8-K: Newton Golf Secures $2M Convertible Note, Warrants

Newton Golf Company, Inc. announced a securities purchase agreement to issue up to $2 million in convertible notes and warrants, with an initial $500,000 tranche purchased by director-affiliated entities.

Summary

• Newton Golf Company, Inc. entered into a Securities Purchase Agreement on March 16, 2026, to issue unsecured promissory notes (Convertible Notes) and common stock warrants (Warrants) for an aggregate funded amount of up to $2,000,000.
• The first closing occurred on March 16, 2026, where the company issued a Convertible Note with a principal amount of $500,000 and a Warrant to purchase 50,000 shares of common stock.
• The purchasers of these securities are entities affiliated with and controlled by Brett Hoge, a director of the company.
• The Convertible Notes mature 18 months from issuance and accrue interest at an annual rate of 10%, paid in kind (PIK Interest).
• The Convertible Notes are convertible into common stock at the option of the purchasers at a conversion price of $1.60 per share.
• The company has the option for forced conversion if its common stock closes at or above $3.00 per share for 10 consecutive trading days.
• The Warrants are initially exercisable at $1.75 per share and expire five years from the date of issuance.
• The company agreed to include the Conversion Shares and Warrant Shares in a piggyback registration statement, using commercially reasonable efforts to make it effective for public resale.
• The transaction was structured to comply with Nasdaq Listing Rule 5635(c) regarding the issuance of securities to directors without requiring stockholder approval.
• Beneficial ownership limitations are set at 9.99% of outstanding common stock, with an option for the holder to increase it to 19.99% (effective 61 days after notice), requiring stockholder approval for waiver above 19.99%.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a necessary capital raise that provides immediate liquidity but comes with relatively high costs (10% PIK interest, 20% default rate) and potential future dilution. The related-party nature of the initial funding suggests challenges in securing more favorable, arm's-length financing.

Positives

• Secured an initial $500,000 in cash proceeds, providing immediate capital for operations or strategic initiatives.
• The agreement allows for potential additional funding up to an aggregate of $2,000,000, offering future liquidity.
• The participation of a company director's affiliated entities may signal confidence in the company's future prospects, albeit with related-party considerations.
• The company retains the option for forced conversion of notes if the stock price reaches $3.00 for 10 consecutive trading days, potentially reducing debt obligations.

Negatives

• The Convertible Notes carry a high annual interest rate of 10%, paid in kind, which will increase the principal balance and future repayment obligations.
• The 20.0% per annum default interest rate is substantial, indicating significant penalties if the company fails to meet its obligations.
• The issuance of convertible notes and warrants introduces potential dilution for existing shareholders upon conversion or exercise.
• The transaction involves related parties (entities affiliated with a company director), which can raise corporate governance concerns regarding arm's-length terms and potential conflicts of interest.
• The notes are unsecured, placing them at a lower priority than secured debt in the event of liquidation.

Risks

• **Dilution Risk:** Future conversion of Convertible Notes and exercise of Warrants will increase the number of outstanding common shares, potentially diluting the ownership percentage and earnings per share of existing shareholders.
• **Market Price Volatility:** The company's ability to force conversion of the notes is dependent on its common stock closing at or above $3.00 for 10 consecutive trading days, exposing the company to market price fluctuations.
• **Default Risk:** Failure to pay principal or interest, or to perform material covenants, triggers an event of default, leading to immediate acceleration of all principal and unpaid accrued interest at a 20.0% default interest rate.
• **Beneficial Ownership Limitations:** Holders are limited to 9.99% beneficial ownership (or 19.99% with notice and delay), which could restrict a single holder's ability to fully convert or exercise their securities if they approach these thresholds.
• **Non-Registration of Securities:** The initial issuance of the Convertible Notes and Warrants was made in a private placement exempt from registration, meaning these securities are restricted from immediate public resale without registration or an applicable exemption.

Future Outlook

The company may sell additional Convertible Notes and corresponding Warrants in subsequent closings, up to an aggregate amount of $2,000,000, under the same terms and conditions. The company also plans to use commercially reasonable efforts to file and make effective a piggyback registration statement for the resale of the Conversion Shares and Warrant Shares.

Management Comments

• Jeff Clayborne, Chief Financial Officer, signed the Form of Warrant and Form of Convertible Note on behalf of Newton Golf Company, Inc., indicating the company's commitment to the terms of these securities.
• Greg Campbell, Executive Chairman and Chief Executive Officer, signed the 8-K filing, affirming the company's entry into the material definitive agreement.

Industry Context

StockSavvy.ai notes that companies, particularly those in growth phases or with limited access to traditional bank financing, often utilize convertible debt and warrants as a means of raising capital. This structure allows for immediate funding while deferring equity dilution, and the warrants provide an additional incentive for investors. The golf industry, like many consumer discretionary sectors, can be sensitive to economic cycles, making flexible financing options attractive.

Comparison to Industry Standards

• Convertible notes with warrants are a common financing tool for smaller, growth-oriented companies, especially those that may not qualify for traditional bank loans or wish to preserve cash by offering PIK interest.
• The 10% PIK interest rate on the Convertible Notes is on the higher end for corporate debt, suggesting a higher perceived risk profile for Newton Golf Company, Inc. or challenging market conditions for securing capital compared to more established, lower-risk entities.
• The 20% default interest rate is significantly high, reflecting a strong disincentive for default and potentially indicating the company's limited bargaining power in securing this financing.
• The involvement of a director's affiliated entities as purchasers, while not uncommon in private placements for smaller companies, deviates from standard arm's-length transactions and often warrants closer scrutiny by investors regarding the fairness of terms compared to what independent investors might demand.

Corporate Governance

Related Party Transactions

• The initial $500,000 Convertible Note and accompanying Warrant were purchased by entities affiliated with and controlled by Brett Hoge, a director of Newton Golf Company, Inc.

Stakeholder Impact

• **Shareholders:** Potential for dilution from the conversion of notes and exercise of warrants. The high interest rate on the notes could impact future profitability.
• **Creditors:** The Convertible Notes are unsecured, ranking them below any secured debt. The 20% default interest rate could exacerbate financial distress in a default scenario.
• **Company Management:** The capital infusion provides necessary liquidity, but the terms reflect a challenging financing environment, placing pressure on management to improve financial performance and stock price.

Next Steps

• The company may conduct additional closings to sell more Convertible Notes and Warrants, up to the $2,000,000 aggregate amount.
• The company will use commercially reasonable efforts to file one or more registration statements to allow for the public resale of the Conversion Shares and Warrant Shares.
• Holders of Convertible Notes may elect to convert their notes into common stock on or during the 60 days prior to the Maturity Date (August 2027, approximate).
• The company may elect to force conversion of the notes if its common stock trades at or above $3.00 for 10 consecutive trading days.

Key Dates

Recommendation

The capital raise provides essential liquidity for Newton Golf Company, Inc., which is a positive for its immediate operational stability. However, the terms of the financing, including a 10% PIK interest rate and a 20% default rate, are quite onerous and suggest the company faced challenges in securing more favorable, arm's-length funding. The involvement of a director's affiliated entities as purchasers, while providing necessary capital, raises questions about the company's broader access to capital markets and potential future dilution. A seasoned investor would likely 'hold' to observe how this capital is deployed, whether the company can improve its financial health to secure better terms in the future, and how the market reacts to the potential dilution and related-party nature of the transaction.

Keywords

Convertible Notes, Warrants, Capital Raise, Private Placement, Debt Financing, Equity Dilution, Related Party Transaction, SEC Filing, Newton Golf Company