulation (“GDPR”),which imposes stringent operational requirements, including, for example, requiring expanded disclosures about how personal informationis used, limitations on retention of information, mandatory data breach notification obligations, and higher standards for obtainingconsent to process personal information. The GDPR provides that EU member states may make their own additional laws and regulations inrelation to certain data processing activities. Recent legal developments in the EU have created complexity and uncertainty regardingtransfers of personal information from the EU to “third countries,” especially the United States. For example, in 2020, theCourt of Justice of the EU invalidated the EU-U.S. Privacy Shield Framework (a mechanism for the transfer of personal information tothe EU from the US) and made clear that reliance on standard contractual clauses (another mechanism for the transfer of personal informationoutside of the EU) alone may not be sufficient in all circumstances. In addition, after the United Kingdom, or U.K., left the EU, theU.K. enacted the U.K. GDPR, which together with the amended U.K. Data Protection Act 2018 retains the GDPR in U.K. national law, butalso creates complexity and uncertainty regarding transfers between the U.K. and the EU, which could further limit our ability to useand share personal data and require localized changes to our operating model. In many jurisdictions, enforcement actions and consequencesfor noncompliance are also rising. In addition to government regulation, privacy advocates and industry groups may propose new and differentself-regulatory standards that either legally or contractually apply to us. The changing legal and regulatory landscape could in thefuture further limit our ability to use and share personal information and require changes to our operating model. Any inability or perceivedinability to adequately address data privacy and security concerns, even if unfounded, or comply with applicable data privacy and datasecurity laws, regulations, and policies, could result in additional compliance costs, penalties and liability costs, damage to our reputationand adversely affect our business.
Changesin tax laws and unanticipated tax liabilities could adversely affect our effective income tax rate and profitability.
Weare subject to income taxes in the United States and potentially numerous foreign jurisdictions. Our effective income tax rate in thefuture could be adversely affected by a number of factors, including: changes in the mix of earnings in countries with differing statutorytax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits invarious jurisdictions around the world.
Inaddition, new income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, or interpreted,changed, modified or applied adversely to our business, any of which could adversely affect our business operations and financial performance.In particular, the U.S. government may enact significant changes to the taxation of business entities including, among others, a permanentincrease in the corporate income tax rate, an increase in the tax rate applicable to the global intangible low-taxed income and eliminationof certain exemptions, and the imposition of minimum taxes or surtaxes on certain types of income. We are currently unable to predictwhether such changes will occur and, if so, the ultimate impact it would have on our business. To the extent that such changes have anegative impact on our business, or suppliers or customers, including as a result of related uncertainty, these changes may materiallyand adversely impact our business, financial condition, results of operations and cash flows.
Wewill need to raise additional funds from time to time through public or private debt or equity financings in order to execute our growthstrategy.
Wewill need to raise additional funds from time to time in order to implement our business plan, take advantage of opportunities, includingthe expansion of our business or the acquisition of complementary products, technologies or businesses; develop new products or expandexisting lines of business, including the launching of new products or responding to competitive pressures. If we are unable to findways to finance the manufacturing and development of products to scale the business on acceptable terms or at all, or we or our financingpartners default on our respective obligations to fund such costs, we could be required to delay, significantly curtail or eliminateplanned products or marketing programs which could have a material adverse effect on our business, financial condition and results ofoperations. There can be no guarantee that we will be able to timely secure financing on favorable terms, or at all, for any of the foregoingpurposes.
Anycapital raised through the sale of equity or securities convertible into equity will dilute the percentage ownership of holders of ourcommon stock. Capital raised through debt financing would require us to make periodic interest payments and may impose restrictive covenantson the conduct of our business. Furthermore, additional financings may not be available on terms economically favorable, especially duringperiods of adverse economic conditions, could make it more difficult or impossible for us to obtain funding for the operation of ourbusiness, for making additional investments in product development and for repaying outstanding indebtedness. A failure to obtain anynecessary additional funding could prevent us from making expenditures that may be required to grow our business or maintain our operations.
Increasesin interest rates could increase the cost of servicing our indebtedness and have an adverse effect on our results of operations and cashflows.
Shouldwe secure any business loan(s), increases in interest rates would increase the cost of servicing our indebtedness and could materiallyreduce our profitability and cash flows. An increase in interest rates could also make it difficult for us to obtain financing at attractiverates, which could adversely impact our ability to execute our growth strategy or future acquisitions. Additionally, rising interestrates could have a dampening effect on overall economic activity, which could have an adverse effect on our business.
Increasesin costs as a result of being a public company could have an adverse effect on our cash flows and business results.
Shouldwe be unable to scale and or generate enough positive cashflow to offset the costs of being a public company, the affect could have anadverse effect on our business.
RisksRelating to Our Offering
Themarket price of our Common Stock may be volatile.
Themarket price of our Common Stock may be highly volatile. Some of the factors that may materially affect the market price of our CommonStock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in theindustry in which we operate or sales of our Common Stock. These factors may materially adversely affect the market price of our CommonStock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility.This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to theoperating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our CommonStock.
Anactive trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the publicoffering price.
Priorto the consummation of this offering, there has been a limited public market for our common stock. An active trading market for sharesof our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you mayhave difficulty selling your shares of common stock at an attractive price, or at all. The price for our shares in this offeringwill be determined by negotiations between us and the underwriters, and it may not be indicative of prices that will prevail in the openmarket following this offering. Consequently, you may not be able to sell your common stock at or above the public offering price orat any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by sellingour common stock, and it may impair our ability to attract and motivate our employees through equity incentive awards and our abilityto acquire other companies, products or technologies by using our common stock as consideration.
Asale or perceived sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
Allof our executive officers and directors and holders of more than 5% of the Company’s outstanding shares have agreed not to sellshares of our common stock for a period of twelve (12) months following this offering, subject to extension under specified circumstances.See “Underwriting.” Common stock subject to these lock-up agreements will become eligible for sale in the public market uponexpiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended. If ourstockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall. Moreover,the perceived risk of this potential dilution could cause stockholders to attempt to sell their shares and investors to short our commonstock. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and pricethat we deem reasonable or appropriate.
Wehave broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Ourmanagement will have broad discretion in the application of the net proceeds from this public offering, including for any of the currentlyintended purposes described in the section entitled “Use of Proceeds.” Because of the number and variability of factors thatwill determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intendeduse. Our management may not apply our cash from this offering in ways that ultimately increase the value of any investment in our securitiesor enhance stockholder value. The failure by our management to apply these funds effectively could harm our business. Pending their use,we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments maynot yield a favorable return to our stockholders. If we do not invest or apply our cash in ways that enhance stockholder value, we mayfail to achieve expected financial results, which may result in a decline in the price of our shares of common stock, and, therefore,may negatively impact our ability to raise capital, invest in or expand our business, acquire additional products or licenses, commercializeour product, or continue our operations.
Marketand economic conditions may negatively impact our business, financial condition and share price.
Concernsover medical epidemics, energy costs, geopolitical issues, the U.S. mortgage market and a deteriorating real estate market, unstableglobal credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminishedliquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the globaleconomy and expectations of slower global economic growth, increased unemployment rates, and increased credit defaults in recent years.Our general business strategy may be adversely affected by any such economic downturns (including the current downturn related to thecurrent COVID-19 pandemic), volatile business environments and continued unstable or unpredictable economic and market conditions. Ifthese conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete,more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a materialadverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development orcommercialization plans.
Ifsecurities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, ourstock price and trading volume may decline.
Thetrading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us,our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our common stockafter the closing of this offering, the lack of research coverage may adversely affect the market price of our common stock. Furthermore,if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us orour business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publishreports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock priceor trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.
Futuresales and issuances of our common stock could result in additional dilution of the percentage ownership of our stockholders and couldcause our share price to fall.
Weexpect that significant additional capital will be needed in the future to continue our planned operations, including increased marketing,hiring new personnel, commercializing our product, and continuing activities as an operating public company. To the extent we raise additionalcapital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securitiesor other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock,convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales.Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existingstockholders.
Wedo not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.
Wecurrently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipatedeclaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase,if any, of our share price.
Wemay be at risk of securities class action litigation.
Wemay be at risk of securities class action litigation. Ifwe face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which couldharm our business and results in a decline in the market price of our common stock.
Financialreporting obligations of being a public company in the U.S. are expensive and time-consuming, and our management will be required todevote substantial time to compliance matters.
Asa publicly traded company we incur significant additional legal, accounting and other expenses. The obligations of being a public companyin the U.S. require significant expenditures and will place significant demands on our management and other personnel, including costsresulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governancepractices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listingrequirements of the stock exchange on which our securities are listed. These rules require the establishment and maintenance of effectivedisclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices,among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recentreforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consumingand costly, particularly after we are no longer an “emerging growth company.” In addition, we expect these rules and regulationsto make it more difficult and more expensive for us to obtain director and officer liability insurance. Our management and other personnelwill need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations,otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.
Ourinsurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by ourinsurance.
Wemaintain insurance of the type and in amounts that we believe is reasonable and that is available to businesses in our industry. We carryor will carry various types of insurance, including general liability, auto liability, business interruption, workers’ compensationand excess umbrella, from highly rated insurance carriers. Market forces beyond our control could limit the scope of the insurance coveragethat we can obtain in the future or restrict our ability to buy insurance coverage at reasonable rates. We cannot predict the level ofthe premiums that we may be required to pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retentionapplicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. In the event of a substantialloss, the insurance coverage that we carry may not be sufficient to compensate us for the losses we incur or any costs we are responsiblefor.
Ifour estimates or judgments relating to our critical accounting policies prove to be incorrect, our financial condition and results ofoperations could be adversely affected.
Thepreparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanyingnotes. We base estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, asdiscussed below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”. The resultsof these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount ofrevenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidatedfinancial statements include those related to revenue recognition; allowance for doubtful accounts; inventories; long-lived assets, goodwilland non-amortizing intangible assets; warranty policy; income taxes and provisional estimates due to the Tax Cuts and Jobs Act (the “TaxAct”) enacted in December 2017; share-based compensation; and foreign currency translation. Our financial condition and resultsof operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, whichcould cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline inthe price of our common stock.
Certainof our stockholders, if they choose to act together, have the ability to significantly control or influence all matters submitted tostockholders for approval
Asof June 30, 2022, Nippon Xport Ventures, Inc. owned approximately 68% of the shares of our common stock which is expected to diluteto approximately 48% at the time of this Initial Public Offering and prior to option grants. Our CEO, Timothy L. Triplett and our ChiefTechnology officer Akinobu Yorihiro are the sole owners of Nippon Xport Ventures, Inc. each of whom serve on our board of directors.Additionally, on April 15,2022, Messrs. Triplett and Yorihiro were each granted stock options to purchase 807,232 shares vesting immediately.As a result, if Nippon Xport Ventures, Inc. (Timothy L. Triplett and Akinobu Yorihiro) as a stockholder were to choose a course of action,they would be able to completely influence all matters submitted to our stockholders for approval, as well as our management and affairs.This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation,takeover or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attemptingto obtain control of our business, even if such a transaction would benefit other stockholders.
