Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 and in this Quarterly Report.

Executive Summary

During the three and nine months ended September 30, 2026, several factors influenced the Company's operations and financial position, including:

● New product introduction. The Company introduced the Fast Motion fairway wood shaft and hybrid shafts at the 2026 PGA Show, which are expected to launch commercially during the first quarter of 2027.

● Capital raising activities. On March 16, 2026, the Company entered into the Purchase Agreement providing for the issuance, in one or more closings, of convertible notes with an aggregate principal amount of up to $2.0 million, together with warrants to purchase shares of the Company's common stock at an exercise price of $1.75 per share, subject to adjustment. On May 28, 2026, the Company's Board of Directors approved an amendment increasing the maximum aggregate principal amount of convertible notes available under the Purchase Agreement to $3.0 million.

During the nine months ended September 30, 2026, the Company issued an aggregate principal amount of $2.25 million of convertible notes pursuant to the Purchase Agreement. The convertible notes bore interest at 10% per annum, matured 18 months from issuance, and were convertible, together with accrued interest, into shares of the Company's common stock at a conversion price of $1.60 per share at maturity. In connection with these issuances, the Company also issued five-year warrants to purchase an aggregate of 225,000 shares of common stock at an exercise price of $1.75 per share. Net proceeds from these financings were used for working capital and general corporate purposes (see Notes 11 and 12).

On July 1, 2026, the Company entered into a $5.0 million senior secured revolving line of credit, which matures on July 1, 2028 and bears interest at Daily Simple SOFR plus 13%. The Company has drawn $1.0 million against the revolver and maintains the ability to draw an additional $4.0 million.

On July 6, 2026, the Company completed the exchange of approximately $2.3 million of outstanding Convertible notes, including accrued interest, for 24,092 shares of Series A Preferred Stock.

On August 14, 2026, the Company entered into a Securities Purchase Agreement for a private placement of common stock. The agreement provides for an initial tranche and one or more additional tranches, with an aggregate purchase price of up to $5,000,000. The initial tranche closed on August 14, 2026. The Company issued 751,878 shares at $1.33 per share for gross proceeds of $1,000,000. An additional tranche closed on September 15, 2026, and the Company issued 215,079 shares at $1.26 per share for gross proceeds of $271,000. In total, the Company issued 966,957 shares for aggregate gross proceeds of $1,271,000 and net proceeds of $1,196,000 after fees.

Subsequent to September 30, 2026, the Company sold 1,344,871 shares of common stock under its ATM program for net proceeds of approximately $1.4 million; closed private placement financings for 967,739 shares at a purchase price of $1.24 per share for aggregate net proceeds of approximately $1.2 million; and issued 5,000 shares of Series A Preferred Stock for gross proceeds of $500,000. The Company also converted $1.0 million of outstanding principal under its revolving line of credit into 211,693 shares of common stock and 7,875 shares of Series A Preferred Stock, including a 5% premium as an inducement to convert. The ATM sales, private placements and preferred stock issuance provided cash proceeds. The conversion did not provide cash proceeds; it reduced outstanding indebtedness and increased stockholders' equity.

● Pole Canyon Project Option. On September 23, 2026, the Company entered into an Assignment and Assumption Agreement with Spartan Crest and Cannon Bridge, pursuant to which Spartan Crest irrevocably assigned to the Company all of its rights and obligations under that certain Option Agreement, dated as of August 1, 2026, between Cannon Bridge and Spartan Crest, including the exclusive option to acquire a 100% ownership interest in the Pole Canyon Project, consisting of 16 unpatented lode mining claims (MW 1 through MW 16) totaling 330 acres, located in White Pine County, Nevada. As of September 30, 2026, the option had not been exercised, and title of the claims had not transferred to the Company.

In exchange for the Option Agreement assignment, the Company issued 1,135,891 shares of common stock to Spartan Crest's designees. The shares had an aggregate fair value of $1,301,000, based on the closing price of the Company's common stock on the date of issuance. The Company also capitalized $8,000 of legal costs directly related to the acquisition.

The Company assumed $165,000 of remaining cash option payments under the Option Agreement and recognized that amount as a liability. The cash payments are payable in installments over 24 months from the date of the Option Agreement (see Note 6). Upon payment of the remaining cash amounts and delivery of the required share consideration, Cannon Bridge will convey 100% of its rights, title and interest in the claims to the Company, subject to a 2.0% net smelter return royalty on minerals and mineral products produced and sold from the property. Accordingly, the Company recorded the mineral property option at a total cost of $1,474,000 and accounted for the transaction as an asset acquisition.

The Pole Canyon Project is a strategic, non-operating asset. The Company's current operating forecasts do not include project production, revenue, or cash flows and do not assume material exploration or development spending. Any additional project investment would be evaluated separately by management.

● Manufacturing transition activities. In conjunction with the manufacturing transition undertaken during the spring of 2026, the Company introduced updated versions of its Fast Motion driver shaft and Motion driver and fairway shafts. The updated products, referred to as the Company's "2.0" shafts and differentiated by green product logos, incorporate refinements to the Company's manufacturing techniques, equipment utilization, bend profiles, product specifications and production tolerances.

The 2.0 shafts were designed to provide more consistent performance characteristics, tighter ball-flight dispersion, improved continuity between driver and fairway shaft specifications and a broader fitting profile across different player types. The Company believes these refinements also provide greater manufacturing consistency and tighter production tolerances. The updated shafts have experienced strong initial adoption among professional players using Newton Golf products on various professional tours, including significant conversion from prior-generation shafts to the 2.0 products and recent adoption of the updated Motion fairway wood shaft by multiple players on the PGA TOUR Champions.

As part of this transition, the Company implemented updates to certain shaft manufacturing recipes and related production processes, including recalibration of machining operations, modifications to finishing workflows, changes to paint mixtures, and maintenance activities designed to improve product quality, production consistency, and manufacturing scalability.

The Company also experienced temporary carbon fiber supply constraints, which, together with the manufacturing transition activities, reduced production throughput and delayed the fulfillment of certain customer orders. As a result, the Company temporarily moderated its marketing activities to better align demand with available manufacturing capacity and avoid generating demand beyond its ability to fulfill customer orders on a timely basis.

In July 2026, the Company secured additional carbon fiber supply from Toray Japan, while availability from Toray U.S. improved. As manufacturing capacity and raw material availability improved, the Company began selectively resuming marketing initiatives in August 2026 and increasing production of its updated 2.0 shaft products. Marketing activity remains below historical levels as the Company transitions to a new marketing agency and has not yet fully ramped paid media expenditures.

Marketing Strategy. During the quarter, the Company evaluated its direct-to-consumer strategy and implemented changes intended to improve the efficiency and effectiveness of its customer acquisition efforts. The Company engaged a new marketing agency to oversee its direct-to-consumer business, refine its brand messaging, diversify customer acquisition channels and broaden awareness of its proprietary shaft technology among golfers.

Sales and marketing expenses decreased by approximately $0.8 million and $1.8 million during the three and nine months ended September 30, 2026, respectively, compared with the corresponding prior-year periods. Lower sales during the first six months reflected the manufacturing transition and periods of constrained raw material availability, which limited the Company's available production capacity. During that period, the Company moderated marketing expenditures to align customer demand with available production capacity. In the third quarter, the Company continued to manage marketing expenditures with a greater focus on maintaining a healthier return on advertising spend ("ROAS") and improving customer acquisition efficiency. With manufacturing throughput improving and additional carbon fiber supply secured, the Company has resumed its marketing initiatives while maintaining a disciplined focus on ROAS. The Company has observed improvement in ROAS as these initiatives have resumed.

As part of its review, management found that the Company offered 11 sitewide promotional periods in 2025, and 73% of orders were placed using a discount. Management believes that reducing reliance on frequent discounting creates an opportunity to strengthen the Company's premium brand positioning, build brand equity and support wholesale growth, which is important to expanding market share and profitability. Going forward, the Company expects to limit sitewide promotions to key events, such as Black Friday, or to selected products, and to focus on rewarding larger purchases, for example, by offering discounts when customers add a second shaft to their purchase.

The Company increased the Motion driver shaft's price to align it with Fast Motion. Management believes the products provide comparable performance and have similar manufacturing costs but are designed for golfers with different swing characteristics. Management also believes the prior price difference may have led some customers to view the higher-priced Fast Motion shaft as superior, rather than as a different option for a different swing. The Company also increased the Motion fairway shaft's price to align with the Motion driver. The revised price reflects the shaft's unique design and management's belief that the Company is the only company offering a dedicated fairway shaft; the prior price had been based more heavily on manufacturing cost.

Bundling opportunities are expected to expand with the introduction of Fast Motion fairway and hybrid shafts across the Fast Motion and Motion categories, supported by planned website updates to enable product bundling. These actions are intended to support the Company's premium brand positioning, help golfers select shafts that better match their swings and improve their performance and enjoyment of the game, while supporting gross-margin improvement. Management is beginning to see results from these initiatives and expects to provide additional performance metrics in the fourth quarter of 2026.

Company Overview

We design, manufacture, and sell performance golf equipment, including premium golf shafts and putters, and focus on developing technology-driven golf products intended to enhance player performance.

We sell our products through direct-to-consumer channels, including our websites, as well as through resellers, professional club fitters, distributors, and golf retailers. We currently distribute products primarily in the United States, with additional distribution in international markets including Japan and South Korea.

Management continues to focus on expanding distribution through professional club fitters, retail partners, and international distributors.

Newton Motion Shafts

Products

The Newton Motion™ shaft platform continues to represent the Company's primary product category and the principal driver of revenue during the nine months ended September 30, 2026.

During the second quarter of 2026, the Company introduced updated versions of its Fast Motion driver shaft and Motion driver and fairway shafts. These updated "2.0" products incorporate refinements to shaft design, manufacturing techniques, bend profiles, product specifications and production tolerances, and are differentiated from prior-generation products by green product logos.

The Company also introduced the Fast Motion fairway wood shaft and hybrid shafts at the 2026 PGA Show, which are expected to launch commercially during the first quarter of 2027.

Newton Gravity Putters

The Company also offers a line of putters under the Newton Gravity brand.

Key Factors Affecting Our Performance

Seasonality and General Trends in Golf Participation

Golf equipment sales are generally seasonal, with demand typically increasing during the spring and summer months when golf activity is highest in many regions. As a result, the Company historically experiences stronger sales during the second and third quarters when weather conditions are more favorable for outdoor play. Conversely, sales may be lower during the first and fourth quarters when cold weather in certain regions reduces outdoor golf activity.

Future participation trends and consumer demand remain subject to economic conditions and other factors beyond the Company's control.