INFORMATIONREGARDING FORWARD-LOOKING STATEMENTS
Thisprospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-lookingstatements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. Theforward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our currentexpectations and projections about future events and financial trends that we believe may affect our business, financial condition andresults of operations. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,”“continue,” “could,” “depends,” “estimate,” “expects,” “intend,”“may,” “ongoing,” “plan,” “potential,” “predict,” “project,”“should,” “will,” “would” or the negative of those terms or other similar expressions, although notall forward-looking statements contain those words. We have based these forward-looking statements on our current expectations and projectionsabout future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-termbusiness operations and objectives, and financial needs. These forward-looking statements include, but are not limited to, statementsconcerning the following:
the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our customers, our competitors, healthcare systems or the global economy as a whole;
Theseforward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “RiskFactors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time.It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extentto which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-lookingstatements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussedin this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-lookingstatements.
Youshould not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflectedin the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or eventsand circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neitherwe nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligationto update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actualresults or to changes in our expectations.
Youshould read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registrationstatement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance andevents and circumstances may be materially different from what we expect.
INDUSTRYAND MARKET DATA
Thisprospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth andother data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industryand general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitationsand contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degreeof uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections,assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtainedfrom sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believethat these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition,while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verifiedby any independent source.
Weestimate that the net proceeds from our issuance and sale of our Common Stock in this offering will be approximately $12,000,000 basedon an assumed public offering price of $_____ per share, which is the midpoint of the price range set forth on the cover page of thisprospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Theprincipal purpose of this offering is to increase our capitalization and financial flexibility, to facilitate our business plans throughinvestments in marketing, operations, and research & development. We have broad expansion plans for the U.S. and Asia markets thatare intended to accelerate our growth. As of the date of this prospectus, we cannot specify with certainty all of the particular usesfor the net proceeds we receive from this offering.
However,we currently intend to use the net proceeds we receive from this offering over the next 12-24 months as follows:
●approximately $2.3 million to fund marketing and professional tour related expenses;
●approximately $2.0 million for working capital, to be used to add staff members including, but not limited to sales/technical,engineering, factory, quality control, and administrative staff.
●approximately $1.0 million for manufacturing facilities and related capital equipment;
●approximately $1.25 million for increased inventory;
●approximately $3.0 million for new opportunities and expansion into Asia;
●approximately $250,000 for new product development;
●approximately $500,000 for regulatory and certification costs;
●approximately $600,000 for legal, accounting, general and administrative expenses.
●approximately $415,000 for related parties’ line of credit;
●approximately $480,000 for accrued compensation owed to executives; and
●approximately $300,000 for repayment of a bridge loan.
Thisexpected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions forapproximately the next 12 to 24 months, which could change in the future as our plans and business conditions evolve. We may also usea portion of the net proceeds to license, acquire or invest in additional businesses, technologies, products or assets, although currentlywe have no specific agreements, commitments or understandings in this regard. As of the date of this prospectus, we cannot predict withcertainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we willactually spend on the uses set forth above. We expect that as our operations expand and additional requirements become clear, we willutilize additional funds (either from additional capital raising or debt financing or a combination of both, or any proceeds from theexercise of warrants and remaining working capital funds from this offering) to pay for such costs and expenses.
Whilewe believe that the net proceeds from this offering will enable us to fund our operating expenses and capital expenditure requirements,if our operations are not cash flow positive, we may need to obtain substantial additional funding in connection with our continuingoperations and planned activities. We have based this estimate on assumptions that may prove to be incorrect, and we could use our availablecapital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings,working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cashbalances or a combination of one or more of these sources.
Thisexpected use of the net proceeds from this offering and our existing cash represents our intentions based upon our current plans, financialcondition and business conditions. The proceeds of the Offering will be insufficient to fully implement our business plan. We will needto seek additional funds through public or private equity or debt financings or other sources. If we do not successfully raise such monies,we will be unable to implement our business plan. Our management will retain broad discretion over the allocation of the net proceedsfrom this offering and our existing cash.
Inthe ordinary course of our business, we expect to from time to time evaluate the acquisition of, investment in or in-license of complementaryproducts, technologies or businesses, and we could use a portion of the net proceeds from this offering for such activities. We currentlydo not have any agreements, arrangements or commitments with respect to any potential acquisition, investment or license.
Pendingour use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments,including short-term, investment-grade, interest-bearing instruments and government securities.
Thefollowing table sets forth our cash and cash equivalents and capitalization as of March 31, 2022, as follows:
on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of our common stock in this offering at an assumed initial public offering price of $____ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and therefore providing net proceeds of approximately $ million.
Thepro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjustedbased on the actual initial public offering price and other terms of this offering determined at pricing. You should read this informationin conjunction with our financial statements and the related notes included elsewhere in this prospectus and the “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained inthis prospectus.
Thenumber of shares of common stock on a pro forma and pro forma as adjusted basis set forth in the table above is based on 11,250,000 sharesof our common stock outstanding as of March 31, 2022 and excluded:
Ifyou invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the differencebetween the assumed initial public offering price of $____ per share (the mid-point of the range appearing on the front cover of thisprospectus) and the pro forma as adjusted net tangible book value per share of our common stock immediately upon the consummation ofthis offering. Pro forma net tangible book value per share represents the book value of our tangible assets less the book value of ourtotal liabilities divided by the number of shares of common stock then issued and outstanding.
Aftergiving effect to the issuance and sale of ___ shares of our common stock in this offering at an assumed public offering price of $____per share, and after deducting estimated underwriting discounts and commissions, the non-accountable expense allowance payable to theunderwriters, and estimated offering costs payable by us, our pro forma as adjusted net tangible book value as of March 31, 2022 wouldhave been $____, or $___ per share. This represents an immediate increase in pro forma as adjusted net tangible book value per shareof $___ to existing stockholders and immediate dilution of $___ in pro forma as adjusted net tangible book value per share to new investorspurchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted nettangible book value per share after this offering from the assumed public offering price per share paid by new investors. The followingtable illustrates this dilution on a per share basis:
Thedilution information discussed above is illustrative only and will change based on the actual public offering price and other terms ofthis offering determined at pricing. A $1.00 increase in the assumed public offering price of $___ per share , which is the midpointof the price range set forth on the cover page of this prospectus, would increase our pro forma net tangible book value after this offeringby approximately $____ per share and the dilution to new investors purchasing common stock in this offering by approximately $___ pershare, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and afterdeducting estimated underwriting discount and commissions and the non-accountable expense allowance payable to the underwriters. A $1.00decrease in the assumed public offering price of $_____ per Share, which is the midpoint of the price range set forth on the cover pageof this prospectus, would decrease our pro forma net tangible book value after this offering by approximately $___ per share and thedilution to new investors purchasing common stock in this offering by approximately $___ per share, assuming that the number of sharesoffered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discountand commissions and the non-accountable expense allowance payable to the underwriters.
Anincrease of 500,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase ourpro forma net tangible book value after this offering by approximately $___ per share and decrease the dilution to new investors purchasingcommon stock in this offering by approximately $___ per share, assuming no change in the assumed public offering price per share andafter deducting estimated underwriting discounts and commissions and the non-accountable expense allowance payable to the underwriters.A decrease of 500,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decreaseour pro forma net tangible book value after this offering by approximately $___ per share and increase the dilution to new investorspurchasing common stock in this offering by approximately $___ per share, assuming no change in the assumed public offering price pershare and after deducting estimated underwriting discounts and commissions and the non-accountable expense allowance payable to the underwriters.
Tothe extent that stock options are exercised, or we issue additional shares of common stock in the future, there will be further dilutionto investors participating in this offering. In addition, if we raise additional capital through the sale of equity or convertible debtsecurities, the issuance of these securities could result in further dilution to our stockholders.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thismanagement’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Sacks ParenteGolf, Inc. and its subsidiaries (“the “Company”, “us”, “our” or “we”) is supplementalto, and should be read in conjunction with, the “Summary Historical Financial Information” section of this filing and Companyinformation. The discussion in this section contains forward-looking statements that reflect our plans,estimates, and beliefs that involve risks and uncertainties. Actual future results could differ materially from those discussed belowfor many reasons, including those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-LookingStatements” section and elsewhere in this prospectus.
Ourfinancial statements are prepared in accordance with generally accepted accounting principles in the UnitedStates of America (“GAAP”).
Theobjective of the Management’s Discussion and Analysis is to detail material information, events, uncertainties and factors impactingthe Company and provide investors an understanding from “Management’s perspective”.
SacksParente Golf, Inc. (“we,” the “Company” or “SPG”) is a technology-forward golf company, with a growingportfolio of golf products, including putting instruments, golf shafts, golf grips, and other golf related products. In considerationof our growth opportunities in shaft technologies, in April of 2022, we expanded our manufacturing business to include advanced premiumgolf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. It is our intent to manufacture and assemble substantiallyall 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 thatare complementary to our premium brand.
KeyFactors Affecting Our Performance
Seasonalityand General Trends in Golf Participation
Becausegolf is a seasonal sport, our sales are cyclical and unlikely to remain consistent from quarter to quarter. Further, if golf participationdecreases 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 hasresulted in a surge in golf participation and growth for our industry, but such trend may not continue and future trends are difficultto predict.
Ourcommon shares will be registered with the SEC and listed on The Nasdaq Capital Market, which will require us to hire additional personneland implement public company procedures and processes. We expect to incur additional annual expenses as a public company for internalcontrols compliance and public company reporting obligations, directors’ and officers’ liability insurance, director feesand additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Recentinflationary trends have led to a moderate increase in some of the component parts used to manufacture our products. To date, we havenot passed the increase in cost to our consumers. Continued prolonged periods of inflationary pressure on some or all costs may resultin increased costs to produce our products that could have an adverse effect on profits from sales of these products,or require us toincrease prices for our products that could adversely affect consumer demand for our products.
Impact of Supply Chain Disruption
While supply chain issues can present disruptionsto our business, we have increased our ability to source materials domestically which substantially mitigates our exposure to supplychain risks.
Comparisonof the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Oursales, operating expenses, and net loss from operations for the three months ended March 31, 2022 as compared to the three months endedMarch 31, 2021 were as follows (amounts are rounded to nearest thousands):
Ournet sales increased 7% to $65,000 during the three months ended March 31, 2022, compared to $61,000 during the three months ended March31, 2021. The increase in net sales of $4,000 was from the sale of custom ordered products for which we did not offer for sale in theprior year period.