Manufacturing Transition Activities

During the three and nine months ended September 30, 2026, the Company implemented updates to certain existing shaft recipes and related production processes, including recalibration of machining operations, modifications to finishing workflows, changes to paint mixtures, and maintenance activities intended to improve product quality, production consistency, and manufacturing scalability. These activities were undertaken in conjunction with the introduction of updated versions of the Company's Fast Motion driver shaft and Motion driver and fairway shafts. During the same period, the Company also experienced temporary constraints in the availability of carbon fiber, which further limited manufacturing capacity. Together, the manufacturing changes and supply constraints temporarily reduced production throughput and delayed the fulfillment of certain customer orders.

In accordance with the Company's accounting policies, approximately $704,000 of idle manufacturing costs during the nine months ended September 30, 2026 were recognized as period costs and classified within research and development and general and administrative expenses rather than capitalized into inventory or included in cost of sales.

In response to these manufacturing and supply constraints, the Company moderated its marketing activities to align customer demand with available production capacity, reduce its order backlog, and avoid generating demand beyond its ability to fulfill customer orders on a timely basis. In July, the Company secured additional carbon fiber supply from Toray Japan, while supply availability from Toray U.S. improved. As manufacturing capacity and raw material availability improved, the Company began selectively resuming marketing initiatives. The Company has observed encouraging initial results from these resumed marketing activities; however, overall marketing activity remains below historical levels as the Company transitions to a new marketing agency and has not yet fully ramped paid media expenditures. The Company intends to increase marketing activity in a measured manner as production capacity and material availability support higher demand and timely order fulfillment.

Management believes that the manufacturing improvements and updated shaft versions have had a positive impact on the Company's relationships with OEM partners, which continue to progress. The Company also believes its marketing strategy, which emphasizes brand building and a shift away from frequent sitewide discounts, has helped open discussions with prospective retail partners. The Company is now negotiating potential commercial arrangements with certain key prospective retail partners.

Public Company Costs

Since listing our common stock on The Nasdaq Capital Market in August 2023, we have incurred additional expenses associated with operating as a public company. These costs include compliance with SEC reporting requirements, internal control compliance, director and officer liability insurance, board compensation, and increased accounting, legal, and audit fees.

These costs are expected to continue as long as the Company remains a publicly traded company.

Impact of Inflation

Inflation has resulted in moderate increases in the cost of certain raw materials and component parts used in the manufacture of our products. If inflationary pressures persist, our manufacturing costs may increase and could adversely affect gross margins unless we are able to offset these increases through pricing adjustments, cost reductions, or operational efficiencies.

During the three and nine months ended September 30, 2026, the Company did not implement any pricing changes in response to inflationary pressures.

Results of Operations

Three months ended September 30, 2026 as compared to the three months ended September 30, 2025

The following is a comparison of our results of operations for the three months ended September 30, 2026 and 2025 (amounts rounded to the nearest thousand):

		Three months ended September 30, 2026				Three months ended September 30, 2025				Change
Net Sales		$	1,368,000			$	2,582,000			$	(1,214,000	)
Cost of goods sold			548,000				848,000				(300,000	)
Gross profit			820,000				1,734,000				(914,000	)
Operating expenses:
Selling, general and administrative			1,954,000				3,056,000				(1,102,000	)
Research and development			198,000				182,000				16,000
Total operating expenses			2,152,000				3,238,000				(1,086,000	)
Loss from operations			(1,332,000	)			(1,504,000	)			172,000
Interest (expense) income, net			(93,000	)			20,000				(113,000	)
Amortization of deferred financing costs			(20,000	)			-				(20,000	)
Loss on extinguishment of debt			(96,000	)			-				(96,000	)
Change in fair value of warrant liabilities			302,000				(96,000	)			398,000
Net Loss		$	(1,239,000	)		$	(1,580,000	)		$	341,000

Net Sales

Net sales decreased $1.2 million, or 47%, to $1.4 million during the three months ended September 30, 2026, compared with $2.6 million during the same period in 2025. The Company believes the decline primarily reflected reduced marketing activity during the transition to a new marketing agency. Marketing spending was limited in June and July, and although marketing activity resumed in August, the reduced activity affected customer acquisition during the quarter. The Company also began shifting away from frequent sitewide discounts toward more selective promotions, offers designed to encourage larger purchases, and pricing aligned with its product positioning. The Company has continued to sell its 2.0 shafts but has not yet launched a dedicated marketing campaign for them. It is developing product-specific marketing assets and a coordinated go-to-market strategy, with the campaign expected to begin in November.

The manufacturing facility operated under normal manufacturing processes during the third quarter of 2026. For the first time in its history, the Company began building inventory in advance of customer orders. Historically, limited product availability has made it difficult for the Company to meet demand and fulfill orders promptly. The Company is taking steps to build inventory and improve fulfillment, with the goal of shipping products within two days of receiving an order. Management is beginning to see results from these initiatives and expects to provide additional performance metrics in the fourth quarter.

Cost of goods sold

Cost of goods sold consists primarily of materials, labor, components, and changes in inventory reserves for slow-moving or potentially obsolete products.

Cost of goods sold decreased approximately $0.3 million, or 35%, to approximately $0.5 million for the three months ended September 30, 2026, compared with approximately $0.8 million for the three months ended September 30, 2025. The decrease primarily reflected lower sales and order volumes during the third quarter of 2026.

Gross margin decreased to 59.9% for the three months ended September 30, 2026, compared to 67.2% for the three months ended September 30, 2025. The lower sales volume meant that assembly and pick, pack and shipping labor costs represented a larger percentage of revenue. The Company maintained its workforce and labor hours during the quarter, so these costs did not decline in proportion to sales.

Operating expenses

Operating expenses include selling, general and administrative expenses, and research and development costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of employee compensation and benefits, legal and professional fees, sales and marketing expenses, stock-based compensation, public company compliance costs, shipping costs, Shopify transaction fees, rent, depreciation, and other general operating expenses.

Selling, general and administrative expenses decreased approximately $1.1 million to $2.0 million for the three months ended September 30, 2026, compared with $3.1 million for the three months ended September 30, 2025. The decrease was primarily attributable to approximately $0.8 million of lower sales and marketing costs, $0.2 million of lower labor costs, and $0.1 million of lower public company costs. The lower labor costs primarily reflected the Company's decision not to fill the permanent Chief Executive Officer and Vice President of Marketing positions, with related responsibilities handled by existing management and personnel.

Research and Development Expenses

Research and development costs include employee costs, consultants, licensing fees, and product design and development costs.

Research and development expenses increased by $16,000, or 9%, to $198,000 for the three months ended September 30, 2026, compared with $182,000 for the three months ended September 30, 2025. The increase was primarily attributed to the development of new products utilizing Japanese Toray fiber.

Loss from operations

Loss from operations decreased approximately $0.2 million, or 11%, to $1.3 million for the three months ended September 30, 2026, compared with $1.5 million for the three months ended September 30, 2025. The improvement primarily reflected a $1.1 million decrease in selling, general and administrative expenses, including $0.8 million of lower sales and marketing costs and $0.2 million of lower labor costs, partially offset by a 53% decrease in gross profit and a $16,000 increase in research and development expenses. Accordingly, operating loss improved despite the significant decline in gross profit, reflecting the effect of the Company's lower operating expense base.

As discussed above, sales were affected by limited marketing activity during the transition to a new marketing agency, including very low marketing spending in June and July. Marketing activity resumed in August, while the Company shifted toward more selective promotions, offers designed to encourage larger purchases, and pricing aligned with its product positioning. The Company has continued selling its 2.0 shafts while developing marketing assets and a go-to-market strategy for their first dedicated marketing campaign, which is expected to begin in November. The manufacturing facility operated under normal manufacturing processes during the quarter, and the Company began building inventory for the first time in its history to improve product availability and fulfillment. The Company's goal is to ship products within two days of receiving an order. Management believes that the lower operating expense base, together with more targeted marketing, will provide greater operating leverage as sales increase, enabling the Company to reduce operating losses more rapidly and ultimately achieve profitability at lower sales volumes than under its prior cost structure.

Interest income (expense), net

Interest expense, net, was $0.1 million for the three months ended September 30, 2026, compared with net interest income of $0.02 million for the three months ended September 30, 2025. The change primarily reflected lower interest income earned on cash balances and interest associated with the Series A Preferred Stock issued in July 2026, together with interest accrued on the convertible notes through their exchange in July 2026.

Amortization of deferred financing costs

Amortization of deferred financing costs was $0.02 million for the three months ended September 30, 2026, compared to $0 for the three months ended September 30, 2025, reflecting the amortization of financing costs associated with the revolving line of credit established in July 2026.

Loss on extinguishment of debt

Loss on extinguishment of debt was $0.1 million for the three months ended September 30, 2026, compared with $0 for the same period in 2025. The loss primarily reflected the 5% premium provided as an inducement in connection with the July exchange of convertible notes for Series A Preferred Stock.

Change in Fair Value of Warrant Liability

The Company recognized a non-cash gain of approximately $0.3 million from the change in the fair value of its warrant liabilities. The net gain consisted primarily of an approximately $0.4 million gain resulting from a decrease in the fair value of the Series A Warrant liability, partially offset by an approximately $0.1 million loss resulting from an increase in the fair value of the Series B Warrant liability.

Net loss

Net loss decreased approximately $0.3 million to $1.2 million for the three months ended September 30, 2026, compared with $1.6 million for the same period in 2025. The decrease primarily reflected a $0.3 million noncash gain from the change in fair value of warrant liabilities and the $0.2 million improvement in loss from operations, partially offset by higher interest expense, deferred financing cost amortization, and a loss on extinguishment of debt.

Nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025

The following is a comparison of our results of operations for the nine months ended September 30, 2026 and 2025 (amounts are rounded to the nearest thousand):

		Nine months ended September 30, 2026				Nine months ended September 30, 2025				Change
Net Sales		$	3,675,000			$	5,860,000			$	(2,185,000	)
Cost of goods sold			1,316,000				1,875,000				(559,000	)
Gross profit			2,359,000				3,985,000				(1,626,000	)
Operating expenses:
Selling, general and administrative			6,952,000				8,360,000				(1,408,000	)
Research and development			894,000				607,000				287,000
Total operating expenses			7,846,000				8,967,000				(1,121,000	)
Loss from operations			(5,487,000	)			(4,982,000	)			(505,000	)
Interest (expense) income, net			(138,000	)			94,000				(232,000	)
Amortization of debt discount			(37,000	)			-				(37,000	)
Amortization of deferred financing costs			(20,000	)			-				(20,000	)
Loss on disposal of asset			(16,000	)			-				(16,000	)
Loss on extinguishment of debt			(96,000	)			-				(96,000	)
Change in fair value of warrant liabilities			(382,000	)			1,263,000				(1,645,000	)
Net Loss		$	(6,176,000	)		$	(3,625,000	)		$	(2,551,000	)

Net Sales

Net sales decreased approximately $2.2 million, or 37%, to approximately $3.7 million for the nine months ended September 30, 2026, compared with $5.9 million for the nine months ended September 30, 2025. The decline reflected different factors during the first six months and the third quarter.