Costof goods sold
Costof goods sold represents primarily our material, component, and license fees for manufacturing our products sold and changesin inventory reserves for slow-moving or potentially obsolete products. Our cost of goods sold decreased by $19,000 to$20,000 for the three months ended March 31, 2022, compared to $39,000 for the three months ended March 31, 2021. Our gross marginwas 69% and 36% for the three months ended March 31, 2022 and 2021, respectively, with the increase in gross margin benefitingfrom the change in product mix sold, and a $12,000 reduction in inventory reserves during the three months ended March 31, 2022,compared to a $6,000 increase in inventory reserves during the three months ended March 31, 2021.
Operatingexpenses include selling, general and administrative expenses, and research and development costs.
Ourselling, general and administrative expenses increased approximately $84,000 to $185,000 during the three months ended March 31, 2022,compared to $101,000 during the three months ended March 31, 2021. The increase in selling, general and administrative expenses was fromincreased marketing related expenses to promote our products of $42,000, and increased professional fees of $16,000. The remaining $26,000increase in expenses was from routine changes in our selling, general and administrative expenses accounts to support our operations.
Researchand development costs include advisors, consultants, and product design and development. Research and development expenses increased$1,000 to $2,000 during the three months March 31, 2022, compared to $1,000 during the three months ended March 31, 2021.
Lossfrom operations increased to approximately $142,000 for the three months ended March 31, 2022, compared to $80,000 for the three monthsended March 31, 2021. The increase in operating loss was due to our increase in net sales and gross profit, offset by increased operatingexpenses, as discussed above.
Interestexpense was $2,000 for the three months ended March 31, 2022, compared to $2,000 for the three months ended March 31, 2021.
Netloss increased $62,000 to $144,000 during the three months ended March 31, 2022, compared to $82,000 for the three months ended March31, 2021. The increase in net loss was due to the increase in net sales and gross profit, offset by increased operating expenses, asdiscussed above.
Comparisonof the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Oursales, cost of goods sold, operating expenses, and net loss from operations for the year ended December 31, 2021 as compared to the yearended December 31, 2020 were as follows (amounts are rounded to nearest thousands):
Ournet sales increased 10% to $200,000 during the year ended December 31, 2021, compared to $182,000 during the year ended December 31,2020. The increase in net sales of $18,000 was from the sale of custom ordered products, which we did not sale in the prior year period.
Costof goods sold represent primarily our material, component and license fees to manufacture our products sold and changes in inventoryreserves for slow moving or potentially obsolete products. Cost of goods sold increased by $75,000 to $116,000 for the year ended December31, 2021, compared to $41,000 for the year ended December 31, 2020. Excluding changes in our inventory reserves, cost of goods sold forthe years ended December 31, 2021 and 2020, were $97,000 and $103,000, respectively, and our gross margin was 51% and 43%, respectively.The increase in gross margin during the year ended December 31, 2021, excluding changes in inventory reserves, was due to the changein our product mix sold.
Ourselling, general and administrative expenses decreased approximately $242,000 to $359,000 during the year ended December 31, 2021, comparedto $601,000 during the year ended December 31, 2020. The decrease in selling, general and administrative expenses was from reduced stock-basedcompensation expense of $100,000, a reduction in demo and promotional club expense of $66,000, reduced television advertising of $58,000,and reduced tour expenses of $13,000. The remaining $5,000 reduction in expenses was from routine changes in our selling, general andadministrative expenses accounts to support our operations.
Researchand development costs include advisors, consultants, and product design and development. Research and development expenses increased$6,000 to $19,000 during the year ended December 31, 2021, compared to $13,000 during the year ended December 31, 2020.
Lossfrom operations decreased to approximately $294,000 for the year ended December 31, 2021, compared to $473,000 for the year ended December31, 2020. The decrease in operating loss was due to our increase in net sales, decreased operating expenses, offset by increased costof sales, as discussed above.
Interestexpense increased to $8,000 for the year ended December 31, 2021, compared to $6,000 for the year ended December 31, 2020. The increasein interest expense was due the changes in our line of credit balances to related parties.
Netloss decreased $177,000 to $302,000 during the year ended December 31, 2021, compared to $479,000 for the year ended December 31, 2020.The decrease in net loss was due to the increase in net sales, decreased operating expenses, offset by increased cost of goods sold andinterest expense, as discussed above.
CriticalAccounting Policies and Estimates
Ourdiscussion 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 estimatesand judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenues and expenses, as well asrelated disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptionsthat management believes to be reasonable under the circumstances. Actual results may materially differ from these estimates under differentassumptions or conditions. On an ongoing basis, we review our estimates to ensure that the estimates appropriately reflect changes inour business and new information as it becomes available.
Managementbelieves the critical accounting estimates discussed below affect its more significant estimates and assumptions used in the preparationof its consolidated financial statements.
Weaccount for revenue recognition in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue fromContracts with Customers.”
Theamount of revenue we recognize is based on the amount of consideration we expect to receive from customers. The amount of considerationis the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as salesprograms, sales promotions and price concessions that we offer, as described further below. These estimates are based on amounts earnedor expected to be claimed by customers on the related sales, and are therefore recorded to the respective net revenue, trade accountsreceivable, and sales program liability accounts.
Wemay offer short-term sales program incentives, which include sell-through promotions and price concessions or price reductions. Sell-throughpromotions are generally offered throughout a product’s life cycle, which varies from two to three years but could be shorter orlonger. Price concessions or price reductions are generally offered at the end of the product’s life cycle. The estimated variableconsideration related to these potential programs will be based on a rate that includes historical and forecasted data. We may recorda reduction to net revenues using this rate at the time of the sale. We will monitor this rate against actual results and forecastedestimates and adjusts the rate as necessary in order to reflect the amount of consideration it expects to receive from its customers.
Wealso may record an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable in the periodthat the related sales are recorded. The cost recovery of inventory associated with this reserve will be accounted for in other currentassets. Sales returns will be estimated based upon historical returns, current economic trends, changes in customer demands and sell-throughof products. We also may offer certain customers sales programs that would allow for specific returns. We may record a return reservefor anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program.
Inventoriesare 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 estimatesof 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, forecastedconsumer 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 tocalculate the reserve. However, if estimates regarding consumer demand are inaccurate or change, we may need to increase its inventoryallowance, which could significantly adversely affect we operating results.
Ourcost of products is comprised primarily of material, component and license fees. Historically, our manufacturing costs, primarily materialand component costs, are variable in nature and will fluctuate with sales volumes. Generally, the relative significance of the componentscost of products do not vary materially from period to period. However, with the current inflation pressures on current economic outlook,this could change.
SeeNote 2 of Notes to Financial Statements contained within for management’s discussion of recent accounting pronouncements.
Ourcash balance was $210,000 on March 31, 2022.
Ouraccounts receivable balance fluctuates throughout the year as a result of the general seasonality of our business and is also affectedby the timing of new product launches. With respect to our Golf Equipment business, the accounts receivable balance will generally beat its highest during the first and second quarters due to the seasonal peak in the golf season, and it will generally decline significantlyduring the third and fourth quarters as a result of an increase in cash collections and lower sales. Our planned Apparel, Gear and Otheraccounts receivable balances are expected to be higher during the second half of the year.
Ourinventory balance fluctuates throughout the year as a result of the general seasonality of our business and is also affected by the timingof new product launches. With respect to our Golf Equipment business, the buildup of inventory levels generally begins during the fourthquarter and continues heavily into the first quarter as well as into the beginning of the second quarter in order to meet demand duringthe height of the golf season. Inventory levels are also impacted by the timing of new product launches as well as the success of newproducts. Apparel, Gear and Other inventory levels start to build in the second quarter and continues into the third and fourth quarters.
Liquidityand Capital Resources
Ourprincipal sources of liquidity consist of its existing cash balances, funds expected to be generated from operations and potentiallyfunds from credit facilities. Based upon our current cash balances, our estimates of funds expected to be generated from operations,as well as from current and projected availability under our current or future credit facilities, we believe that we will be able tofinance current and planned operating requirements, capital expenditures, required debt repayments and contractual obligations and commercialcommitments for at least the next 12 months from the date of this offering.
Ourability to generate sufficient positive cash flows from operations is subject to many risks and uncertainties, including future economictrends and conditions, the future economic impact from the COVID-19 pandemic, demand for our products, supply chain challenges, priceinflation, foreign currency exchange rates, and other risks and uncertainties applicable to us and our business (see “Risk Factors”on Page ).
OnMay 23, 2022, we issued a secured promissory note (“Note”) with Michael Keller, our Chief Financial Officer, in theprincipal amount of $200,000, which bears interest at the rate of twenty (20) percent per annum. The full balance of the Note, includingaccrued interest, is due and payable in one lump sum payment on the earlier to occur of: (a) the one year anniversary of the Note or(b) 15th day following the receipt by us of the proceeds from the anticipated initial public offering of our common stock. The Note issecured by all our inventory, which shall transfer to the possession and ownership of the lender immediately if we default on our repaymentobligations.
Linesof Credit – Related Parties
Linesof credit with related parties consists of the following at March 31, 2022 and December 31, 2021:
Informationabout any of our share repurchase plans will be disclosed in the future. No plans for Share Repurchase are currently foreseen.
Thetable below summarizes certain material cash requirements as of March 31, 2022 that will affect our future liquidity. We plan to utilizeour liquidity (as described above) and our cash flows from business operations to fund our material cash requirements.
Cash,Cash Equivalents and Cash Flows
Thefollowing table summarizes our cash flows for the periods indicated (amounts are rounded to nearest thousands):
Netcash used in operating activities for the three months ended March 31, 2022 totaled $125,000, compared to net cash used in operatingactivities for the three months ended March 31, 2021 of $58,000. The increase in net cash used in operations for the three months endedMarch 31, 2022 was primarily to fund our increased net loss, adjusted by changes in our working capital accounts.
Netcash used in operating activities for the year ended December 31, 2021 totaled $171,000, compared to net cash used in operating activitiesfor the year ended December 31, 2020 of $228,000. The decrease in net cash used in operations for the year ended December 31, 2021 wasprimarily to fund our decreased net loss, adjusted by changes in inventory reserves of $44,000, stock based compensation expense of $100,000,and $102,000 of changes in our working capital accounts.
Netcash provided by financing activities for the three months ended March 31, 2022 was $211,000, which included proceeds of $200,000 receivedin the private placement of common stock, proceeds of $150,000 from the sale of convertible debt obligations, and net proceeds of $1,000from our lines of credits from related parties, offset by $140,000 paid for deferred offering costs related to our planned initial publicoffering. Net cash provided by financing activities for the three months ended March 31, 2021 was from net proceeds of $1,000 from ourlines of credit from related parties.