During the first six months, lower sales primarily reflected the manufacturing transition and temporary constraints in carbon fiber availability. Updates to shaft recipes and production processes, together with those supply constraints, reduced production throughput and delayed certain customer orders. The Company moderated marketing expenditures during this period to align customer demand with available production capacity.

Third-quarter net sales decreased $1.2 million, or 47%, to $1.3 million, compared with $2.5 million in the prior-year quarter. The manufacturing facility operated under normal manufacturing processes during the quarter. Management believes the sales decline primarily reflected limited marketing activity during the transition to a new marketing agency: spending was very low in June and July, and marketing efforts resumed in August. The Company also began shifting from frequent sitewide discounts toward more selective promotions, offers that encourage larger purchases, and pricing aligned with product positioning. Although the Company continued selling its 2.0 shafts, it had not yet launched a dedicated marketing campaign for them while developing product-specific marketing assets and a coordinated go-to-market strategy. That campaign is expected to begin in November.

Cost of goods sold

Cost of goods sold consists primarily of materials, labor, components, and changes in inventory reserves for slow-moving or potentially obsolete products.

Cost of goods sold decreased approximately $0.6 million, or 30%, to approximately $1.3 million for the nine months ended September 30, 2026, compared with approximately $1.9 million for the same period in 2025. The decrease primarily reflected lower sales volumes. During the first six months, the manufacturing transition and temporary carbon fiber constraints reduced production throughput and delayed certain customer shipments. During the third quarter, the facility operated under normal manufacturing processes, while sales and order volumes were lower amid limited marketing activity during the transition to a new agency and changes to the Company's promotional strategy.

Gross margin decreased to 64% for the nine months ended September 30, 2026, compared with 68% for the same period in 2025. The decrease primarily reflected manufacturing inefficiencies and idle manufacturing capacity during the first six months as the Company transitioned production processes and experienced constraints in carbon fiber availability. In the third quarter, gross margin decreased to 59.9% from 67.2%. Although the manufacturing facility operated under normal manufacturing processes, lower sales volume and the Company's decision to maintain its workforce and labor hours caused assembly and pick, pack and shipping labor costs to represent a larger percentage of revenue.

Operating expenses

Operating expenses include selling, general and administrative expenses, and research and development costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of employee compensation and benefits, legal and professional fees, sales and marketing expenses, stock-based compensation, public company compliance costs, shipping costs, Shopify transaction fees, rent, depreciation, and other general operating expenses.

Selling, general and administrative expenses decreased $1.4 million, or 17%, to $7.0 million for the nine months ended September 30, 2026, compared to approximately $8.4 million for the nine months ended September 30, 2025. The decrease was primarily attributable to a reduction of approximately $1.8 million in sales and marketing expenses, partially offset by approximately $0.5 million of idle manufacturing costs classified as operating expenses due to reduced production throughput and resulting idle capacity, approximately $0.2 million of increased stock-based compensation expense, and a $0.1 million increase in professional services.

Research and Development Expenses

Research and development costs include employee costs, consultants, licensing fees, and product design and development costs.

Research and development expenses increased $0.3 million, or 47%, to $0.9 million for the nine months ended September 30, 2026, compared to $0.6 million for the nine months ended September 30, 2025. The increase was primarily attributable to $0.2 million of manufacturing labor reclassified to research and development to reflect work performed on product and manufacturing process improvements.

Loss from operations

Loss from operations increased approximately $0.5 million to $5.5 million for the nine months ended September 30, 2026, compared with $5.0 million for the same period in 2025. The increase primarily reflected lower sales during the first six months as the Company transitioned manufacturing processes and experienced temporary carbon fiber constraints, reducing production throughput and contributing to idle manufacturing capacity. Higher stock-based compensation and research and development costs also contributed. These factors were partially offset by lower sales and marketing expenses.

For the three months ended September 30, 2026, loss from operations decreased approximately $0.2 million, or 11%, to $1.3 million, compared with $1.5 million for the same period in 2025. This improvement primarily reflected lower operating expenses, which more than offset the decrease in gross profit, as discussed above.

Management believes the lower operating expense base, together with more targeted marketing, will provide greater operating leverage as sales increase, enabling the Company to reduce operating losses more rapidly and ultimately achieve profitability at lower sales volumes than under its prior cost structure.

Interest income (expense), net

Interest expense, net, was $0.1 million for the nine months ended September 30, 2026, compared with net interest income of $0.1 million for the nine months ended September 30, 2025. The change primarily reflected lower interest income earned on cash balances in 2025 versus interest associated with the convertible notes and the Series A Preferred Stock issued in July 2026 as an exchange for the convertible notes issued in the first half of 2026.

Amortization of debt discount

Amortization of debt discount was $0.04 million for the nine months ended September 30, 2026, compared to $0 for the nine months ended September 30, 2025, reflecting the amortization of debt discounts related to Convertible Notes issued during the first half of 2026.

Amortization of deferred financing costs

Amortization of deferred financing costs was $0.02 million for the nine months ended September 30, 2026, compared to $0 for the nine months ended September 30, 2025, reflecting the amortization of financing costs associated with the revolving line of credit established in July 2026.

Loss on extinguishment of debt

Loss on extinguishment of debt was $0.1 million for the nine months ended September 30, 2026, compared with $0 for the same period in 2025. The loss primarily reflected the 5% premium provided as an inducement in connection with the July exchange of convertible notes for Series A Preferred Stock.