Netcash provided by financing activities for the year ended December 31, 2021 was $255,000, which included proceeds of $250,000 from thesale of convertible debt obligations, and net proceeds of $5,000 from our lines of credit from related parties. Net cash provided byfinancing activities for the year ended December 31, 2020 was $316,000, which included proceeds of $305,000 from the sale of convertibledebt obligations, and net proceeds of $11,000 from our lines of credit from related parties.
Operatingand Capital Expenditure Requirements
GoingConcern and Liquidity
Sinceinception, our principal sources of liquidity have been cash provided by financing, including through the private placement of equitysecurities, and related party loans. Our principal uses of cash have been primarily for labor and outside services, development of newproducts and improvement of existing products, and expansion of marketing efforts to promote our products and brand. We anticipate thatadditional expenditures will be necessary to develop and expand our assets before sufficient and consistent positive operating cash flowswill be achieved, including sufficient cash flows to service existing liabilities and related interest.
Withthe recent commercialization of our products, we are making significant investments in sales and marketing, tooling to manufacture ourproducts, and infrastructure investments to meet planned customer demand. We will also incur additional expenses generally associatedwith being a publicly traded company, including the cost of financial statement audits and reviews, compliance, director fees, insurancepolicies, investor relations, upgraded systems, and enhanced internal controls.
Webelieve, based on our current operating plan, that our current capital resources, along with the net proceeds from this offering, willbe sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. However,our expected use of the net proceeds from this offering described above represents our intentions based upon our current plans and businessconditions. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of thisoffering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures willdepend on numerous factors, including the time and cost necessary to conduct our planned commercialization activities, the results ofour planned field trials and other factors described in the section titled “Risk Factors” in this prospectus, as well asthe amount of cash used in our operations and any unforeseen cash needs.
Asfurther presented in our financial statements and related notes included in this prospectus, during the three months ended March 31,2022, we incurred a net loss of $144,000, used cash in operations of $125,000, and at March 31, 2022, had a shareholders’ deficitof $306,000, and a working capital deficit of $450,000. During the year ended December 31, 2021, we incurred a net loss of $302,000,used cash in operations of $171,000, and at December 31, 2021, had a shareholders’ deficit of $1.4 million, and a working capitaldeficit of $541,000. These factors raised substantial doubt about our ability to continue as a going concern, as noted by our independentregistered public accounting firm in its report on our December 31, 2021 financial statements. We believe, based on our current operatingplan, that our current capital resources, along with the net proceeds from this offering, will be sufficient for us to fund our operatingexpenses and capital expenditure requirements for at least the next twelve months. Additional funds may be needed in order to continueproduction and operations, maintain profitability and to achieve our objectives.
Ourability to continue as a going concern is dependent upon our ability to raise additional capital and to maintain revenues and generateprofit from operations. During the three months ended March 31, 2022, we raised $200,000 from a private placement transaction, $150,000from the sale of convertible debt obligations, and $1,000 in proceeds from our lines of credit from related parties. During the yearended December 31, 2021, we raised $250,000 from a private placement transaction, and $5,000 in proceeds from our lines of credit fromrelated parties. During the fiscal year ended December 31, 2020, we received proceeds of $305,000 from a private placement transactionand $11,000 in proceeds from our lines of credit from related parties. At March 31, 2022, we had cash on hand of approximately$210,000, and may not be able to generate sufficient funds from our future operations to meet our cash flow requirements.
Weare an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as theJOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which ourannual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held bynon-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, duringthe previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may takeadvantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have electedto take advantage of these reduced disclosure obligations and may elect to take advantage of other reduced reporting obligations in thefuture.
Forso long as we are an emerging growth company, we will not be required to:
Inaddition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As a result, theCompany may adopt new or revised accounting standard by the date private companies are required to comply. For example, the Company intendsto adopt ASU No. 2016-02, Leases, (Topic 842) (“ASC 842”) as of January 1, 2022.
Weare 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 April 2022, in consideration of our growth opportunities in shaft technologies, we expanded our manufacturingbusiness to include advanced premium golf shafts by opening a new shaft manufacturing facility in St. Joseph, MO. We intend to manufactureand assemble as many of our products in the United States as is economically feasible. We anticipate expanding into golf apparel andother golf-related product lines to enhance our growth. These products will come either from acquisition of an existing business or independentthird-party providers with the means to deliver on the SPG brand requirements. Other expansions may include broadening our offeringsthrough mergers, acquisitions or internal developments of product lines that are complementary to our premium brand.
Welive by the statement “Physics not Gimmicks” and as a result, we believe that we have created game changing innovations likeour patented Ultra-Low Balance Point technologies that we believe make any putter a better putter. ULTRA-LOW BALANCE POINTis a balance point on the shaft that is five (5) inches or less from the sole of the putter. The Company achieves this, not by makingthe putter head heavier like some companies have done, but by making the putter shaft and grip feather light. An ULBP putter has substantiallymore of the relative weight at the putter head which makes the putter head feel a lot heavier than it really is. The result, supportedby independent testing, is a putter that promotes a natural pendulum like tempo, natural squaringof the head at impact and a natural release of the toe of the putter head, allof which can help contribute to better putting performance.
By investing in research and developmentand leveraging applied science and physics, we design golf equipment and products to be technologically superior by breaking the “seaof sameness” that exists in golf today. We have the ability to create and modify product designs using computer aided design software,finite element analysis software and structural optimization techniques. Further, we utilize a variety of robotics and testing equipment,along with computer software, including launch monitors, an in-house laboratory and test center for our golf equipment products.
Wemanage our global business operations through our operating and reportable business segments. Our business segments currently include,golf putting instruments, golf shafts, and golf related products.
Ourproducts are sold in the Americas, Asia and Europe. We sell our golf equipment products in the United States and internationally, directlyvia e-commerce, through distribution or subsidiaries, to wholesale customers, including pro-shops at golf courses and off-course retailers,sporting goods retailers, on-line retailers, third-party distributors, and through Club Champion Golf, the international leader in golfclub fitting with strategic locations across the U.S. and internationally. We sell certain products to mass merchants, as well as directlyto consumers through retail locations in Japan and have recently begun selling products in South Korea. We offer custom fitting programsonline to help consumers find the best fit for their personal specifications. In addition, we sell to corporate customers who want certaincustomizations of our golf equipment.
Ourmarketing campaigns in connection with the SPG brand are aimed to increase consumer awareness of the products and support the overallgrowth strategy. We will focus our advertising efforts mainly on television commercials, primarily on The Golf Channel and web-baseddigital, social media advertising, and printed advertisements in national magazines, such as Golf Magazine and Golf Digest, as well asin-store advertising. We also establish relationships with professional athletes and personalities, including members of various professionalgolf tours as well as other athletes and personalities, in order to promote our golf equipment product lines.
Wecurrently have our primary assembly and distribution center in Camarillo, CA. We have recently opened a new facility in St. Joseph, MOand plan to relocate all U.S. manufacturing, warehousing and distribution to this location at some point in the next two years. We believethat the St. Joseph facility will allow us to reduce our reliance on overseas suppliers, which have been subject to severe supply chainissues over the past two years, and potentially to begin manufacturing driver and fairway wood/hybrid shafts using our proprietary mandrelsand wrapping technology. In addition, we plan to grow distribution centers in or near Tokyo, Japan, Seoul, South Korea, Mexico and otherprominent cities based on the needs of these markets.
TheCompany has its primary golf putting instrument assembly facility in Camarillo, CA. It is our ongoing goal to develop, design and manufactureas many of the company’s products, as is economically feasible, in the U.S. We currently have limited assembly/fitting capabilitiesin Tokyo, Japan and will soon have similar capabilities in South Korea. Overall, the golf club assembly process is fairly labor intensive,requires extensive supply chain coordination and utilizes raw materials that are obtained from suppliers both internationally and withinthe United States.
RawMaterial and Suppliers
Ourputting instruments raw material consist of a fairly wide variety of steel and aluminum types, along with other metals like tungsten,magnesium, and titanium. Our shafts consist of carbon fiber and prepreg materials along with coatings, paintings, inks and other decorativematerials. The suppliers of these raw materials are located in the U.S., Japan, Korea, and other countries around the world. We relyon third-party suppliers to provide our raw materials and CNC machine certain parts. Our putters are currently assembled from componentsproduced in the U.S., Taiwan, China, Japan and Korea. Our shafts are manufactured in-house from materials produced in Japan and Koreaby third parties. We note that some components or materials may be available only from a limited number of sources. We choose not toenter into long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials and components,and typically transact business with our suppliers on an order-by-order basis. We also compete with other companies for raw materialsand production.
Wecurrently source the vast majority of our grip products from third-party suppliers in China and we source some CNC milled products fromTaiwan. However, we are already producing products, shafts and putter heads in the US, and plan to manufacture as many componentsin the US as is economically feasible. We have worked with a limited number of manufacturing partners that produced componentsin facilities located in Southeast Asia and could do so again. We continuously work to diversify our sourcing and manufacturing capabilities.
Anytime a company has limited sources for materialsor suppliers there is significant risk and we are no different. If we are unable to acquire raw materials such as carbon fiber or pre-preg,it may take significant time to educate an alternate supplier with the specific engineering and manufacturing requirements of our materialsor designs. If we were unable to secure a reliable supplier for any component or material that we do not manufacture ourselves and findthat replacement in a timely manner, this could have a material adverse effect on our business, financial condition and results of operations.
We have experienced supply issueswhen the US Government blocked all imports from Myanmar, and our source for carbon fiber shafts was instantly eliminated. With no supplierfor shafts this materially impacted our ability to deliver product and grow channels of distribution. However, our management adaptedand within 12 months overcame these issues by opening our own shaft manufacturing facility in St. Joseph, MO.
Wedesign, manufacture and sell technology-forward, high-quality, golf equipment, which is comprised of putting instruments, golf shafts,golf grips and related product groups. We design our golf products to fit golfers of all skill levels, amateur and professional, andour products are designed with the goal of conforming to the Rules of Golf as published by the United States Golf Association (“USGA”)and the ruling authority (“The R&A”).
Ourequipment includes putting instruments, golf shafts and grips sold under the SPG brand. Our putting instruments are generally made ofsteel, aluminum, titanium alloys, carbon fiber, tungsten, our patented magnesium face plate technologies, and various other materials.
Weare in prototype phase on two new putter models that are very popular on the market, which we expect to launch in the summer of 2022.Management believes that our versions of these models, while having a familiar shape, could out-perform other versions in the industrybecause of our design philosophy and use of advanced metals.
Inaddition to our existing products, we intend in the future to sell high quality soft goods such as golf apparel and golf accessoriesincluding golf bags, gloves, headwear, practice aids and more. We are in the early stages of planning our soft goods business and donot anticipate that we will begin manufacturing or selling soft goods until 2024. However, management believes that soft goods may eventuallycomprise significant portion of our business.