Change in Fair Value of Warrant Liability

The Company recognized a non-cash loss of approximately $0.4 million from the change in the fair value of its warrant liabilities for the nine months ended September 30, 2026, compared with a non-cash gain of approximately $1.4 million for the nine months ended September 30, 2025. The current-period loss primarily consisted of an approximately $0.4 million loss resulting from an increase in the fair value of the Series A Warrant liability, partially offset by an approximately $0.1 million gain resulting from a decrease in the fair value of the Series B Warrant liability. The prior-year period gain consisted of a $1.4 million decrease in the fair value of the Series A Warrants, partially offset by a $0.1 million increase in the fair value of the Series B Warrants.

Net loss

Net loss increased by $2.6 million to $6.2 million for the nine months ended September 30, 2026, compared to a $3.6 million net loss for the nine months ended September 30, 2025. The increase primarily reflected a $0.5 million increase in loss from operations and a $1.7 million unfavorable change in the fair value of warrant liabilities, from a $1.3 million gain in the prior-year period to a $0.4 million loss in the current year period. The Company also recognized interest expense, amortization of debt discount and deferred financing costs, and a loss on extinguishment of debt in the current period.

Liquidity and Capital Resources

The Company's primary sources of liquidity include cash on hand and proceeds from external financing. The Company's primary uses of cash include operating expenses, inventory purchases, manufacturing investments, and marketing initiatives to support growth.

On October 24, 2025, the Company entered into an At-The-Market Sales Offering Agreement (the "ATM Offering Agreement") with Kingswood Capital Partners, LLC ("Kingswood"), which allows the Company to sell up to $10.0 million of its common stock from time to time pursuant to its effective shelf registration statement on Form S-3. The ATM program provides the Company with a source of potential liquidity, and the Company intends to utilize the program opportunistically, subject to market conditions, trading volume, and capital requirements. As of September 30, 2026, the Company had not sold any shares under the ATM program. In October 2026, the Company sold 1,344,871 shares under the ATM program and received net proceeds of approximately $1.4 million.

On March 16, 2026, the Company entered into the Purchase Agreement providing for the issuance, in one or more closings, of convertible notes with an aggregate principal amount of up to $2.0 million, together with warrants to purchase shares of the Company's common stock at an exercise price of $1.75 per share, subject to adjustment. On May 28, 2026, the Company's Board of Directors approved an amendment increasing the maximum aggregate principal amount available under the Purchase Agreement to $3.0 million.

During the nine months ended September 30, 2026, the Company issued an aggregate principal amount of $2.25 million of convertible notes pursuant to the Purchase Agreement. The convertible notes bore interest at 10% per annum, matured 18 months from issuance, and were convertible, together with accrued interest, into shares of the Company's common stock at a conversion price of $1.60 per share at maturity. In connection with these issuances, the Company also issued five-year warrants to purchase an aggregate of 225,000 shares of common stock at an exercise price of $1.75 per share. Net proceeds from these financings were used for working capital and general corporate purposes (see Notes 11 and 12).

During the nine months ended September 30, 2026 the Company completed the exchange of approximately $2.3 million of outstanding convertible notes, including accrued interest, for Series A Preferred Stock. These transactions reduced outstanding indebtedness and increased stockholders' equity. The exchange did not provide cash proceeds (see Notes 11, 12, and 17).

During the nine months ended September 30, 2026, the Company entered into a $5.0 million senior secured revolving line of credit, which matures on July 1, 2028 and bears interest at Daily Simple SOFR plus 13%. As of September 30, 2026 the Company had drawn $1.0 million of principal. On November 6, 2026, the Company converted the $1.0 million outstanding principal into 211,693 shares of common stock and 7,875 shares of Series A Preferred Stock with a 5% premium as an inducement to convert. This conversion was a noncash transaction and did not provide additional cash proceeds.

During the nine months ended September 30, 2026, the Company completed multiple private placement financings at an average purchase price of $1.31 per share for aggregate gross proceeds of approximately $1.3 million and net proceeds of approximately $1.2 million. Subsequent to September 30, 2026, the Company closed multiple private placement financings at a purchase price of $1.24 per share for aggregate net proceeds of approximately $1.2 million.

Subsequent to September 30, 2026 the Company issued 5,000 shares of Series A Convertible Preferred Stock for gross proceeds totaling $500,000.

The Company expects that additional capital will be required to fund operations and execute its growth strategy. Management intends to evaluate financing alternatives, including the ATM program and other potential debt or equity financings, to meet its capital requirements while seeking to manage dilution to existing stockholders.

The Company's future capital requirements will depend on numerous factors, including the pace of revenue growth, if any, manufacturing utilization, inventory requirements, and the level of investment in marketing and operational initiatives. Management may also adjust the timing and level of certain discretionary expenditures based on operating performance and available liquidity.

The Company is also evaluating additional actions to strengthen its balance sheet and stockholders' equity in connection with regaining and maintaining compliance with applicable Nasdaq continued listing requirements.