Wewere founded in 2018 as Sacks Parente Golf Company, LLC, a Delaware limited liability company. On March 18th, 2022, we converted intoa Delaware corporation named Sacks Parente Golf, Inc.
Weare subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants intothe environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal ofcertain materials, substances and wastes and the remediation of environmental contaminants (collectively, “Environmental Laws”).In the ordinary course of our manufacturing processes, we use paints, chemical solvents and other materials, and generate waste by-productsthat are subject to these Environmental Laws.
Weendeavor to adhere to all applicable Environmental Laws and act as necessary to comply with these laws. We maintain an environmentaland safety program at our facilities. The environmental and safety program includes obtaining environmental permits as required, capturingand appropriately disposing of any waste by-products, tracking hazardous waste generation and disposal, air emissions, safety situations,material safety data sheet management, storm water management and recycling, and auditing and reporting on its compliance.
Weare the owner or licensee of multiple utility and design patents in the U.S. and foreign countries relating to our products and productdesigns, including U.S and foreign trademark registrations relating to our products, product designs, manufacturing processes and researchand development concepts. Other patent and trademark applications are pending and await registration. In addition, we own various otherprotectable rights under copyright, trade dress and other statutory and common laws. Our intellectual property rights are material toour business, and we seek to protect such rights through the registration of trademarks and utility and design patents, the maintenanceof trade secrets and the creation of trade dress. When necessary and appropriate, we will enforce our rights through litigation.
Ourpatents are generally in effect for up to 20 years from the date of the filing of the patent application. Our trademarks are generallyvalid as long as they are in use and their registrations are properly maintained and have not been found to become generic.
Wecurrently hold the following patents:
TheUltra Low Balance Point Utility Patent described above was licensed to us by Parcks Designs, LLC on July 24, 2018. The license grantedto us is perpetual, worldwide, royalty-free, and exclusive aside from one other licensee. The principals of Parcks Designs, LLC areSteve Sacks and Richard Parente, cofounders of the Company together with Tim Triplett and Akinobu Yorihiro. Currently, Steve Sacksis actively involved with us as a director of Research & Development for putter head development. Richard Parente has transitionedto be a consultant to the Company. On May 25, 2022, we and Parcks Designs entered into a Consulting Agreement whereby Parcks Designswill perform club and shaft testing and analysis, putter head design consulting and other services as may be agreed upon from time totime. The consulting fees due to Parcks Designs will be nominal in the beginning and increase to $2,000 per month after June 1, 2024.
OnAugust 7, 2018, Richard E. Parente and Steve Sacks assigned to us the entire worldwide right, title and interest in and to the QuadWeighted Lightweight Putter.
ConfidentialInformation and Trade Secrets
Thesuccess of our business depends, in part, on maintenance of confidential information and trade secrets, generally referred to as proprietaryinformation. We have implemented procedures to maintain the confidentiality of its proprietary information. Employees enter into confidentialityagreements with us and, where appropriate, a confidentiality agreement is executed before confidential information is revealed. Confidentialityprovisions are also present in consulting agreements and supplier agreements in certain cases where the consultant or supplier may beexposed to confidential information.
Thefollowing marks and phrases, among others, are trademarks of the Company:
Weown the domain names listed below. Domain names are generally renewable every year or every two years.
Weoperate the social media accounts listed below.
Weare not currently involved in any dispute, pertaining to our intellectual property rights or otherwise, either as a plaintiff or a defendant.
Weare subject to extensive federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements,the Americans with Disabilities Act (the “ADA”), and similar state laws, privacy and cybersecurity laws, environmental, healthand human safety laws and regulations, the Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws. New lawsand regulations or new interpretations of existing laws and regulations from federal, state and local authorities may also impact thebusiness.
Employeesand Human Capital
Weview our employees as our most valuable asset and seek to attract and maintain the highest quality talent by offering competitive salaries,benefits and other services, opportunities to grow professionally, and regular evaluations, among other initiatives. As of the date hereof,we have seven full-time employees. We also engage independent contractors and outside consultants as necessary.
Weare driven by a desire to deliver gimmick-free, technologically advanced, exceptional products and experiences for our customers. Ourleadership team and employees are guided by our core values: be driven to change the status quo, never be satisfied, always act withintegrity and respect, always put the customer first.
Weare headquartered in St. Joseph, MO, and will maintain offices, distribution centers, and retail stores in numerous locations aroundthe world. We are committed to recruiting, developing and promoting a diverse and inclusive workforce while offering unique opportunitiesand career paths for its employees. We have an ongoing commitment to increase the number of women and diverse candidates throughout alllevels of management while also hiring the most qualified individuals. We do not discriminate on the basis of actual or perceived race,creed, color, religion, national origin, citizenship status, age, disability, marital status, sexual orientation, gender, gender identityand similar classifications.
Weare committed to the health and well-being of its employees. Therefore, we plan to design our compensation and benefits programs to insurethis commitment. In addition to offering competitive compensation, we plan to offer a standard benefit package that includes, health,life and disability insurance coverage.
Weintend to compete on the basis of technologies that improve the player’s experience. Management further believes quality and unparalleledcustomer service define the better companies in all industries. In order to better understand trends, management receives and evaluatesinternally generated market trends for United States and foreign markets, as well as periodic public and customized market research forthe United States and Asia. Providers of such market research are Golf Datatech and The National Golf Foundation that include trendsfrom certain on- and off-course retailers. In addition, we utilize data from other market research firms in Asia.
Ourmajor competitors for putting instruments are TaylorMade, Ping, Acushnet (Scotty Cameron, Titleist brand) and Callaway Odyssey/Toulonbrands.
Ourmajor competitors for golf shafts include Fujikura Composites, Inc, Mitsubishi Chemical MCC, Graphite Design, (Asia) Co Ltd, Nippon ShaftCo. Ltd, Paderson Kinetixx, Taiwan.
Allthese and other competitors have been in business years longer than we have and have substantially greater resources than we do.
Ourcustomers include individual golfers as well as wholesalers and retailers, including Club Champion Golf, the international leader ingolf club fitting with strategic locations across the USA and internationally.
Thetable below provides our inventory as of April 15, 2022.
Thefollowing table and biographical summaries set forth information, including principal occupation and business experience, about our directorsand executive officers as of the date of this prospectus:
Dr.Greg Campbell, Chairman
GregCampbell currently serves as the Chairman of SPG and has been in that capacity since November 2018. He is currently also Chief ExecutiveOfficer at V-Grid Energy Systems, Inc., a California-based start-up focusing on converting agricultural waste into renewable electricityand valuable bio-carbon. With V-Grid, Campbell has helped deliver breakthrough technology that reimagines what it means to be environmentallyconscious, pushing boundaries towards carbon negative operations and fighting soil degradation. Having received his Doctor of Philosophy,Electrical and Electronics Engineering from the University of California Los Angeles and BA/MA in Engineering from Cambridge University,Campbell’s nearly 40-year career spans new and emerging technologies, product development, and philanthropy. He has successfullytaken two companies public. He also served as SVP&GM for Lam Research where he managed a $1.2B P&L.
DottiePepper has been a member of the SPG Board since April of 2022, and is a 17-time winner on the LPGA tour, including two major championships.She served 3 years as an Independent Director on the PGA of America Board of Directors. Dottie was the 2016 William D. Richardson Awardwinner, given by the Golf Writers Association of America for continuing contributions to golf and she was also the 2021 Gold Tee winner,given by the Metropolitan Golf Writers Association for career achievements that exemplify the best spirit and traditions of the sportof golf. Dottie also won on the JLPGA Tour and represented the U.S. 6 times in the Solheim Cup. She played the LPGA Tour from 1988 untilher retirement in 2004 when she began a career in television. Dottie has covered nearly every major in men’s and women’sgolf and has also covered every major international amateur golf competition. She was the first woman to announce live golf at The Mastersbeginning in 2016 and in 2020 became the first walking reporter to cover that same event. She is currently the lead walking reporterfor CBS Sports’ coverage of the PGA Tour, PGA Championship and Masters. She is also the author of the recently released book andaudiobook, “Letters to a Future Champion: My Time with Mr. Pulver.”
BrettHoge has been a member of our Board of Directors since March of 2022 and a Financial Advisor with Truist Investment Services, Inc. since2008. Brett’s deep understanding of investments, and capital management earned him a position in the Top 400 Financial Advisorsby the Financial Times in 2017, 2018, 2020 and he was also recognized for Best-In-State Wealth Advisors by Forbes in 2022. Brett earnedhis bachelor’s degree in business administration with majors in finance and insurance, from Appalachian State University in 1999.He is a passionate community volunteer and mentor, Brett received the 2007 Forsyth County United Way Volunteer of the Year Award, theInvestment News Community Leadership Award, and is a past president of Big Brothers Big Sisters of Forsyth, Davie and Yadkin counties.He is also an active board member of the Clemmons Community Foundation Investment Committee, the Centers of Aging and Rehabilitationof Florida, Inc., and JDRF Piedmont Triad Chapter.
TimothyL. Triplett, Director, President and Chief Executive Officer
TimothyL. Triplett is co-founder, Director, President and Chief Executive Officer of the Company and has served in such capacity since our foundingin March 2018. Mr. Triplett served as Chief Executive Officer of Nippon Xport Ventures, Inc., our largest stockholder, from 2017-2022where he continues to serve as a director. Before joining NXV Mr. Triplett was the co-founder, President and Chief Executive Officerof Brass Ring Spirit Brands from 2014-2017. In 2009 he founded Smart Real Estate Investments, Inc. and served as CEO until 2014. Mr.Triplett served as Chairman of the Board of Go Green Technologies, Inc. 2007-2010, and Executive Vice President & General Managerof NASDAQ listed (MFLO) Moldflow Corporation, (acquired by AutoDesk) from 2004-2006. He was the founder of American MSI Corporation,serving as the Chairman, President and Chief Executive Officer from 1984-2004 and was named Entrepreneur of the Year in 1994, for hightechnology manufacturing, by Inc. Magazine, Merrill Lynch, and Ernst & Young. He is also in the Ernst & Young, Entrepreneur ofthe Year, Hall of Fame. He attended Western Carolina University from 1974-1979, majoring in Industrial Technology & Manufacturing.
MichaelFerris, Chief Strategy & Growth Officer
MichaelFerris is our Chief Strategy & Growth Officer and has served in such capacity since 2019. Before joining SPG, Mr. Ferris served asVice President of Product Management for Mophie | ZAGG commencing in July 2018. Prior to this he served as Senior Vice President of Marketingfor Sterilis Medical from 2016-2018. Mr. Ferris formerly served at TaylorMade Golf Company as Global Vice-President of Golf Balls andAccessories from 2014-15, Global Vice-President Irons, Putters from 2013-14, Wedges, Global Vice-President of Product Marketing from2011-13, Global Vice-President of Speed Performance from 2010-11, VP Brand Marketing for Adidas Golf | Ashworth from 2009-10, Vice-Presidentof Golf Ball and Licensing from 2007-09, and Senior Director Golf Ball from July 2005-2007. Mr. Ferris served as VP Category Managementat Callaway Golf from 2004 -2005, Vice-President of Marketing Ben Hogan | Top-Flite from 2002-2004, and managed and served at SpaldingGolf Ball marketing from 1986-2004. Mr. Ferris received an M.B.A. from Pace University and a B.S. in Business Administration from theUniversity of New Hampshire.
AkinobuYorihiro, Director, Chief Technology Officer
AkinobuYorihiro, one of our co-founders, is a Director and Chief Technology Officer, and Chief Legal Officer, he has served in such capacitiessince March 2018. Mr. Yorihiro also served as our Chief Financial Officer from March 2018-February 2022. Mr. Yorihiro has served as Chairmanof the Board for Nippon Xport Ventures, Inc. since 2017. Mr. Yorihiro served as Chief Executive Officer of Yoshimoto Entertainment USA,the U.S. Subsidiary of Yoshimoto Kogyo of Japan, and the Chief Executive Officer of Bellrock Media, a digital media company backed byDentsu, NTT Docomo and Yoshimoto Entertainment, from 2006-2017. He was a Corporate M&A Partner of Bingham McCutchen LLP, a largenational U.S. law firm, where he specialized in cross-border transactions, representing Japanese and U.S. clients across a wide rangeof industries including manufacturing, pharmaceutical, technology, banking, sports and entertainment, from 1993–2006. Bilingualand Bicultural in Japanese, he earned his B.A. in Economics and Mathematics from Claremont McKenna College and J.D. from Georgetown UniversityLaw Center.
MichaelKeller, Chief Financial Officer
MichaelKeller is Chief Financial Officer of Sacks Parente Golf, Inc. and has served in such capacity since February 2022. Mr. Keller has alsoserved on the Board of Directors of Super League Gaming since November 2018. From July 2014-February 2018, Mr. Keller served as an advisorand board member for Cake Entertainment, an independent entertainment company specializing in the production, distribution, development,financing and brand development of kids’ and family properties, as managing director of Tiedemann Wealth Management from March2008-December 2013, as co-founder and principal of Natrica USA, LLC from August 2006-March 2008 and as Senior Vice President of BrownBrothers Harriman from July 1996-June 2006. Mr. Keller earned his Bachelor of Arts in History from Colby College.
AngeloPapadourakis, Executive Vice President of Sales & Distribution
AngeloPapadourakis is Executive Vice President of Sales & Distribution and has served in such capacity since January 2019. Before joiningSacks Parente Golf, beginning in February 2007, Mr. Papadourakis founded and served as Chief Executive Officer of NewSpin Golf, creatorsof the SwingSmart Motion Capture System. Prior to founding NewSpin, beginning in March 1994, he was the owner of AG Trading, where hedesigned trading programs and algorithmic arbitrage systems for both Dollar and Yen denominated Nikkei 225 futures traded at the ChicagoMercantile Exchange (CME). Mr. Papadourakis started his business career as an attorney in November 1992, specializing in civil litigationand criminal defense. Mr. Papadourakis has a Juris Doctor from DePaul University and a B.A. in Economics from the University of Illinoisat Urbana. He currently holds four U.S. patents for sensor-based motion capture systems and applications.
TheCompany was founded by four individuals, Steve Sacks, Richard Parente, Tim Triplett and Akinobu Yorihiro. The biographical summariesfor Sacks and Parente are as follows. Please refer to the Management section for the biographical information for Triplett and Yorihiro.
SteveSacks – Co-Founder
SteveSacks has been in the golf industry since 1974. In the last 40 plus years he has been a pioneer in golf marketing and manufacturing.In this period, Sacks was one of the first to import stainless steel golf club castings for such retailers as Walmart, Kmart, BuyersAssociation of Golf, National Golf Buyers Association, and OEM’s such as Yamaha Golf and Daiwa Golf.
Hehas done extensive research in the use and effectiveness of alternative materials for golf club manufacture and in golf club design.He was present when the first metal woods were cast and worked closely with the foundry in developing casting and finishing technologyof the first metal woods. He was one of the first to experiment with ceramics, titanium alloys and was also one of the first to use dissimilarmaterials to achieve weight objectives and increase the Moment of Inertia (MOI) in golf clubs and putters.
In1993, Sacks co-founded Goldwin Golf. While at Goldwin, he oversaw the complete marketing effort that included public relations, advertisingdevelopment, advertising placement and all Point Of Purchase materials.
In1996, he joined Carbite Golf. At Carbite he was heavily involved in direct response sales, infomercials, direct mail and wholesale sales.He developed the wholesale sales and marketing campaigns that launched 4 successful infomercial products to retail, the Viper Bite wedge,the Polar Balanced putter, the Polar Balanced wedge and the Gyro 7 utility club. While at Carbite he also successfully re-introducedwhat had been an aging and somewhat dated brand, Daiwa, into the U.S. market.
Sacksis known throughout the industry for his knowledge, work ethic, ingenuity, and integrity. He has founded, consulted, designed or workfor all of these entities over the course of his lifetime in golf: Aserta Sports, Bridgestone Golf, Carbite Golf, Daiwa Golf, GoldwinGolf, Golf Headquarters, Golf Technology Systems, Rife Putters, Yamaha Golf.
RichardParente – Co-Founder
Duringthe past five decades Parente has been an industry leader with design innovations that have changed the way golf clubs are designed andmanufactured. In 1980, he co-founded Hickory Stick, which was renamed Callaway Golf in 1982 and was the first President of Callaway.During his Callaway Golf tenure, he co-invented and patented the short hosel design (s2h2) on which the entire Callaway club line wasbased. He also designed the first of many of the oversize drivers and irons that are popular today. Parente was the first to apply numericallycomputer controlled (CNC) methods to full production of milled putters, creating a new industry within an industry. His methods werea major golf industry breakthrough, offering manufacturers the ability to mass-produce putters in a milled form, without the one-of-a-kindprice.
In1993, Parente began a venture as co-owner and President of Goldwin Golf, a fast-growing company reaching more than $35 million dollarsin sales in 1997. He started Goldwin Golf by applying the milled process in manufacturing metal woods, an industry first and a break-throughin driver technology. He co-invented the patented AVDP System for metal woods and irons, a radical but innovative system shifting weightand balance toward the head of the club.
Parente’s design expertise comes from his origins in the golf industry. He was a 20-year PGA club professional, which allowed him to see the other side of the counter. The time he spent with golfers led to an understanding of the tastes of the playing public. Through his designs he has applied this knowledge to make the best products available. His emphasis has been on embracing the latest in technology to determine its advantages for golf. He also founded Golf Laboratories, an independent testing company, which uses advanced robotics for research and development.
Hisclub design work always incorporates both robotic and player testing during the R&D phase. This has given him an advantage in designingproducts technically superior to competitive products.
Amongthe breakthrough products designed or co-designed by Rich Parente are:
Membersof our board of directors are elected for a three term, and remain until their successors have been duly elected.
Whenconsidering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directorsto satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Board focuses primarilyon the person’s experience, their transactional knowledge, industry knowledge and other background, in addition to any unique skillsor attributes associated with being a Director.
Boardof Directors and Corporate Governance
Concurrentlywith the closing of this offering, our Board of Directors will consist of (5) five members, three independent and two internal.
OurBoard of Directors has appointed an audit committee, governance committee and compensation committee.
Theaudit committee is responsible for overseeing: (i) our accounting and reporting practices and compliance with legal and regulatory requirementsregarding such accounting and reporting practices; (ii) the quality and integrity of our financial statements; (iii) our internal controland compliance programs; (iv) our independent auditors’ qualifications and independence and (v) the performance of our independentauditors and our internal audit function. In so doing, the audit committee maintains free and open means of communication between ourdirectors, internal auditors and management.
Concurrentlywith the closing of this offering, the Audit Committee will consist of Independent Directors Brett Hoge, and Greg Campbell with GregCampbell acting as Committee Chair and the Audit Committee financial expert.
Thecompensation committee is responsible for reviewing and approving the compensation of our executive officers and directors and our performanceplans and other compensation plans. The compensation committee makes recommendations to our Board of Directors in connection with suchcompensation and performance plans.
Concurrentlywith the closing of this offering, the Compensation Committee will consist of Independent Directors Greg Campbell and Brett Hoge withBrett Hoge acting as Committee Chair.
Nominatingand Corporate Governance Committee
Thenominating and corporate governance committee is responsible for (i) recommending for the Board’s selection the director nomineesfor each annual meeting of stockholders and candidates to fill any vacancies on the Board ; (ii) developingand recommending to our Board a set of corporate governance guidelines and ,if necessary or appropriate, periodicallyrecommending modifications to such guidelines; and (iii) overseeing evaluations of the Board and its committees.
Whilewe do not have a formal policy regarding board diversity, our Nominating and Corporate Governance Committee and board of directors willconsider a broad range of factors relating to the qualifications and background of nominees, which may include diversity (not limitedto race, gender or national origin). Our Nomination and Corporate Governance Committee’s and board of directors’ priorityin selecting board members is identification of persons who will further the interests of our stockholders through their establishedrecord of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledgeof our business, understanding of the competitive landscape and professional and personal experience and expertise relevant to our growthstrategy.
Concurrentlywith the closing of this offering, the Nominating and Corporate Governance Committee will consist of Independent Directors Greg Campbelland Dottie Pepper with Dottie Pepper acting as Committee Chair.
TheCompany adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that appliesto our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similarfunctions and that that establishes, among other things, procedures for handling actual or apparent conflicts of interest. Our Code ofEthics is available at our website [INSERT URL].
Wehave entered into indemnification agreements for our directors and executive officers (“Indemnification Agreement”). TheIndemnification Agreement provides for indemnification against expenses, judgments, fines and penalties actually and reasonably incurredby an indemnitee in connection with threatened, pending or completed actions, suits or other proceedings, subject to certain limitations.The Indemnification Agreement also provides for the advancement of expenses in connection with a proceeding prior to a final, non-appealablejudgment or other adjudication, provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemniteeis ultimately found not to be entitled to indemnification by us. The Indemnification Agreement sets forth procedures for making and respondingto a request for indemnification or advancement of expenses, as well as dispute resolution procedures that will apply to any disputebetween us and an indemnitee arising under the Indemnification Agreement.
Thetable below summarizes the compensation earned for services rendered to us in all capacities, for the years indicated, by its named executiveofficers:
TheBoard adopted a Director Compensation Policy (the “Director Compensation Policy”) as set forth below.