The following table summarizes our cash flows for the periods indicated (amounts are rounded to the nearest thousand):

		Nine Months Ended September 30,
		2026				2025
Net cash provided by (used in):
Operating activities		$	(4,730,000	)		$	(4,101,000	)
Investing activities			(180,000	)			(384,000	)
Financing activities			4,125,000				(616,000	)
Net decrease in cash		$	(785,000	)		$	(5,101,000	)

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2026 was $4.7 million, compared to $4.1 million for the nine months ended September 30, 2025. Operating cash outflows during the period included employee-related costs associated with personnel expansion and investments in operational systems intended to support scalability. Operating cash flows were also affected by reduced manufacturing capacity associated with the Company's manufacturing transition and temporary carbon fiber supply constraints. Cash used in operating activities was partially offset by an approximately $0.5 million increase in accounts payable and accrued liabilities, reflecting the timing of payments to vendors and the accrual of operating expenses.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2026 totaled $0.2 million, primarily related to purchases of property and equipment supporting the Company's manufacturing operations.

Net cash used in investing activities for the nine months ended September 30, 2025 totaled $0.3 million, also related primarily to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $4.1 million for the nine months ended September 30, 2026, compared with net cash used in financing activities of $0.6 million for the same period in 2025. Financing cash flows in 2026 primarily consisted of approximately $2.2 million of net proceeds from Convertible Note issuances, $1.2 million of net proceeds from common stock sales, and $0.8 million of net proceeds from borrowings under the revolving credit facility.

Separately, the exchange of approximately $2.3 million of Convertible Notes for Series A Convertible Preferred Stock did not provide cash proceeds but reduced outstanding debt and increased stockholders' equity. The revolving credit facility and ATM program provide potential additional sources of liquidity.

Nasdaq Continued Listing Requirements

On April 6, 2026, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") indicating that the Company was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires listed companies to maintain a minimum of $2.5 million in stockholders' equity. The notice had no immediate effect on the listing of the Company's common stock on Nasdaq.

The Company submitted a plan to regain compliance by the May 21, 2026, deadline. After the Company filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2026, Nasdaq requested an update regarding the Company's compliance plan. The Company provided the requested update, and on October 6, 2026, received a letter from Nasdaq notifying the Company that, because the Company had not completed the remedial actions described in its plan to regain compliance, Nasdaq has determined that the Company has not demonstrated compliance with the Stockholders' Equity Requirement. The Company requested a hearing before the Panel, which is scheduled for November 12, 2026.

In connection with its efforts to strengthen its balance sheet, the Company issued Convertible Notes with an aggregate principal amount of $2.25 million during the nine months ended September 30, 2026, and borrowed $1.0 million under its $5.0 million revolving credit facility, receiving net proceeds of approximately $836,000 after fees. During that period, the Company also completed private placement financings for gross proceeds of approximately $1.3 million and net proceeds of approximately $1.2 million. In addition, $2.3 million of outstanding Convertible Notes, including accrued interest, was exchanged for Series A Convertible Preferred Stock. Subsequent to September 30, 2026, the Company received net proceeds of approximately $1.4 million from ATM sales, net proceeds of approximately $1.2 million from private placement financings, and gross proceeds of $500,000 from an issuance of Series A Convertible Preferred Stock. Separately, $1.0 million of borrowings under the revolving credit facility was converted into equity securities. The note exchange and debt conversion did not provide cash proceeds.

Based on transactions completed as of November 9, 2026, management estimates that the Company's stockholders' equity was approximately $5.2 million, which is above the $2.5 million minimum required by the Stockholders' Equity Requirement. This is the Company's estimate and has not been confirmed by Nasdaq. The Company has requested that the Panel grant an exception under Rule 5815(c)(1)(A) through April 4, 2027 to complete its compliance plan or, in the alternative, find the Company in compliance under Rule 5815(c)(1)(E). The hearing is scheduled for November 12, 2026, and the Panel has not yet issued a decision. The Panel may grant a limited exception or find a company in compliance under Rule 5815(c)(1).

Although management believes the financing and other actions described above improve the Company's ability to remain listed on Nasdaq and continue as a going concern, there can be no assurance that the Company will be able to maintain the listing of its common stock on Nasdaq, and additional capital will be required to support ongoing operations, as discussed below under "Going Concern."

Going Concern

The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed financial statements, for the nine months ended September 30, 2026, the Company incurred a net loss of $6.2 million and used $4.7 million of cash in operating activities. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these condensed financial statements are issued. In addition, the Company's independent registered public accounting firm included an explanatory paragraph in its report on the Company's financial statements for the year ended December 31, 2025, expressing substantial doubt about the Company's ability to continue as a going concern.

During the nine months ended September 30, 2026, the Company entered into a $5.0 million senior secured revolving line of credit and borrowed $1.0 million. The Company received net proceeds of approximately $836,000 after fees. The facility matures on July 1, 2028 and bears interest at Daily Simple SOFR plus 13%. During the same period, holders exchanged approximately $2.3 million of outstanding convertible notes, including accrued interest, for Series A Preferred Stock. The exchange reduced outstanding indebtedness and increased stockholders' equity but did not provide cash proceeds.

Subsequent to September 30, 2026, the Company received net proceeds of approximately $1.4 million from sales under its ATM program and approximately $1.2 million from private placement financings. The Company also received gross proceeds of $500,000 from an issuance of Series A Preferred Stock. On November 6, 2026, the Company converted $1.0 million of borrowings under the revolving line of credit into common and preferred stock, with a 5% premium as an inducement to convert. The conversion reduced outstanding indebtedness and increased stockholders' equity but did not provide additional cash proceeds.

Management expects that its existing cash resources and completed financing activities will fund operations for only a limited period from the date the accompanying condensed financial statements are issued. Accordingly, additional financing will be required to support ongoing operations, and management intends to continue evaluating financing alternatives, including potential equity financings and use of the at-the-market ("ATM") program. There can be no assurance that additional financing will be available on acceptable terms, or at all. Any additional financing may contain restrictive covenants, require the issuance of additional equity securities and dilute existing stockholders, or otherwise adversely affect the Company. The Company's ability to continue as a going concern is dependent upon its ability to obtain additional debt or equity financing and achieve improved operating performance.

Inflation and Supply Chain

The Company's manufacturing operations utilize raw materials such as carbon fiber, metals, coatings, and other specialized components. Inflationary pressures have continued to affect the cost of certain raw materials, freight, and labor; however, the Company has sought to mitigate these impacts through supplier diversification, operational efficiencies, and product pricing strategies.

During the nine months ended September 30, 2026, the Company experienced temporary constraints in the availability of carbon fiber, which, together with ongoing manufacturing process improvements, reduced production throughput and delayed the shipment of certain customer orders. As of September 30, 2026, the Company has secured additional carbon fiber supply and believes these constraints have been substantially alleviated.

Because the Company manufactures a significant portion of its shaft products domestically at its facility in St. Joseph, Missouri, management believes the Company benefits from greater operational control and reduced exposure to certain international supply chain disruptions and tariffs compared to companies that rely more heavily on overseas manufacturing.

At present, inflation has not had a material adverse effect on the Company's financial condition or results of operations. However, sustained increases in raw material, freight, or labor costs, or future disruptions in the availability of key manufacturing inputs, could adversely affect the Company's cost structure, production capacity, and operating margins in future periods.

Off-Balance Sheet Arrangements

At September 30, 2026 and December 31, 2025, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, financial condition, and liquidity are based upon our financial statements, which have been prepared and audited in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these condensed financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders' equity (deficiency), revenues, and expenses, as well as the related disclosures of contingent assets and liabilities.

Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is inherent in the financial reporting process, actual results could differ materially from those estimates.

Management evaluates its estimates on an ongoing basis and adjusts those estimates when facts and circumstances change. Management believes the following accounting policies involve the most significant judgments and estimates used in the preparation of the Company's financial statements.

Revenue Recognition

We account for revenue recognition in accordance with Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers."

The amount of revenue we recognize is based on the amount of consideration we expect to receive from customers. The amount of consideration is the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as sales programs, sales promotions and price concessions that we offer, as described further below. These estimates are based on amounts earned or expected to be claimed by customers on the related sales, and are therefore recorded to the respective net revenue, trade accounts receivable, and sales program liability accounts.

We may offer short-term sales incentives, which include sell-through promotions and price concessions or price reductions. Sell-through promotions are generally offered throughout a product's life cycle, which varies from two to three years but could be shorter or longer. Price concessions or price reductions are generally offered at the end of the product's life cycle. The estimated variable consideration related to these potential programs will be based on a rate that includes historical and forecasted data. We may record a reduction to net revenues using this rate at the time of the sale. We will monitor this rate against actual results and forecasted estimates and adjusts the rate as necessary in order to reflect the amount of consideration we expect to receive from our customers.

We also may record an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable in the period that the related sales are recorded. The cost recovery of inventory associated with this reserve will be accounted for in other current assets. Sales returns will be estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. We also may offer certain customers sales programs that would allow for specific returns. We may record a return reserve for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program.

Stock-Based Compensation

The Company periodically grants restricted stock units ("RSUs") and stock options to employees, directors, and consultants as compensation for services. The Company accounts for these awards in accordance with ASC 718, Compensation-Stock Compensation, whereby the fair value of the award is measured on the grant date and recognized as compensation expense on a straight-line basis over the vesting period. Stock-based compensation expense is recorded within the Company's condensed statements of operations based on the nature of the services rendered. The fair value of RSUs is determined based on the fair market value of the Company's common stock on the grant date. RSUs generally vest based on continued service over a specified vesting period. Compensation expense for time-based RSU awards is recognized on a straight-line basis over the requisite service period. The Company may grant RSU awards in the future that include performance-based vesting conditions tied to operational or financial milestones. For such awards, compensation expense would be recognized when it becomes probable that the performance condition will be achieved. The Company recognizes forfeitures as they occur.

The fair value of stock option awards is estimated on the grant date using the Black-Scholes option-pricing model, which requires management to make assumptions regarding the expected term of the award, expected volatility of the Company's common stock, risk-free interest rate, and expected dividend yield.

The expected term of stock options granted to employees is determined using the "simplified method" for awards that qualify as plain-vanilla options. The expected term of stock options granted to non-employees is generally based on the contractual term of the award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant for time periods approximately equal to the expected term of the award. The expected dividend yield is zero, based on the fact that the Company has never paid dividends and does not currently expect to pay dividends in the foreseeable future.

Warrant Accounting

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an evaluation of the specific terms of the warrants and the applicable guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.

This evaluation includes determining whether the warrants are freestanding financial instruments, whether they meet the definition of a liability under ASC 480, and whether they satisfy the criteria for equity classification under ASC 815. In particular, the Company assesses whether the warrants are indexed to the Company's own stock and whether the terms of the warrants could require net cash settlement in circumstances outside the Company's control, among other conditions required for equity classification.

This assessment requires the use of professional judgment and is performed at the time of warrant issuance and reassessed at each reporting period while the warrants remain outstanding.

Warrants that are classified as liabilities are recorded at fair value upon issuance and remeasured at fair value at each reporting date, with changes in fair value recognized in the Company's condensed statements of operations. Warrants that qualify for equity classification are recorded within additional paid-in capital and are not subsequently remeasured.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to Condensed Financial Statements for a discussion of recent accounting pronouncements.