Thispolicy sets forth the compensation payable to each non-employee member of the Board.
Non-employeemembers of the Board of Company shall be eligible to receive cash and equity compensation as set forth in this Director CompensationPolicy. The cash compensation and stock awards described in this Director Compensation Policy shall be paid or be made, as applicable,automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parentor subsidiary of the Company (each, an “Independent Director”) who may be eligible to receive such cash compensation or stockawards, unless such Independent Director declines the receipt of such cash compensation or stock awards by written notice to the Chairmanof the Board.
ThisDirector Compensation Policy shall remain in effect until it is revised or rescinded by further action of the Board. The terms and conditionsof this Director Compensation Policy shall supersede any prior cash or equity compensation arrangements between the Company and its directors.
AnnualBoard Member retainer: $ 20,000.00
Annualretainer for the Chairman: $ 5,000.00
AnnualCommittee Chair Retainer:
Allcash compensation is earned on a fiscal year basis, divided equally and paid, at the end of each quarter. Directors who commence servicemid-quarter or who terminate service mid-quarter will receive pro-rated retainers to be paid at the end of the applicable quarter.
EachIndependent Director will receive stock options to acquire 30,000 shares of common stock of the Company, when the appointment becomeseffective. The Chairman will receive stock options to purchase an additional 18,000 shares of common stock of the Company, when the appointmentbecomes effective. Options granted to Independent Directors will (i) vest quarterly over a three-year period, and (ii) have an exerciseperiod which is the shorter of (a) seven years from the grant date or (b) two years from the date of separation, so long as the individualremains an Independent Director in good standing.
Ifa director is appointed at a time other than at the annual stockholders meeting, the number of options and vesting schedule will be pro-ratedbased upon the amount of time that has elapsed since the Company’s most recent annual meeting.
Eachof the non-employee directors will be entitled to receive reimbursement for reasonable expenses which they properly incur in connectionwith their functions and duties as a director, including travel expenses incurred to attend meetings. Directors are required to followthe same travel policies as the employees of the Company.
Amendments,Revision and Termination
Thispolicy may be amended, revised or terminated by the Board at any time.
CERTAINRELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Exceptfor employment arrangements which are described under “Executive Compensation,” and certain related party loans, which aredescribed in the “Management Discussion and Analysis of Financial Condition and Results of Operations” since January 1, 2020,there has not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceedsthe lesser of $120,000 or 1% of the average of the total assets at December 31, 2021 and 2020, and any of our directors, executive officers,holders of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct or indirectmaterial interest.
Review,Approval or Ratification of Transactions with Related Persons
Dueto the small size of our Company, we do not at this time have a formal written policy regarding the review of related party transactionsand rely on our full Board of Directors to review, approve or ratify such transactions and identify and prevent conflicts of interest.Our Board of Directors reviews any such transaction in light of the particular affiliation and interest of any involved director, officeror other employee or stockholder and, if applicable, any such person’s affiliates or immediate family members. Management aimsto present transactions to our Board of Directors for approval before they are entered into or, if that is not possible, for ratificationafter the transaction has occurred. If our Board of Directors finds that a conflict of interest exists, then it will determine the appropriateaction or remedial action, if any. Our Board of Directors approves or ratifies a transaction if it determines that the transaction isconsistent with our best interests and the best interest of our stockholders.
Asof the closing of this offering, our Board of Directors will consist of five members, consisting of Timothy Triplett, Akinobu Yorihiro,Greg Campbell, Brett Hoge, and Dottie Pepper. Our Board of Directors undertook a review of the composition of our Board of Directorsand the independence of each director. Based upon information requested from and provided by each director concerning their background,employment and affiliations, including family relationships, our Board of Directors has determined that Ms. Pepper, Mr. Hoge and Dr.Campbell qualify as “independent” as that term is defined by NASDAQ Listing Rule 5605(a) (2).
Thefollowing table sets forth certain information regarding beneficial ownership of our common stock as of the date of this prospectus by(i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%) of the outstanding shares of ourcommon stock, (ii) each director and executive officer, and (iii) all of our directors, executive officers and director nominees as agroup.
Exceptas otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stockowned by them, except to the extent that power may be shared with a spouse.
Percentageownership of our common stock before this offering is based on 11,250,000 shares of common stock outstanding as of June 30, 2022.Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities.For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of commonstock that such person currently owns or has the right to acquire within 60 days of the date of this prospectus. With respect to optionsand warrants, this would include options and warrants that are currently exercisable within 60 days. With respect to convertible securities,this would include securities that are currently convertible within 60 days.
Exceptas indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power withrespect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders.Unless otherwise indicated, the address for each director and executive officer listed is: c/o Sacks Parente Golf, Inc., 551 Calle SanPablo, Camarillo, CA 93012.
DESCRIPTIONOF CAPITAL STOCK
Uponcompletion of this offering, our authorized capital stock will consist of 45,000,000 shares of common stock, par value $0.01 per shareand 5,000,000 shares of preferred stock, par value $0.01 per share.
Asof March 31, 2022, there were 30 holders of record of our common stock, 11,250,000 shares of common stock issued and outstanding and0 shares of preferred stock issued and outstanding.
Thefollowing description of our capital stock and provisions of our Certificate of Incorporation and Bylaws to be effective upon the completionof this offering is only a summary. You should also refer to our Certificate of Incorporation, a copy of which is filed as an exhibitto the registration statement of which this prospectus is a part, and our Bylaws, a copy of which is filed as an exhibit to the registrationstatement of which this prospectus is a part.
Weare authorized to issue up to a total of 45,000,000 shares of common stock, par value $0.01 per share. Holders of our common stock areentitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our common stock have nocumulative voting rights.
Further,holders of our common stock have no pre-emptive or conversion rights or other subscription rights. Upon our liquidation, dissolutionor winding-up, holders of our common stock are entitled to share in all assets remaining after payment of all liabilities. Holders ofour common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of ourassets which are legally available. Each outstanding share of our common stock is, and all shares of common stock to be issued in thisoffering when they are paid for will be, fully paid and non-assessable.
Theholders of a majority of the shares of our capital stock, represented in person or by proxy, are necessary to constitute a quorum forthe transaction of business at any meeting. If a quorum is present, an action by stockholders entitled to vote on a matter is approvedif the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, with the exception ofthe election of directors, which requires a plurality of the votes cast.
OurBoard of Directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferredstock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional, or specialrights as well as the qualifications, limitations, or restrictions of the preferred stock, including dividend rights, conversion rights,voting rights, terms of redemption, and liquidation preferences, any or all of which may be greater than the rights of the common stock.Our board of directors, without stockholder approval, will be able to issue convertible preferred stock with voting, conversion, or otherrights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could be issuedquickly with terms calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, theissuance of preferred stock may have the effect of decreasing the market price of our common stock and may adversely affect the votingand other rights of the holders of common stock. At present, we have no plans to issue any shares of preferred stock following this offering.
Weintend to sell or issue restricted shares of common stock or to grant incentive stock options or non-qualified stock options, stock appreciationrights, and restricted stock unit awards for the purchase of shares of common stock to employees, members of the Board of Directors andunder an equity incentive plan that will be offered in 2022. As of March 31, 2022, there were no compensatory options outstanding topurchase shares of our common stock. All options to our officers, directors and other employees will be issued pursuant to the 2022 EquityIncentive Plan.
Anti-TakeoverProvisions of Delaware Law, our Certificate of Incorporation and our Amended and Restated Bylaws
Weare governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly tradedDelaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the dateof the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribedmanner. A business combination includes mergers, asset sales or other transactions resulting in a financial benefit to the stockholder.An interested stockholder is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or moreof the corporation’s voting stock, subject to certain exceptions. The statute could have the effect of delaying, deferring or preventinga change in control of our Company.
Boardof Directors Vacancies
OurCertificate of Incorporation and Bylaws authorize only our board of directors to fill vacant directorships. In addition, the number ofdirectors constituting our board of directors may be set only by resolution of the majority of the incumbent directors.
StockholderAction; Special Meeting of Stockholders
OurCertificate of Incorporation and Bylaws provide that our stockholders may take action by written consent. Our Certificate of Incorporationand Bylaws further provide that special meetings of our stockholders may be called by a majority of the board of directors, the ChiefExecutive Officer, or the Chairman of the board of directors.
AdvanceNotice Requirements for Stockholder Proposals and Director Nominations
OurBylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for electionas directors at our annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’snotice must be delivered to the secretary at our principal executive offices not later than the close of business on the 90thday nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year’s annualmeeting; provided, however, that in the event the date of the annual meeting is more than 30 days before or more than 60 days after suchanniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder to be timely must be so deliverednot earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of businesson the later of the 90th day prior to such annual meeting or the 10th day following the day on which a public announcementof the date of such meeting is first made by us. These provisions may preclude our stockholders from bringing matters before our annualmeeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Authorizedbut Unissued Shares
Ourauthorized but unissued shares of common stock are available for future issuance without stockholder approval and may be utilized fora variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefitplans. The existence of authorized but unissued and unreserved common stock could render more difficult or discourage an attempt to obtaincontrol of us by means of a proxy contest, tender offer, merger or otherwise. If we issue such shares without stockholder approval andin violation of limitations imposed by The Nasdaq Capital Market or any stock exchange on which our stock may then be trading, our stockcould be delisted.
TransferAgent and Registrar
Thetransfer agent and registrar for our common stock is ____________.
Wehave applied to have our shares of common stock listed for trading on The Nasdaq Capital Market under the symbol “SPGC”
DESCRIPTIONOF SECURITIES WE ARE OFFERING
Weare offering the Shares of our Common Stock at the public offering price of $___ per Share. The material terms and provisions of ourcommon stock are described under the caption “Description of Our Capital Stock” in this prospectus.
MATERIALU.S. FEDERAL INCOME TAX CONSEQUENCES TONON-U.S. HOLDERS OF OUR COMMON STOCK
Thefollowing is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the ownership anddisposition of our common stock but does not purport to be a complete analysis of all the potential tax considerations relating thereto.This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”) Treasuryregulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may bechanged, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. No rulingon the U.S. federal, state, or local tax considerations relevant to our operations or to the purchase, ownership or disposition of ourshares, has been requested from the IRS or other tax authority. No assurance can be given that the IRS would not assert, or that a courtwould not sustain, a position contrary to any of the tax consequences described below.
Thissummary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S.federal gift and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address tax considerationsapplicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, withoutlimitation:
Youare urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation,as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estateor gift tax rules or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Forpurposes of this discussion, you are a non-U.S. holder (other than a partnership) if you are any holder other than:
Inaddition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the taxtreatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnershipsthat hold our common stock, and partners in such partnerships, should consult their tax advisors.
Asdescribed in “Dividend Policy,” we have never declared or paid cash dividends on our common stock and do not anticipate payingany dividends on our common stock in the foreseeable future. However, if we do make distributions on our common stock, those paymentswill constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determinedunder U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings andprofits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and thenwill be treated as gain from the sale of stock as described below under “— Gain on Disposition of Common Stock.”
Subjectto the discussion below on effectively connected income, backup withholding and foreign accounts, any dividend paid to you generallywill be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specifiedby an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS FormW-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of ourcommon stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amountswithheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institutionor other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentationto the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.
Dividendsreceived by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable incometax treaty, attributable to a permanent establishment maintained by you in the U.S.) are generally exempt from such withholding tax.In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying suchexemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicableto U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive thatare effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30%or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicabletax treaties that may provide for different rules.
Gainon Disposition of our Shares
Subjectto the discussion below regarding backup withholding and foreign accounts, you generally will not be required to pay U.S. federal incometax on any gain realized upon the sale or other disposition of our common stock unless:
Webelieve that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussionso assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real propertyrelative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future.Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such commonstock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularlytraded common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for,our common stock.
Ifyou are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the saleunder regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may besubject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you arean individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax (or such lower rate specifiedby an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for theyear (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult any applicableincome tax or other treaties that may provide for different rules.
Ourcommon stock beneficially owned by an individual who is not a citizen or resident of the U.S. (as defined for U.S. federal estate taxpurposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal estate tax purposes,unless an applicable estate tax treaty provides otherwise. The test for whether an individual is a resident of the U.S. for U.S. federalestate tax purposes differs from the test used for U.S. federal income tax purposes. Some individuals, therefore, may be non-U.S. holdersfor U.S. federal income tax purposes, but not for U.S. federal estate tax purposes, and vice versa.
BackupWithholding and Information Reporting
Generally,we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any.A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reportsavailable to tax authorities in your country of residence.
Paymentsof dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding ata current rate of 28% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN,IRS Form W-8BEN-E or another appropriate version of IRS Form W-8.
Backupwithholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will bereduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtainedfrom the IRS, provided that the required information is furnished to the IRS in a timely manner.
ForeignAccount Tax Compliance
TheForeign Account Tax Compliance Act, or FATCA, imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the saleor other disposition of our common stock paid to “foreign financial institutions” (as specially defined under these rules),unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provideto the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equityand debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishesan exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale orother disposition of our common stock paid to a “non-financial foreign entity” (as specially defined for purposes of theserules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S.owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generallyapply to dividends on our common stock, and under current transition rules, are expected to apply with respect to the gross proceedsfrom the sale or other disposition of our common stock on or after January 1, 2020. An intergovernmental agreement between the U.S. andan applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their tax advisorsregarding the possible implications of this legislation on their investment in our common stock.
Eachprospective investor should consult its tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequencesof purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
Inconnection with this offering, we will enter into an underwriting agreement with The Benchmark Company as representative for the underwritersin this offering. Each underwriter named below has severally agreed to purchase from us, on a firm commitment basis, the number of sharesof our common stock set forth opposite its name below, at the public offering price, less the underwriting discount set forth on thecover page of this prospectus.
Theunderwriters are committed to purchase all of the shares offered by us other than those covered by the option to purchase additionalsecurities described below, if they purchase any such securities. The obligations of the underwriters may be terminated upon the occurrenceof certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receiptby the underwriters of officers’ certificates and legal opinions.
TheCompany has agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and tocontribute to payments the underwriters may be required to make in respect thereof.
Theunderwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legalmatters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw,cancel or modify offers to the public and to reject orders in whole or in part.
Thefollowing table shows the public offering price, underwriting discount and proceeds, before expenses, to us.
Theunderwriters propose to offer the shares offered by us to the public at the public offering price per share set forth on the cover ofthis prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concessionof $ per share. If all of the shares offered by us are not sold atthe public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplementto this prospectus.
TheCompany will pay the out-of-pocket accountable expenses of the underwriters in connection with this offering. The underwriting agreement,however, provides that in the event the offering is terminated, any advance expense deposits paid to the underwriters will be returnedto the extent that offering expenses are not actually incurred in accordance with Financial Industry Regulatory Authority (“FINRA”)Rule 5110(g)(4)(A).
TheCompany has agreed to pay the underwriters’ non-accountable expenses allowance equal to 1.0% of the aggregate gross proceeds ofthis offering. The Company has also agreed to pay for a certain amount of the underwriter’s accountable expenses including actualaccountable road show expenses for the offering; prospectus tracking and compliance software for the offering; the reasonable and documentedfees and disbursements of the underwriter’s counsel up to an amount of $125,000; and preparation of commemorative mementos in suchquantities as the underwriter may reasonably request; provided that these actual accountable expenses of the underwriter shall not exceed$150,000 in the aggregate, including the fees and disbursements of the underwriter’s counsel. In addition to the foregoing, theCompany shall be responsible for the costs and expenses of background checks on its senior management and directors in an amount notto exceed $7,500.
TheCompany estimates that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately$750,000.
Theunderwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Pursuantto certain “lock-up” agreements, the Company, its executive officers, directors and holders of more than 5% of the Company’scommon stock and securities exercisable for or convertible into its common stock outstanding immediately upon the closing of this offering,have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of orannounce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, inwhole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securitiesconvertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the priorwritten consent of the underwriters, for a period of twelve (12) months from the date of effectiveness of the offering.
Rightof First Refusal
Wehave granted The Benchmark Company a right of first refusal, for a period of twelve (12) months from the closing of this offering, toact as lead managing underwriter and book runner or minimally as co-lead manager and co-book runner and/or lead or co-lead placementagent at The Benchmark Company’s discretion, for each and every future public and private equity or debt (excluding commercialbank debt) offering, including all equity linked financings, during such twelve (12) month period, of the Company, or any successor toor subsidiary of the Company.
Determinationof Offering Price
Thepublic offering price of the securities we are offering was negotiated between us and the underwriters. Factors considered in determiningthe public offering price of the shares include the history and prospects of the Company, the stage of development of our business, ourbusiness plans for the future and the extent to which they have been implemented, an assessment of our management, general conditionsof the securities markets at the time of the offering and such other factors as were deemed relevant.
ElectronicOffer, Sale and Distribution of Shares
Aprospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offeringand the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocatea number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters thatwill make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the informationon these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectusforms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be reliedupon by investors.
Inconnection with this offering, the underwriters may engage in stabilizing transactions, syndicate-covering transactions, penalty bidsand purchases to cover positions created by short sales.
Thesestabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market priceof the Company’s shares of common stock or preventing or retarding a decline in the market price of its shares of common stock.As a result, the price of the Company’s common stock or warrants in the open market may be higher than it would otherwise be inthe absence of these transactions. Neither the Company nor the underwriters make any representation or prediction as to the effect thatthe transactions described above may have on the price of the Company’s common stock. These transactions may be effected on Nasdaq,in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Inconnection with this offering, the underwriters may engage in passive market making transactions in the Company’s common stockon Nasdaq in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or salesof the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not inexcess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’sbid, then that bid must then be lowered when specified purchase limits are exceeded.
Theunderwriters and their respective affiliates are full service financial institutions engaged in various activities, which may includesecurities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment,hedging, financing and brokerage activities. The underwriters and their affiliates may from time to time in the future engage with usand perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In theordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad arrayof investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (includingbank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involvesecurities and/or instruments of us. The underwriters and their respective affiliates may also make investment recommendations and/orpublish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend toclients that they acquire, long and/or short positions in these securities and instruments.
Wehave agreed to indemnify the several underwriters against certain liabilities, including certain liabilities under the Securities Act.If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make inrespect of those liabilities.
Aprospectus in electronic format may be made available on the internet sites or through other online services maintained by one or moreof the underwriters participating in this offering, or by their affiliates. In those cases, prospective investors may view offering termsonline and, depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwritersmay agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for onlinedistributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format,the information on any underwriter’s website and any information contained in any other website maintained by an underwriter isnot part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsedby us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Theunderwriters and their respective affiliates may, in the future provide various investment banking, commercial banking and other financialservices for the Company and its affiliates for which they have received, and may in the future receive, customary fees. However, exceptas disclosed in this prospectus, the Company has no present arrangements with the underwriters for any further services.
OfferRestrictions Outside the United States
Otherthan in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offeredby this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not beoffered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection withthe offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will resultin compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes areadvised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus inany jurisdiction in which such an offer or a solicitation is unlawful.
Noticeto Prospective Investors in the European Economic Area and the United Kingdom
Inrelation to each Member State of the European Economic Area and the United Kingdom (each a “Relevant State”), no shares havebeen offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectusin relation to the shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved inanother Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation,except that offers of shares may be made to the public in that Relevant State at any time under the following exemptions under the ProspectusRegulation:
providedthat no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the ProspectusRegulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation and each person who initially acquires anyshares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwritersand us that it is a “qualified investor” within the meaning of Article 2(e) of the Prospectus Regulation. In the case ofany shares being offered to a financial intermediary as that term is used in the Prospectus Regulation, each such financial intermediarywill be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionarybasis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give riseto an offer of any shares to the public other than their offer or resale in a Relevant State to qualified investors as so defined orin circumstances in which the prior consent of the underwriters have been obtained to each such proposed offer or resale.
Forthe purposes of this provision, the expression an “offer to the public” in relation to shares in any Relevant State meansthe communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so asto enable an investor to decide to purchase or subscribe for any shares, and the expression “Prospectus Regulation” meansRegulation (EU) 2017/1129.
Noticeto Prospective Investors in the United Kingdom
Inaddition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently mademay only be directed at persons who are “qualified investors” (as defined in the Prospectus Regulation) (i) who have professionalexperience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (FinancialPromotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwisebe lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevantpersons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares inthe United Kingdom within the meaning of the Financial Services and Markets Act 2000.
Anyperson in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or useit as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may bemade or taken exclusively by relevant persons.
Noticeto Prospective Investors in Switzerland
Theshares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (the “SIX”) or on anyother stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaningof and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the SwissCode of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rulesof any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing materialrelating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neitherthis document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filedwith or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares willnot be supervised by, the Swiss Financial Market Supervisory Authority FINMA (the “FINMA”), and the offer of shares has notbeen and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the “CISA”). The investor protectionafforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Noticeto Prospective Investors in France
Thisprospectus (including any amendment, supplement or replacement thereto) is not being distributed in the context of a public offeringin France within the meaning of Article L. 411-1 of the French Monetary and Financial Code (Code monétaire et financier). Thisprospectus has not been and will not be submitted to the French Autorité des marchés financiers (the “AMF”)for approval in France and accordingly may not and will not be distributed to the public in France.
Pursuantto Article 211-3 of the AMF General Regulation, French residents are hereby informed that: