As
filed with the Securities and Exchange Commission on January 26, 2024.
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Signing
Day Sports, Inc.
(Exact
name of registrant as specified in its charter)
Delaware |
|
7389 |
|
87-2792157 |
(State
or other jurisdiction of
incorporation or organization) |
|
(Primary
Standard Industrial
Classification Code Number) |
|
(I.R.S.
Employer
Identification Number) |
8355
East Hartford Rd., Suite 100
Scottsdale,
AZ 85255
(480)
220-6814
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Daniel
D. Nelson, Chief Executive Officer
8355
East Hartford Rd., Suite 100
Scottsdale,
AZ 85255
(480)
220-6814
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Louis A. Bevilacqua, Esq.
Bevilacqua PLLC
1050 Connecticut Avenue,
NW, Suite 500
Washington, DC 20036
(202) 869-0888
Approximate
date of commencement of proposed sale to the public: As soon as practicable after the date this registration statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
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.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
|
|
Emerging growth company |
☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to such Section 8(a), may determine.
Signing
Day Sports, Inc.
Up
to 4,661,102 Shares of Common Stock
This prospectus relates to the offer and resale
of up to 4,661,102 shares of our common stock, $0.0001 par value per share (“common stock”), by Tumim Stone Capital
LLC (“Tumim” or the “Selling Stockholder”).
The
shares of common stock that may be offered and resold pursuant to this prospectus have been and may be issued by us to Tumim
pursuant to the common stock purchase agreement, dated as of January 5, 2024 (the “Closing Date”), that we entered into with
Tumim (the “Purchase Agreement”), consisting of:
| ● | up
to 4,000,000 shares of common stock (the “Purchase Shares”) that we may, in our sole discretion, issue and sell to Tumim,
from time to time after the date of this prospectus, upon the terms and subject to the conditions and limitations set forth in the Purchase
Agreement, and |
| ● | 661,102 shares of common
stock (the “Commitment Shares” and together with the Purchase Shares, the “Resale Shares”), valued at
$0.7115 per share (or $470,360.45 in the aggregate), that we issued to Tumim on January 26, 2024 as partial consideration for its
commitment to purchase shares of our common stock from time to time at our direction under the Purchase Agreement. We will not
receive any cash proceeds from the issuance of Commitment Shares to Tumim. |
We
are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of our common stock by Tumim.
However, we may receive up to $25,000,000 in aggregate gross proceeds from sales of our common stock to Tumim that we may make under
the Purchase Agreement, from time to time after the date of this prospectus. The purchase prices to be paid by Tumim for Purchase Shares
that we may elect to sell to Tumim pursuant to the Purchase Agreement will be determined by reference to the volume-weighted average
prices of our common stock at the time of sale, less a fixed percentage discount, calculated in accordance with the Purchase Agreement.
See the sections entitled “Tumim Stone Capital Committed Equity Financing Facility” for a description of the transaction
contemplated by the Purchase Agreement and “Selling Stockholder” for additional information regarding Tumim.
Tumim
may resell the shares of common stock included in this prospectus in a number of different ways and at varying prices. We provide more
information about how Tumim may resell the shares of common stock to which this prospectus relates in the section entitled “Plan
of Distribution”. Tumim is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933,
as amended (the “Securities Act”).
Tumim
will pay all brokerage fees and commissions and similar expenses in connection with the offer and resale of the Resale Shares by Tumim
by means of this prospectus. We will pay the expenses (except brokerage fees and commissions and similar expenses) incurred in registering
under the Securities Act the offer and resale of the Resale Shares included in this prospectus by Tumim, including legal and accounting
fees. See “Plan of Distribution”.
Our shares of common stock are listed on the NYSE American LLC (the
“NYSE American”) under the symbol “SGN.” On January 25, 2024, the last reported sale price of our common stock
on the NYSE American was $0.68 per share.
Unless
otherwise noted, the share and per share information in this prospectus have been adjusted to give effect to the one-for-five (1-for-5)
reverse stock split (the “Reverse Stock Split”) of the outstanding common stock which became effective on April 14, 2023.
See “Corporate History and Structure – Reverse Stock Split”.
We
are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, under applicable U.S. federal
securities laws, and are eligible for reduced public company reporting requirements. See “Prospectus Summary – Implications
of Being an Emerging Growth Company” for more information.
Investing
in our securities is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on
page 17 for a discussion of information that should be considered in connection with an
investment in our securities.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus
is , 2024.
TABLE
OF CONTENTS
You
should rely only on the information contained in this prospectus, any supplement to this prospectus or in any free writing prospectus,
filed with the Securities and Exchange Commission (the “SEC”). Neither we nor the Selling Stockholder have authorized anyone
to provide you with additional information or information different from that contained in this prospectus filed with the SEC. We take
no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The Selling
Stockholder is offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed
since that date.
For
investors outside of the United States: Neither we nor the Selling Stockholder, have done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United
States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions
relating to, the offering of our securities and the distribution of this prospectus outside the United States.
TRADEMARKS,
TRADE NAMES AND SERVICE MARKS
We
use various trademarks, trade names and service marks in our business, including “Signing Day Sports”, “The Hat Before
The Hat” and associated marks. For convenience, we may not include the “℠”, “®” or
“™” status symbols for these marks, but such omission is not meant to indicate that we would not protect
our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to
in this prospectus are the property of their respective owners.
INDUSTRY
AND MARKET DATA
We
are responsible for the information contained in this prospectus. This prospectus includes industry and market data that we obtained
from periodic industry publications, third-party studies and surveys, filings of public companies in our industry and internal company
surveys. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but
that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on historical market
data, and there is no assurance that any of the forecasts or projected amounts will be achieved. Industry and market data could be wrong
because of the method by which sources obtained their data and because information cannot always be verified with complete certainty
due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations
and uncertainties. The market and industry data used in this prospectus involve risks and uncertainties that are subject to change based
on various factors, including the COVID-19 pandemic and those discussed in the section titled “Risk Factors”. These
and other factors could cause results to differ materially from those expressed in, or implied by, the estimates made by independent
parties and by us. Furthermore, we cannot assure you that a third party using different methods to assemble, analyze or compute industry
and market data would obtain the same results.
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all
of the information that you should consider before deciding whether to invest in common stock. You should carefully read the entire prospectus,
including the risks associated with an investment in our company discussed in the “Risk Factors” section of this prospectus,
before making an investment decision. Some of the statements in this prospectus are forward-looking statements. See the section titled
“Cautionary Statement Regarding Forward-Looking Statements.”
In
this prospectus, unless the context indicates otherwise, “we,” “us,” “our,” “Signing Day Sports,”
“the Company,” “our company” and similar references refer to the consolidated operations of Signing Day Sports,
Inc., a Delaware corporation.
Unless
otherwise noted, the share and per share information in this prospectus reflects the Reverse Stock Split ratio of 1-for-5 as
if it had occurred at the beginning of the earliest period presented.
Our
Company
Overview
We
are a technology company developing and operating a platform aiming to give significantly more student-athletes the opportunity to go
to college and continue playing sports. Our platform, Signing Day Sports, is a digital ecosystem to help athletes get discovered and
recruited by coaches and recruiters across the country. We fully support football, baseball, softball, and men’s and women’s
soccer, and we plan to expand the Signing Day Sports platform to include additional sports. Each sport is led by former professional
athletes and coaches who know what it takes to get to the big leagues.
Signing
Day Sports launched in 2019, and as of September 2023, many high schools, sports clubs, and aspiring high school athletes have subscribed
to the Signing Day Sports platform. Colleges in the National Collegiate Athletic Association (NCAA) Division I, Division II, and Division
III, and the National Association of Intercollegiate Athletics (NAIA), have utilized our platform for recruitment purposes. Signing Day
Sports initially supported football athletes, and now also offers a platform for baseball, softball, and men’s and women’s
soccer, resulting in even more recruiter and athlete platform participants.
We
founded Signing Day Sports to reinvent the high school and college sports recruiting process for the digital era. When we started the
Company, recruiting was still being done largely as it had been done since before the mass availability of Internet-connected devices
and was still limited by that model. We believe that we identified the flaws in the recruiting process and the unique opportunity it
presented for us to become a solution provider in the industry. We developed and operated our platform with the objective of optimizing
and enhancing the sports recruitment process across all sizes of colleges and athletic departments.
Our
ability to leverage modern technologies to bring coaches and athletes together in a mutually beneficial ecosystem has shown significant
benefits for both sides of the student-athlete recruitment process. Parents and athletes can use the platform to understand and provide
what recruiters want to see, seek and gain offers of better athletic scholarships or other financial aid packages, and maximize the potential
of an athlete’s career. Recruiters now have a comprehensive recruitment application that shows video verification of key attribute
data and gives the recruiter the ability to narrow down their search with a highly optimized search engine and athlete screening process.
In
short, we offer a comprehensive solution that services the needs of all participants in the sports recruitment process. We are aware
of no other platform that offers what our platform does. Our goal is to change the way sports recruitment is done for the betterment
of everyone.
Our
Historical Performance
The
Company’s current and former independent registered public accounting firms have expressed substantial doubt as to the Company’s
ability to continue as a going concern. We have incurred losses for each period from our inception and a significant accumulated deficit.
For the nine months ended September 30, 2023 and 2022, our net loss was approximately $2.676 million and $4.723 million, respectively,
and our net cash used in operating activities was approximately $1.497 million and $4.545 million, respectively. As of September 30,
2023, December 31, 2022, we had cumulative losses of approximately $20.8 million and $18.1 million, respectively. For the fiscal years
ended December 31, 2022 and 2021, our net loss was approximately $6.7 million and $8.8 million, respectively, our cash used in operating
activities was approximately $4.9 million and $5.7 million, respectively, and we had cumulative losses of approximately $18.1 million
and $11.5 million, respectively. We expect to incur expenses and operating losses over the next several years. We plan to finance our
operations primarily using proceeds from our recent initial public offering in November 2023, the use of our committed equity financing
facility, and other capital raises until our transition to profitable operations, at which point we plan to finance operations primarily
from profits. These plans, if successful, will mitigate the factors which raise substantial doubt
about the Company’s ability to continue as a going concern. However, there can also be no assurance that our financial
resources will be sufficient to remain in operation or that necessary financing will be available on satisfactory terms, if at all. There
can also be no assurance that we will succeed in generating sufficient revenues to continue our operations as a going concern.
For
further discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources – Going Concern”.
A
Problem Worth Solving
The
sports recruitment industry has a number of problems. Frequently, the best athletes in the world get overlooked because of a lack of
exposure, promotion, and experience. The dominance of the top athletic programs reduces opportunities for talented student-athletes.
Many student-athletes who do not know how to effectively promote themselves will get pushed down ranking sheets. Signing Day Sports has
built an application to bring equal opportunity to all student-athletes looking to be recruited at every level.
We
believe that our technology can help level the playing field for both student-athletes and recruiters. Any student-athlete can promote
and demonstrate their talent to all of the recruiters on our platform. On the other side, every recruiter who uses the platform can access
the same rich level of data that can be provided by our platform’s student-athletes.
We
believe our technology will help move sports recruitment toward a truly fair experience for all parties involved.
Our
Solution
Signing
Day Sports is a platform in the form of an app available on Apple’s App Store and Google Play for student-athletes and desktops
for coaches and recruiters. We believe Signing Day Sports is the first comprehensive sports recruitment platform. The platform interface
is designed to be optimized for each participant in the sports recruitment process. The three-tiered technology platform serves student-athletes
and their parents, high school and sports club coaches, and college and professional recruiters and scouts.
Student-athletes
can upload key information and verified data that is critical in the recruitment process. The data fields in our player platform include
the following: Video-verified measurables (such as height, weight, 40-yard dash, wingspan, hand size), academic information (such as
official transcripts and SAT/ACT scores), and technical skill videos (such as drills and mechanics that exemplify player mechanics, coordination,
and development).
College
coaches, team managers and other recruiters can load in all athletes on their respective teams, sports clubs or programs. They can use
the platform to communicate directly with athletes, track their progress in the weight room and training field, and manage other aspects
of their athletes. Additionally, the platform serves as an important tool for recruitment and development. In particular, college coaches
can manage their entire recruitment process through our platform. Our platform provides college coaches an optimized organizational system,
communication tools, and verified data to make informed decisions and save program costs. Athletes and parents can use the platform to
communicate with their coaches and managers as well as track individual performance and key metrics that are valuable to recruiters.
The platform was built by athletes and recruiters for athletes and recruiters, and we believe it truly represents the future of sports
recruitment.
Our
Competitive Strengths
We
believe our key competitive strengths include:
| ● | Massive
Low-Cost Access to Recruiters. Recruiting events, camps, games and showcases such as those hosted by Next College Student Athlete,
Gridiron Elite and Perfect Game strive to match high-level high school athletes for in-person competition. Attendees sometimes travel
interstate to attend these events and typically pay an attendance fee as well. These events are typically costly to recruits’ families
and present a number of practical challenges for recruits. Our app evens the playing field by allowing an athlete to get in front
of numerous recruiters without any travel or significant costs. |
| ● | More
Objective and Fair Player Evaluations. Our platform fills a niche in the current competitive landscape by allowing recruits
to put their best foot forward by submitting only their best interviews, verified athletic/academic measurables, verified drill footage,
and actual game film. Recruiters can then better assess their prospects than in traditional in-person recruitment events where
chance events can throw off even the best athletes’ performances. |
| ● | Better
Athlete Comparison Tools. Other digital sports recruitment apps such as Hudl do not allow coaches to evaluate prospects’
drill performances frame-by-frame, side-by-side. Additionally, these platforms do not have verified statistics within individual recruiting
profiles. Our tool offers these and a number of other unique features that recruiters and their prospects find exceptionally valuable. |
| ● | Designed
for Coaches and Recruiters. Through our verified measurables, “Film Room,” “Big Board”, “Interview”
and recruiter-athlete messaging features, our app’s coach/recruiter platform allows college coaches and recruiters to drive the
recruitment process. At their desktops, recruiters can easily access and request verifiable information from thousands of athletes across
the nation. After players submit their video-verified uploads, verified academics, and supplemental data like responses to interview
questions, coaches can make well-informed decisions. Our in-app messaging allows coaches to communicate directly with prospective recruits.
All of our app’s features are designed to produce an efficient, comprehensive and intuitive process for accessing, comparing, ranking
and recruiting athletes by user coaches and recruiters. |
| ● | Designed
for Players and Parents. Our app’s player-facing mobile platform easily allows players to submit video-verified information,
verified academic information, responses to interview questions, and other data, and be seen by hundreds of college coaches and recruiters.
In the comfort of their own home or a nearby field, players can upload all the information coaches need to make a well-informed decision. |
| ● | Educational
Tools for Players and Parents. Signing Day Sports supports athletes and parents through the entirety of the recruiting process
in three ways. First, our former college coaches, athletes, and player personnel directors are readily available through the Signing
Day Sports app, website, and personal social media accounts. They support and communicate regularly with athletes to assist them throughout
the recruiting process. The second way is The Wire, Signing Day Sports’ official blog. We regularly post educational and
informative blog entries that consist of interviews, player features, in-depth dives into specific recruiting processes and events, and
other relevant subjects. Thousands of visitors read The Wire’s entries every month to stay up to date regarding the most
recent recruiting news and updates. The third way is called “Signing Day Sports University” or “SDS University”.
SDS University is a Zendesk-based customer-facing knowledge base and is composed of short, educational videos. Athletes, parents, and
coaches can learn about our app, the collegiate recruiting process from beginning to end, and more through the SDS University video catalog.
Topics range from NIL, the transfer portal, and eligibility to more specific app tutorials like uploading videos or sharing the athlete’s
profile link. SDS University helps leverage our internal knowledge to communicate more efficiently and with more people. |
| ● | Senior
Soccer Advisor. Our recent appointment of Kevin Grogan as Senior Soccer Advisor, marks a significant event for Signing Day Sports
in the realm of soccer recruitment. Mr. Grogan’s distinguished background as a former professional soccer player, seasoned coach,
and knowledgeable sports business consultant adds considerable depth and expertise to our team. His combination of direct on-field experience
and sharp business acumen, coupled with his thorough understanding of soccer’s athletic and business dimensions, positions him
to lead the enhancement of our platform’s impact on the sport. We believe this represents a clear demonstration of our commitment
to achieving excellence in collegiate sports recruitment, and are confident that Mr. Grogan’s insights will bolster our ability
to provide unparalleled recruitment services and support to young athletes. This commitment aligns with our goal to capitalize on the
global appeal of soccer, creating new opportunities for emerging talent and establishing our position as a leader in the college recruitment
sector. |
Our
Growth Strategies
The
key elements of our strategy to grow our business include:
| ● | Completion
and Development of Support for New Sports. Our app has offered full support for football
and baseball on our platform since before 2023. More recently, our official platform support
for softball launched in February 2023, and our men’s and women’s soccer platform
support launched in May 2023. We plan to continue to develop support and additional features
for all of the sports on our platform. |
| ● | Increase
Profitability through Multiple Revenue Streams. Our app has offered full support for football and baseball since before 2023.
Our app’s official support for softball launched in February 2023, and our men’s and women’s soccer official support
launched in May 2023. We plan to continue to develop our platform with additional features for all supported sports. Signing Day Sports
expects increased profitability as we launch support for additional sports. We expect that a growing subscriber base will allow us to
increase subscription margin, increase subscriber lifetime value, and increase monthly and annual renewal profits. An increase in profitability
from a greater subscription base and support for multiple sports can in turn support our branding, marketing, and operational spend. |
| ● | Investment
in our Platform. We will continue to invest in our technology and infrastructure
to improve our product and ability to present best-in-class technology in the recruitment
space, with planned features such as player recommendations for coaches based on their specific
requirements and preferences. We hired key employees and retained an onshore technology and
development agency, Midwestern Interactive, LLC, or Midwestern, for product launches in baseball,
softball, and soccer, in addition to continually improving the features and performance of
our platform. Additionally, we are recruiting a high-quality offshore team to improve the
efficiency and quality of our platform. We have also prioritized internal hires of engineers
and developers to launch new features and sports platform support, while ensuring product
stability and effectiveness. |
| ● | Launch
New Products and Expand Features. Over time, we will continue to launch new products
and features to meet market demand. We will prioritize both the needs of college coaches
and recruiters across the nation and the athletes seeking to be recruited in major sports
verticals. Some of the planned features include: |
| ● | Public
Player Profile. By allowing athletes and their parents to share a public version
of the athlete’s profile, we can ensure that the ultimate power of recruiting is in
the athlete’s hands. We expect that the public version may be shared with coaches,
other athletes and on social media and will contain all of the athlete’s data, including
videos. The profile will be available to anyone, including recruiters and others that
are not Signing Day Sports users. Additionally, our profile tracking is being designed to
allow players to see who has viewed their profile and may be interested in recruiting them. |
| ● | Social
Community of Student-Athletes. Signing Day Sports plans to introduce social features
on the platform. We expect these features will help athletes share and exchange videos, information,
and bragging rights, and enhance the users’ sense of community. With a robust integration
of LinkedIn and Facebook, athletes will be able to follow other athletes, see their profiles
and videos in a feed, favorite other athletes, and exchange workout tips on our platform
forums. Athletes will also be able to compete against one another for bragging rights
on the leaderboard, complete tasks for badges, and take part in Signing Day Sports community
challenges. These social features are expected to engage athletes with the Signing
Day Sports app more holistically through these social connections. |
| ● | Upcoming
AI features. The Company has implemented and, in some cases, expects to implement
the following artificial intelligence (AI) features over the next several months: |
| ● | Lead
scraping AI technology to enhance customer identification and acquisition through personalized
outreach based on metrics determined by experts; |
| ● | AI
matchmaking for student-athletes to find the right fit based on criteria set by an institution; |
| ● | Integration
of existing AI video-capturing hardware to streamline video upload and highlight tape creation; |
| ● | Use
of AI technology to confirm and enhance visual biometrics of uploaded videos that will expand
on data currently available through the platform; |
| ● | Standards
assessed by AI and creation of grades/evaluations of tasks being completed based on metrics
set by experts; and |
| ● | Integration
of AI chatbots that encourage student-athletes to spend more time on the app, including personalized
nutritional plans, fitness plans, general recruiting education, and more. |
| ● | Retail Products and Services. We plan to extend the user experience of our platform through
the introduction of new products and services. This expansion is expected to include retail items, with planned upcoming launches of branded
apparel, nutritional supplements, and other related products and services. |
| ● | Release
of My Invites. With the first iterative release of our platform’s My Invites
feature, coaches can drive player subscriptions and engagement by uploading unlimited lists
of athletes and inviting them to our platform with as few as two mouse clicks. Our
system analyzes the submitted data and tracks whether an athlete deleted their email, opened
it or signed up for a subscription. With this functionality, coaches can play a key
role in the recruitment process by getting prospective athletes to not only join the platform
but encourage them to upload verified information like transcripts, drill videos, and height
and weight. This data upload from the coaches is simple, streamlined and provides them
with key information to make data-informed decisions, communicate with prospects and even
make offers and build their virtual team. |
| ● | Expand
Sports Club Support. Prominent youth sports organizations in the United States are
involved in many different sports including soccer, baseball, softball, lacrosse, basketball,
and track and field. Sports clubs are often more competitive than high school athletic programs,
and club players often demonstrate a commitment to continue playing sports at the next level.
As we expand our platform to other sports, we will prioritize support for youth club sports
organizations. Our support will be the expansion of a sales team to directly work with club
coaches and organizations. We expect that club teams and organizations will embed our platform
fees into their annual fees so that they can offer enhanced recruitment support for players
and their parents, while providing their coaches with a tool to streamline the recruitment
process. As described below, we have formed a strategic alliance and official sponsorship
with a major sports club organization with Elite Development Program Soccer, or EDP, based
on this model. |
| ● | Grow
and Broaden Brand Awareness. Our brand awareness has developed primarily within our
football vertical, particularly in the Southwestern United States and other areas where football
is a dominant sport. With strategic collaborations with football associations and organizations,
digital, social media, event marketing, and organizational alliances, we expect to grow our
brand throughout the United States. Additionally, as we launch new sports verticals, we will
have many opportunities to increase brand and product awareness through additional markets.
We will broaden our reach through educating players, parents, and coaches through best-in-class
technology and compelling value. |
| ● | Pursue
Strategic Geographies for Product Expansion. With youth sports being played across
the world, we will seek to expand our platform and technology to other countries across the
globe. Through disciplined research, we will seek to expand our product to areas with significant
children’s sport participation, technology adoption, and access to recruiters. We expect
to prioritize the North America markets first, then replicate and introduce products suited
to the local. For example, our app’s support for soccer could provide a significant
solution to inefficiencies in the student-athlete recruitment process in markets like Mexico
and Europe. |
| ● | Digital
Marketing Campaigns |
| ● | Business-to-consumer
(B2C) digital marketing. Through an expanded B2C digital marketing campaign, we will
promote and advertise our products and services to thousands of high-school-aged football
players and parents across the nation. With our planned combination of compelling content,
brand influencers, and a marketing website, we expect significant growth in individual subscriber
growth. In particular, we will prioritize parent-friendly social media platforms such as
Facebook, Twitter, and Instagram, and our campaigns will support and educate parents on the
recruitment process while providing our value proposition through our products, services
and technology. |
| ● | Business-to-business
(B2B) digital marketing. Through an expanded B2B digital marketing campaign, we will
promote and advertise our products and services to high school and sports club coaches, athletic
directors, sports club owners, and their business development teams. |
| ● | Digital
marketing techniques. Our digital marketing campaigns will utilize search engine
optimization, pay per click, digital ads, and other effective techniques to increase team
and organizational subscriptions. |
| ● | Strategic
Alliance, Marketing, Sponsorship, and Collaboration Agreements. Our focus on key
sponsorship and marketing agreements will serve to both increase overall player subscriptions
and marketing. |
| ● | Elite
Development Program Soccer: Under our strategic alliance with Elite Development Program
Soccer, or EDP, one of the largest organizers of youth soccer leagues and tournaments in
the U.S., EDP will offer its athletes promotional one-year subscriptions to our platform,
provide us with customer data, and promote our recruiting platform as its “Exclusive
Recruiting Platform Provider”. We will promote EDP, give access to athlete data, and
consult with EDP to implement and improve our platform’s features for its athletes.
Subscription revenues from EDP referrals will be shared between us. See “Business
– Sales and Marketing – Strategic Alliance, Marketing, Sponsorship, and Collaboration
Agreements” for further information regarding the terms of this agreement. |
| ● | Louisville
Slugger Hitting Science Center: We and Louisville Slugger Hitting Science Center
LLC, or LSHSC, whose mission is to become the gold standard in baseball and fastpitch softball
education and instruction, will collaborate on the joint marketing and promotion of each
other’s products and services. LSHSC will offer subscriptions to our platform and subscription
revenues will be shared between us. See “Business – Sales and Marketing –
Strategic Alliance, Marketing, Sponsorship, and Collaboration Agreements” for further
information regarding the terms of this agreement. |
| ● | The
U.S. Army Bowl: Over the course of our three-year agreement, we will continue to
be the official recruitment platform for the U.S. Army Bowl, or the Bowl, an annual national
all-star game for U.S. high school football, which was held under our co-supervision in December
2022 and December 2023 at Ford Center at The Star in Frisco, Texas. Aside from having priority
on-site access to many of the top players in the game, we can promote ourselves, advertise
to, and onboard more than an estimated 30,000 athletes each year as a sponsor through the
game’s advertising channels. U.S. Army Bowl national combines are again planned throughout
2024. Data collected and analyzed by our platform are part of the selection process for determining
whether athletes participating in the combines may advance to the Bowl and/or National Combine
events. Athletes participating in Bowl combines receive one month of access to the Signing
Day Sports app’s recruiting platform with registration, a Signing Day Sports recruiting
profile with personal guidance from recruiting experts, video highlights from their combine,
and tools to put their game highlights into their profiles on the Signing Day Sports app.
See “Business – Sales and Marketing – Strategic Alliance, Marketing,
Sponsorship, and Collaboration Agreements” for further information regarding the
terms of this agreement. |
| ● | State
Athletic and Coaches Associations: We have sponsored a number of state athletic associations
across the U.S., including the Texas High School Coaches Association, or THSCA, and the Arizona
Football Coaches Association, or AZFCA. These associations have agreed to designate us as
their exclusive recruitment platform for all coaches in their respective states. In addition,
we have marketing rights to their coaches, athletes, and athletic events and combines throughout
the year. Please see the details of our marketing and sponsorship agreements with these associations
in “Business – Sales and Marketing – Strategic Alliance, Marketing,
Sponsorship, and Collaboration Agreements”. |
| ● | Potential
Accretive Acquisitions. We are currently evaluating potential acquisition targets
(although no such acquisition target has yet been identified) that could bolster subscriber
growth, branding awareness, and revenue shares. These potential acquisitions range from owners
of specific game events, athlete development programs, and technologies to boost subscriber
growth and revenue. |
| ● | Events
and Marketing. Through key collaborations, our events team will conduct on-site Signing
Day Sports app registration with high school-aged athletes and their parents. Specifically,
at these events, athletes will have the opportunity to purchase, download, and upload key
data and information on-site. These events will include football skills camps, soccer tournaments,
7v7 football tournaments, baseball showcases, and state-wide combines. In particular, our
hosted combine events are expected to continue to be an effective means for gaining exposure
to our brand and registering new users on our platform. We plan to increase the number of
our hosted combine events and utilize media to increase attendance and exposure at these
events. |
Tumim
Stone Capital Committed Equity Financing Facility
On
January 5, 2024, we entered into the Purchase Agreement with Tumim, providing for a committed equity financing facility (a “CEFF”),
pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, Tumim has committed
to purchase, at our direction in our sole discretion, up to an aggregate of $25,000,000 of our common stock, subject to certain limitations
set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement. Concurrently with the execution of
the Purchase Agreement, we and Tumim also entered into a Registration Rights Agreement, dated as of January 5, 2024 (the “Registration
Rights Agreement”), pursuant to which we agreed to file with the SEC one or more registration statements to register under the
Securities Act the offer and resale by Tumim of all of the shares of common stock that may be issued and sold by us to Tumim from time
to time under the Purchase Agreement.
Sales
of common stock by the Company to Tumim under the Purchase Agreement, if any, may occur, from time to time at our sole discretion, over
a period commencing upon the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement
(the “Commencement,” and the date on which the Commencement occurs, the “Commencement Date”), including that
the initial registration statement we are required to file with the SEC pursuant to the Registration Rights Agreement, which is the registration
statement of which this prospectus forms a part, is declared effective by the SEC, and ending on the first day of the month next following
the 24-month anniversary of the Closing Date, unless the Purchase Agreement is terminated earlier under its terms.
From
and after the Commencement Date, we will have the right, but not the obligation, from time to time at our sole discretion, to direct
Tumim to purchase amounts of common stock that are specified by the Company to Tumim in writing, subject to certain maximum amounts calculated
pursuant to the Purchase Agreement (each such purchase, a “VWAP Purchase”). The purchase price per share to be paid by Tumim
for shares of common stock that the Company may elect to sell to Tumim will be equal to 95% of the lowest daily volume-weighted average
price (the “VWAP”) of the common stock during the three consecutive trading days immediately following the date that the
purchase notice with respect to the particular VWAP Purchase (each, a “VWAP Purchase Notice”) is timely delivered from the
Company to Tumim, provided that (i) the Company may not deliver more than one VWAP Purchase Notice to Tumim on any single trading day,
(ii) at least three trading days have elapsed since the trading day on which the most recent VWAP Purchase Notice was delivered by the
Company to Tumim, (iii) the closing sale price of the common stock on such date is not lower than $0.15, as adjusted for stock splits
and similar transactions, and (iv) all shares of common stock subject to all prior VWAP Purchases by Tumim under the Purchase Agreement
have been received by Tumim electronically as set forth in the Purchase Agreement.
The
maximum number of shares of common stock that may be required to be purchased pursuant to a VWAP Purchase Notice will be equal to the
lowest of: (i) 100% of the average daily trading volume in the common stock for the five consecutive trading day period ending on (and
including) the trading day immediately preceding the applicable day Tumim receives a VWAP Purchase Notice; (ii) the product obtained
by multiplying (A) the daily trading volume in the common stock on the applicable day Tumim receives a VWAP Purchase Notice and (B) 0.30;
and (iii) the quotient obtained by dividing (A) $2,000,000 by (B) the VWAP of the common stock on the trading day immediately preceding
the applicable day Tumim receives a VWAP Purchase Notice. There are no upper limits on the price per share that Tumim must pay for shares
of common stock we direct Tumim to purchase in a VWAP Purchase under the Purchase Agreement. The purchase price per share of common stock
that we direct Tumim to purchase in a VWAP Purchase under the Purchase Agreement will be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction during the period used to determine
the purchase price to be paid by Tumim for such Purchase Shares in such VWAP Purchase.
Tumim
has no right to require us to sell any shares of common stock to Tumim, but Tumim is obligated to make purchases of common stock as directed
by the Company, subject to the satisfaction of conditions set forth in the Purchase Agreement at Commencement and thereafter at each
time that we may direct Tumim to purchase shares of common stock under the Purchase Agreement. Actual sales of common stock by the Company
to Tumim under the Purchase Agreement, if any, will depend on a variety of factors to be determined by the Company in its sole discretion
from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company
as to the appropriate sources of funding for the Company and its operations.
We
may not issue or sell any shares of common stock to Tumim under the Purchase Agreement which, when aggregated with all other shares of
common stock then beneficially owned by Tumim and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and Rule 13d-3 promulgated thereunder), would result in Tumim beneficially
owning more than 4.99% of the outstanding shares of the common stock (the “Beneficial Ownership Limit”).
Under
the applicable rules of the NYSE American, in no event may we issue to Tumim under the Purchase Agreement more than 2,648,385 shares
of common stock, which number of shares represents 19.99% of the shares of the common stock outstanding immediately prior to the execution
of the Purchase Agreement (the “Exchange Cap”), unless we obtain stockholder approval to issue shares of common stock in
excess of the Exchange Cap in accordance with applicable NYSE American listing rules (the “Stockholder Approval”). The Exchange
Cap will not be applicable to limit the number of shares of common stock that we may sell to Tumim in any VWAP Purchase that we effect
pursuant to the Purchase Agreement (if any), to the extent the purchase price per share paid by Tumim for the shares of common stock
in such VWAP Purchase is equal to or greater than the greater of book or market value of the common stock (calculated in accordance with
the applicable listing rules of the NYSE American) at the time we deliver the VWAP Purchase Notice for such VWAP Purchase to Tumim,
adjusted as required by the NYSE American to take into account our payment of the Commitment Fee (as defined below) to Tumim and the
amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection with the CEFF, each as described
in more detail below, and otherwise as may be necessary to ensure compliance with the applicable rules of the NYSE American. In any event,
the Purchase Agreement specifically provides that we may not issue or sell any shares of common stock under the Purchase Agreement if
such issuance or sale would breach any applicable rules or regulations of NYSE American.
Pursuant
to the Purchase Agreement, we are obligated to convene a special meeting of our stockholders at the earliest reasonably practical date,
but in no event later than 120 days after the date of the Purchase Agreement for the purpose of obtaining the Stockholder Approval, and
to use our reasonable best efforts to obtain the Stockholder Approval at such stockholder meeting. Accordingly, as set forth in the definitive
proxy materials the Company has filed with the SEC on December 29, 2023 and on January 2, 2024, the Company has scheduled a special stockholders’
meeting to be held on February 27, 2024 (the “Special Stockholders’ Meeting”) for the purpose of, among other things,
obtaining the Stockholder Approval. If the Company does not obtain the Stockholder Approval at the Special Stockholders’ Meeting
on February 27, 2024, the Purchase Agreement requires the Company to convene another stockholders’ meeting at least every three
months after February 27, 2024 for the purpose of obtaining the Stockholder Approval, until the earlier of (i) the date on which the
Stockholder Approval is finally obtained and (ii) the termination of the Purchase Agreement.
The
net proceeds from sales, if any, under the Purchase Agreement to the Company will depend on the frequency and prices at which we sell
Purchase Shares to Tumim. We expect that any proceeds received by us from such sales to Tumim will be used for working capital and general
corporate purposes.
There
are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase
Agreement or Registration Rights Agreement, other than a prohibition (with certain limited exceptions) on the Company entering into specified
“Variable Rate Transactions” (as such term is defined in the Purchase Agreement). Such transactions include, among others,
the issuance of convertible securities with a conversion or exercise price that is based upon or varies with the trading price of the
common stock after the date of issuance, or the Company effecting or entering into an agreement
to effect an “equity line of credit,” an “at the market offering” or other similar continuous offering with a
third party, in which the Company may offer, issue or sell common stock or any securities exercisable, exchangeable or convertible into
common stock at future determined prices. Such restrictions shall remain in effect for a period commencing on the Closing Date
and ending on the earlier of (i) the first day of the month next following the 24-month anniversary of the Closing Date and (ii) the
six-month anniversary of the effective date of the termination of the Purchase Agreement pursuant to its terms. During the term of the
Purchase Agreement, Tumim covenanted not to enter into or effect, in any manner whatsoever, directly or indirectly, any short sales of
the common stock or hedging transaction which establishes a net short position with respect to the common stock.
As consideration for Tumim’s commitment to purchase shares of
common stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, on the date of the initial
filing with the SEC of the registration statement of which this prospectus forms a part, the Company was required to issue to Tumim the
Commitment Shares in an amount equal to the number of shares of common stock valued at $500,000 in the aggregate, subject to the Beneficial
Ownership Limit. The per share value of the Commitment Shares was required to be calculated by dividing (i) $500,000 (the “Commitment
Fee”), by (ii) the average of the daily VWAPs during the five consecutive trading day period ending on (and including) the trading
day immediately prior to the date of the initial filing of the registration statement of which this prospectus forms a part. If any shares
that were otherwise required to be issued as Commitment Shares were not permitted to be issued due to the Beneficial Ownership Limit,
the Company was required to pay to Tumim in cash the amount equal to the product of (i) the number of shares that may not be issued as
Commitment Shares due to the Beneficial Ownership Limit and (ii) the average of the daily VWAPs during the five consecutive trading day
period ending on (and including) the trading day immediately prior to the date of the initial filing of the registration statement of
which this prospectus forms a part. Accordingly, on the date of the initial filing with the SEC of the registration statement of which
this prospectus forms a part, the Company issued the Commitment Shares to Tumim, which were valued at $470,360.45 in the aggregate, based
on the average of the daily VWAPs during the five consecutive trading day period ending on (and including) the trading day immediately
prior to the date of the initial filing of the registration statement of which this prospectus forms a part, which constituted approximately
4.99% of the outstanding shares of common stock, and, due to the Beneficial Ownership Limit and pursuant to the terms and conditions of
the Purchase Agreement summarized above, we paid Tumim $29,639.55 in cash, which equaled the number of the Commitment Shares that would
have been issued but for the application of the Beneficial Ownership Limit, multiplied by the average of the daily VWAPs during the five
consecutive trading day period ending on (and including) the trading day immediately prior to the date of the initial filing of the registration
statement of which this prospectus forms a part. In the event that the initial satisfaction of all conditions to Tumim’s purchase
obligations set forth in the Purchase Agreement does not occur by February 15, 2024, the Company will be required to pay Tumim $500,000
less the amount of the Commitment Fee previously paid in cash upon the return and cancellation of the Commitment Shares. In addition,
as required under the Purchase Agreement, the Company has reimbursed Tumim for the reasonable legal fees and disbursements of Tumim’s
legal counsel in the amount of $75,000.
The
Purchase Agreement will automatically terminate upon the earliest of (i) the first day of the month next following the 24-month anniversary
of the Closing Date, (ii) Tumim’s purchase of shares of common stock having an aggregate purchase price equal to $25,000,000 under
the Purchase Agreement, or (iii) the occurrence of certain other events set forth in the Purchase Agreement. The Company has the right
to terminate the Purchase Agreement at any time after Commencement upon five trading days’ prior written notice to Tumim, subject
to certain conditions and the survival of certain provisions of the Purchase Agreement and the Registration Rights Agreement. Tumim may
terminate the Purchase Agreement upon five trading days’ prior written notice after the occurrence of certain events, including
if the Commencement shall not have occurred on or prior to February 15, 2024, upon the occurrence of a Material Adverse Effect (as defined
in the Purchase Agreement) or upon the occurrence of certain other events. Neither the Company nor Tumim may assign or transfer their
respective rights and obligations under the Purchase Agreement, and no provision of the Purchase Agreement or the Registration Rights
Agreement may be modified or waived by the Company or Tumim.
In
the event that the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement does
not occur by February 15, 2024, and Tumim terminates the Purchase Agreement as a result, the Company will be required to issue to Tumim
warrants to purchase 750,000 shares as a break-up fee (the “Penny Warrants”). The Penny Warrants will have an exercise price
of $0.01 per share, subject to full-ratchet price protection with a floor price equal to the par value of the Company’s common
stock, and customary antidilution protection. The Penny Warrants will have a term of five years. In addition, the Company will be required
to file a registration statement on Form S-1 covering the resale by Tumim of all of the shares of common stock that may be issued upon
exercise of the Penny Warrants, which must be declared effective by the SEC by the earlier of the 45th calendar day after the date that
such registration statement is filed if subject to review by the SEC, and the 5th calendar day after the date that such registration
statement is filed if the Company is notified that it will not be reviewed by the SEC. The Company will be required to maintain the effectiveness
of the registration statement until the later of the date that the Penny Warrants are terminated and all shares that were purchased by
exercise of the Penny Warrants are sold.
The
Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and indemnification
obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of
such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations
agreed upon by the contracting parties.
Under the Company’s engagement letter agreement with Boustead
Securities, LLC, a registered broker-dealer (“Boustead”), as amended (the “Boustead Engagement Letter”), Boustead
is acting as the placement agent in connection with the transactions contemplated by the Purchase Agreement. We agreed to issue Boustead
49,193 shares of common stock immediately after we issued the Commitment Shares to Tumim on January 26, 2024, equal to 7.0% of the number
of Commitment Shares that would have been issued but for the application of the Beneficial Ownership Limit, as a fee pursuant to the Boustead
Engagement Letter. Under the Boustead Engagement Letter, the Company is also required to issue to Boustead warrants to purchase a number
of shares equal to 7.0% of the shares of common stock issued to Tumim pursuant to purchases under the Purchase Agreement, with an exercise
price equal to the applicable purchase price per share, or, in the event that the Penny Warrants are required to be issued pursuant to
the Purchase Agreement, warrants to purchase 52,500 shares of common stock, with the same exercise price terms as the Penny Warrants.
The warrants that are required to be issued to Boustead will be exercisable for a period of five years from the date of issuance and contain
cashless exercise provisions. Boustead also has certain registration rights with respect to these warrants, which Boustead has waived
with respect to the registration statement of which this prospectus forms a part. Boustead and its affiliates are not in any manner related
to Tumim or any of Tumim’s affiliates. Boustead’s compensation under the Boustead Engagement Letter in connection with the
Purchase Agreement is subject to reduction or adjustment to the extent that such compensation is determined to be in excess of or otherwise
noncompliant with applicable rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
We
do not know what the purchase price will be for Purchase Shares that we may issue and sell to Tumim under the Purchase Agreement, if
any, and therefore cannot be certain as to the number of shares of our common stock we might issue to Tumim under the Purchase Agreement
after the Commencement Date. As of January 26, 2024, there were 13,958,847 shares of our common stock outstanding, of which 8,831,246
shares are estimated to be held by non-affiliates. Although the Purchase Agreement provides that we may sell up to $25,000,000 of common
stock to Tumim, only 4,661,102 shares of common stock are being registered for resale by the Selling Stockholder by means of this prospectus,
which represent (i) the 661,102 Commitment Shares which have previously been issued and (ii) up to 4,000,000 shares of common stock that
may be issued and sold by us to Tumim as Purchase Shares under the Purchase Agreement from and after the Commencement Date, if and when
we elect to sell Purchase Shares to Tumim under the Purchase Agreement. Depending on the market prices of our common stock at the time
we elect to issue and sell Purchase Shares to Tumim under the Purchase Agreement, we may need to register for resale under the Securities
Act additional shares of our common stock in order to receive aggregate gross proceeds equal to the aggregate $25,000,000 available to
us under the Purchase Agreement. If, in addition to the 661,102 Commitment Shares that are currently issued and outstanding, all of the
4,000,000 Purchase Shares that may be offered and resold by Tumim by means of this prospectus were issued and outstanding as of the date
hereof (without taking into account the 19.99% Exchange Cap limitation and the 4.99% Beneficial Ownership Limit), such Commitment Shares
and Purchase Shares, collectively, would represent approximately 26.0% of the total number of shares of our common stock outstanding
and approximately 52.8% of the total number of outstanding shares held by non-affiliates, in each case as of the date hereof. If we elect
to issue and sell more than the 4,000,000 Purchase Shares offered by means of this prospectus to Tumim, which we have the right, but
not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional
substantial dilution to our stockholders. The total number of shares of common stock ultimately offered for resale by Tumim by means
of this prospectus is dependent upon the number of Purchase Shares that we may ultimately elect to sell to Tumim under the Purchase Agreement
from and after the Commencement Date.
There
are substantial risks to our stockholders as a result of the sale and issuance of common stock to by us to Tumim under the Purchase Agreement.
See “Risk Factors” below. Issuances of our common stock to Tumim pursuant to the Purchase Agreement will not affect
the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders
will be diluted as a result of any such issuance. Although the number of shares of common stock that our existing stockholders own will
not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after
any such issuance of shares of our common stock by us to Tumim pursuant to the Purchase Agreement.
Implications
of Being an Emerging Growth Company and a Smaller Reporting Company
Upon
the completion of the Company’s initial public offering, we will qualify as an “emerging growth company” under the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we will be permitted to, and intend to, rely on exemptions
from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have
an auditor report on our internal control over financial reporting pursuant to Section 404(b)
of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; |
| ● | comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report providing
additional information about the audit and the financial statements (i.e., an auditor discussion
and analysis); |
| ● | being
permitted to present only two years of audited financial statements, in addition to any required
unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure
in this prospectus; |
| ● | submit
certain executive compensation matters to stockholder advisory votes, such as “say-on-pay”
and “say-on-frequency;” and |
| ● | disclose
certain executive compensation related items such as the correlation between executive compensation
and performance and comparisons of the chief executive officer’s compensation to median
employee compensation. |
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
In other words, an emerging
growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We
will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which
our total annual gross revenues exceed $1,235,000,000, (ii) the date that we become a “large accelerated filer” as defined
in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds
$700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued
more than $1 billion in non-convertible debt during the preceding three year period.
To
the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the
Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth
company may continue to be available to us as a smaller reporting company, including: (i) not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) scaled executive compensation disclosures; and (iii) the requirement
to provide only two years of audited financial statements, instead of three years.
Significant
Voting Power of Certain Beneficial Owners, Executive Officers and Directors
Our
executive officers and directors collectively beneficially own approximately 13.6% of our outstanding common stock. Dennis Gile, our
largest stockholder and a former officer and director, beneficially owns and has voting power over approximately 15.6% of our outstanding
common stock. John Dorsey, the second-largest beneficial owner of our common stock and a former officer and director, beneficially owns
and has voting power over approximately 9.8% of our outstanding common stock. As a result, both Mr. Gile and Mr. Dorsey individually,
and our executive officers and directors collectively, are able to exercise significant influence over all matters requiring stockholder
approval.
Our
Corporate History and Structure
Signing
Day Sports, LLC, an Arizona limited liability company (“SDS LLC – AZ”), was formed on January 21, 2019. SDS LLC –
AZ formed two wholly-owned subsidiaries, Signing Day Sports Football, LLC, an Arizona limited liability company (“SDSF LLC”),
and Signing Day Sports Baseball, LLC, an Arizona limited liability company (“SDSB LLC”), on September 29, 2020 and November
25, 2020, respectively.
On
June 5, 2020, a process to change SDS LLC – AZ into a Delaware corporation was initiated (collectively, the “Arizona-to-Delaware
Conversion Process”). On that date, a certificate of formation of Signing Day Sports, LLC, a Delaware limited liability company
(“SDS LLC – DE”), and a certificate of conversion of SDS LLC – AZ into SDS LLC – DE, were filed with the
Delaware Secretary of State. On September 9, 2021, a certificate of incorporation (as amended from time to time, the “Certificate
of Incorporation”) of Signing Day Sports, Inc., a Delaware corporation (“SDS Inc. – DE”), and a certificate of
conversion of SDS LLC – DE into SDS Inc. – DE were filed with the Delaware Secretary of State. From September 9, 2021 to
July 11, 2022, SDS Inc. – DE operated as the successor entity to SDS LLC – AZ, and SDS LLC – AZ continued to be registered
as an active entity with the Arizona Corporation Commission while its conversion into SDS LLC – DE pended.
A
unanimous written consent of the board of directors of SDS Inc. – DE, dated as of March 25, 2022, approved the form of an Agreement
and Plan of Merger between SDS LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc. – DE (the “Merger Agreement”) and related
merger documents, the related merger transactions, the form of certain Settlement Agreements (as defined below), the form of a Shareholder
Agreement among the Company and the stockholders of the Company (the “Shareholder Agreement”) (for a description of the terms
of the Shareholder Agreement, see “Corporate History and Structure – Shareholder Agreement”), and a proposed
capitalization table of SDS Inc. – DE, approved and ratified the Certificate of Incorporation and approved amended and restated
bylaws of SDS Inc. – DE, and approved and ratified related matters. In anticipation of the execution of the Merger Agreement and
its consummation, in April 2022 and May 2022, SDS LLC – AZ, SDS Inc. – DE, and each of the members or stockholders of SDS
LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc. – DE, entered into a Settlement Agreement and Release (each individually, the
“Settlement Agreement,” and collectively, the “Settlement Agreements”), which provided, among other things, for
the mutual general release of all claims by the parties against and relating to SDS LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc.
– DE, and confirmed the owners and related amounts of all outstanding shares of common stock of SDS Inc. represented by the capitalization
table exhibit to the Settlement Agreements. The stockholders of SDS Inc. – DE and the members of SDS LLC – AZ executed unanimous
written consents, dated as of May 17, 2022 and July 6, 2022, respectively, approving the Merger Agreement and related transactions, the
form of the Settlement Agreements, the form of the Shareholder Agreement, an updated capitalization table of SDS Inc., and approved and
ratified the Certificate of Incorporation, the amended and restated bylaws, the prior corporate actions that were taken in connection
with the Arizona-to-Delaware Conversion Process, and certain related matters.
On
July 11, 2022, the Merger Agreement was executed. On the same date, pursuant to the Merger Agreement, a certificate of merger was filed
with the Delaware Secretary of State and a statement of merger was filed with the Arizona Secretary of State effecting the merger of
SDS LLC – AZ, SDSF LLC, and SDSB LLC with and into SDS Inc. – DE, and SDS Inc. – DE succeeded to the rights, property,
obligations, and liabilities of each of SDS LLC – AZ, SDSF LLC, and SDSB LLC.
The
releases of claims under the Settlement Agreements with each of Dennis Gile, Dorsey Family Holdings, LLC, an Arizona limited liability
company (“Dorsey LLC”), Joshua A. Donaldson Revocable Trust, and Zone Right, LLC, a California limited liability company
(“Zone Right”), are subject to certain specific exceptions for claims under certain separate agreements or instruments. For
a further description of the Settlement Agreements, including the rights subject to exceptions referenced in the Settlement Agreements,
see “Certain Relationships and Related Party Transactions – Transactions With Related Persons”.
On
March 13, 2023, the Reverse Stock Split, in which each five shares of the outstanding common stock were automatically combined and converted
into one share of outstanding common stock, was approved by the board of directors, and was approved by stockholders holding a majority
of the voting power of our issued and outstanding voting capital stock as of April 4, 2023. On April 14, 2023, we filed a certificate
of amendment to the Certificate of Incorporation, which provided for the Reverse Stock Split, and the Reverse Stock Split became effective
on the same date.
The Reverse Stock Split
combined each five shares of our outstanding common stock into one share of common stock, without any change in the number of authorized
shares of common stock or the par value per share of common stock. The Reverse Stock Split, correspondingly adjusted,
among other things, the exercise price of our warrants, conversion price of our convertible notes, and exercise price of our stock options
then outstanding. No fractional shares were issued in connection with the Reverse Stock Split, and any fractional shares
resulting from the Reverse Stock Split were rounded up to the nearest whole share.
On
May 5, 2023, the amendment and restatement of the Certificate of Incorporation was approved by stockholders holding a majority of the
voting power of our issued and outstanding voting capital stock, and on May 9, 2023, the amended and restated Certificate of Incorporation
(“Amended and Restated Certificate of Incorporation”) was filed with the Delaware Secretary of State and became effective
the same date. Effective the same date, the second amended and restated bylaws of the Company were adopted by unanimous written consent
of the board of directors; and on December 4, 2023, the board of directors unanimously approved
an amendment to such bylaws (as amended, “Second Amended and Restated Bylaws”). The Amended and Restated Certificate
of Incorporation and Second Amended and Restated Bylaws contain certain provisions relating to limitations of liability and indemnification
of directors and certain officers, provide advance notice procedures for stockholder proposals at stockholder meetings, and other matters.
See “Description of Securities – Anti-Takeover Provisions” and “Management – Limitation on Liability
and Indemnification of Directors and Certain Officers”.
See
“Corporate History and Structure” for a further description of our corporate history and structure.
Corporate
Information
Our
principal executive offices are located at 8355 East Hartford Rd., Suite 100, Scottsdale, AZ 85255 and our telephone number is (480)
220-6814. We maintain a website at https://www.signingdaysports.com/. Information available on our website is not incorporated by reference
in and is not deemed a part of this prospectus.
Retrospective
Presentation of Reverse Stock Split
Except
as otherwise indicated, all references to our common stock, share data, per share data and related information has been adjusted for
the Reverse Stock Split ratio of 1-for-5 as if it had occurred at the beginning of the earliest period presented.
The
Offering
Common stock offered by the Selling Stockholder: |
|
Up to 4,661,102 shares of common stock, consisting of:
● up
to 4,000,000 Purchase Shares that we may elect, in our sole discretion, to issue and sell to Tumim pursuant to the Purchase Agreement,
from time to time from and after the Commencement Date, subject to the continued satisfaction of specified conditions set forth in
the Purchase Agreement; and
● 661,102
Commitment Shares (valued at $0.7115 per share, or $470,360.45 in the aggregate) that we issued to Tumim on January 26, 2024 as partial
consideration for its commitment to purchase shares of our common stock at our direction from time to time, upon the terms and subject
to the conditions and limitations set forth in the Purchase Agreement. We will not receive any cash proceeds from the issuance of the
Commitment Shares to Tumim.
|
Shares
of common stock outstanding (1): |
|
13,958,847 shares of common stock (as of January 26, 2024). |
|
|
|
Shares
of common stock outstanding after giving effect to the issuance of the shares registered hereunder |
|
17,958,847
shares of common stock (based on the total shares outstanding as of January 26, 2024) |
|
|
|
Use
of proceeds: |
|
We
will not receive any proceeds from the sales of outstanding common stock by the Selling Stockholder.
We may receive up to $25,000,000 aggregate gross proceeds under the Purchase Agreement from sales of Purchase Shares that we elect
to make to Tumim pursuant to the Purchase Agreement, if any, from time to time in our sole discretion, from and after the Commencement
Date.
Any
proceeds that we receive from sales of our common stock to Tumim under the Purchase Agreement will be used for working capital and
general corporate purposes. See “Use of Proceeds”. |
|
|
|
Risk
factors: |
|
Investing
in our common stock involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment.
You should carefully consider the information set forth in the “Risk Factors” section beginning on page 17 before
deciding to invest in our common stock. |
|
|
|
Trading
market and symbol: |
|
Our
common stock is listed on the NYSE American under the symbol “SGN”. |
|
|
|
(1) | The
number of shares of common stock outstanding is based on 13,958,847 shares of common stock outstanding as of January 26, 2024, and excludes
the following securities as of such date: |
| ● | 586,000
shares of common stock issuable upon exercise of outstanding warrants at an exercise price
of $2.50 per share; |
| ● | 176,540
shares of common stock issuable to Boustead, a registered broker-dealer, as placement agent
upon exercise of a placement agent’s warrant issued to Boustead at an exercise price
of $2.50 per share; |
| ● | 651,000
total shares of common stock issuable upon the exercise of stock options, consisting of 198,000
total shares of common stock issuable upon the exercise of stock options at an exercise price
per share equal to $3.10 per share, 193,000 total shares of common stock issuable upon the
exercise of stock options at an exercise price per share equal to $2.50 per share, 250,000
total shares of common stock issuable upon the exercise of stock options at an exercise price
per share equal to $2.25 per share, and 10,000 total shares of common stock issuable upon
the exercise of a stock option at an exercise price per share equal to $5.00 per share, which
were granted to certain employees, consultants, officers, and directors under the Signing
Day Sports, Inc. 2022 Equity Incentive Plan, or the Plan; |
| ● | 750,000
shares of common stock that are reserved for issuance under the Plan, which is inclusive
of the 651,000 shares issuable upon the exercise of stock options that are granted under
the Plan; and |
| ● | 84,000
shares of common stock issuable upon exercise of a representative’s warrant at an exercise
price of $6.75 per share. |
Summary
Financial Information
The following tables summarize certain financial data regarding our business and should be read in conjunction with our financial statements
and related notes contained elsewhere in this prospectus and the information under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
Our
summary financial data as of and for the nine months ended September 30, 2023 and 2022 are derived from our reviewed financial statements
included elsewhere in this prospectus. Our summary financial data as of and for the fiscal years ended December 31, 2022 and 2021 are
derived from our audited financial statements included elsewhere in this prospectus. All financial statements included in this prospectus
are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). The
summary financial information is only a summary and should be read in conjunction with the historical financial statements and related
notes contained elsewhere herein. The financial statements contained elsewhere fully represent our financial condition and operations;
however, they are not indicative of our future performance.
| |
Nine Months Ended
September 30, | | |
Year
Ended
December 31, | | |
Year
Ended
December 31, | |
Statements of Operations Data | |
2023 | | |
2022 | | |
2022 | | |
2021 | |
| |
(Unaudited) | | |
(Unaudited) | | |
| | |
(Restated) | |
Revenue | |
$ | 226,042 | | |
$ | 71,701 | | |
$ | 78,336 | | |
$ | 340,984 | |
Cost of revenues | |
| 36,273 | | |
| 680,557 | | |
| 783,064 | | |
| 504,342 | |
Operating expenses | |
| 2,150,321 | | |
| 4,147,066 | | |
| 5,688,840 | | |
| 8,408,918 | |
Total other income (expense) | |
| (715,249 | ) | |
| 33,184 | | |
| (280,246 | ) | |
| (231,951 | ) |
Net loss | |
$ | (2,675,801 | ) | |
$ | (4,722,738 | ) | |
$ | (6,673,814 | ) | |
$ | (8,804,227 | ) |
| |
As of
September 30, | | |
As of December 31, | |
Balance Sheet Data | |
2023 | | |
2022 | | |
2021 | |
| |
(unaudited) | | |
| | |
(restated) | |
Cash and cash equivalents | |
$ | 22,517 | | |
$ | 254,409 | | |
$ | 4,687,550 | |
Total current assets | |
| 112,686 | | |
| 301,332 | | |
| 4,855,223 | |
Total assets | |
| 1,922,890 | | |
| 454,163 | | |
| 4,916,195 | |
Total current liabilities | |
| 3,497,392 | | |
| 2,639,631 | | |
| 532,552 | |
Total liabilities | |
| 13,468,003 | | |
| 8,556,711 | | |
| 8,477,180 | |
Total stockholders’ (deficit) | |
| (11,545,113 | ) | |
| (8,102,548 | ) | |
| (3,560,985 | ) |
Total liabilities and stockholders’ (deficit) | |
| 1,922,890 | | |
| 454,163 | | |
| 4,916,195 | |
Summary
of Risk Factors
An
investment in our common stock involves a high degree of risk. You should carefully consider the risks summarized below. These risks
are discussed more fully in the “Risk Factors” section immediately following this Prospectus Summary. These risks
include, but are not limited to, the following:
Risks
Related to the Offering
| ● | It
is not possible to predict the actual number of shares we will sell under the Purchase Agreement
to the Selling Stockholder, or the actual gross proceeds resulting from those sales. |
| ● | Our
ability to sell the maximum number of shares permitted to be sold under the Purchase Agreement
to the Selling Stockholder may be limited by its terms and conditions. |
| ● | The
sale and issuance of our common stock to the Selling Stockholder may cause dilution to our
existing stockholders, and the sale of the shares of common stock acquired by the Selling
Stockholder, or the perception that such sales may occur, could cause the price of our common
stock to fall. |
| ● | Investors
who buy shares at different times will likely pay different prices. |
Risks
Related to the Company’s Business, Operations and Industry
| ● | The
currently evolving situation related to the COVID-19 pandemic could adversely affect
our business, financial condition and results of operations. |
| ● | We
have a limited operating history. There can be no assurance that we will be successful in
growing our business. |
| ● | We
have a history of losses since our inception and may continue to incur losses for the foreseeable
future. |
| ● | Our
management has concluded that factors raise substantial doubt about our ability to continue
as a going concern and our current and former auditors have included an explanatory paragraph
relating to our ability to continue as a going concern in their respective audit reports
for the fiscal years ended December 31, 2022 and 2021. |
| ● | We
will need to obtain additional funding to continue operations. If we fail to obtain the necessary
financing or fail to become profitable or are unable to sustain profitability on a continuing
basis, then we may be unable to continue our operations and we may be forced to significantly
delay, scale back or discontinue our operations. |
| ● | Our
ability to use our net operating loss carryforwards and certain other tax attributes may
be limited. |
| ● | We
operate in the highly competitive sports recruitment industry which is subject to rapid and
significant technological changes. |
| ● | If
we fail to acquire new customers, we may not be able to increase net sales or achieve profitability. |
| ● | Our
software or services may not operate properly, which could damage our reputation, give rise
to claims against us, or divert application of our resources from other purposes, any of
which could harm our business and operating results. |
| ● | If
our security measures are breached or fail and unauthorized access is obtained to a customer’s
data, our service may be perceived as insecure, the attractiveness of our services to current
or potential customers may be reduced, and we may incur significant liabilities. |
| ● | We
depend on sophisticated information technology systems and data processing to operate our
business. If we experience security or data privacy breaches or other unauthorized or improper
access to, use of, or destruction of our proprietary or confidential data, customer data
or personal data, we may face costs, significant liabilities, harm to our brand and business
disruption. |
| ● | We
have incorporated, and plan to incorporate in the future, artificial intelligence,
or AI, features into our platform. This technology is new and developing and may present
risks that could affect our business. |
| ● | Claims
by others that we infringe their intellectual property could force us to incur significant
costs or revise the way we conduct our business. |
| ● | There
may be challenges to our patents and proprietary technology. |
| ● | If
we fail to renew and/or expand our existing licenses, we may be required to discontinue or
limit our use of the products that include or incorporate the licensed intellectual property. |
| ● | Some
aspects of our products and services incorporate open source software, and
our use of open source software could negatively affect our business, results
of operations, financial condition, and prospects. |
| ● | Changes
in government policy, legislation or regulatory or judicial interpretations could hinder
or prevent our ability to conduct our business operations. |
| ● | We
are dependent on our management team, and the loss of any key member of this team may prevent
us from implementing our business plan in a timely manner, or at all. |
| ● | If
we fail to effectively manage our growth, our business, financial condition and operating
results could be harmed. |
| ● | We
are subject to complex and growing user data privacy use and other governmental laws and
regulations, and any failure to comply with these laws and regulations may have a material
negative effect on our business and results of operations. |
| ● | Climate
change and increased focus by governmental organizations on sustainability issues, including
those related to climate change, may have a material adverse effect on our business and operations. |
Risks
Related to Our Common Stock
| ● | There
was no public market for our common stock prior to the Company’s initial public offering,
and an active market in which investors can resell their shares of our common stock may not
develop. |
| ● | The
market price of our common stock has fluctuated significantly and may continue to do so. |
| ● | Certain
recent initial public offerings of companies with relatively small public floats comparable
to our anticipated public float have experienced extreme volatility that was seemingly unrelated
to the underlying performance of the respective company. Our common stock has likewise experienced
rapid and substantial price volatility, which may make it difficult for prospective investors
to assess the value of our common stock. |
| ● | Short
sellers of our stock may be manipulative and may drive down the market price of our common
stock. |
| ● | We
may not be able to maintain a listing of our common stock on the NYSE American. |
| ● | If
securities industry analysts do not publish research reports on us, or publish unfavorable
reports on us, then the market price and market trading volume of our common stock could
be negatively affected. |
| ● | Future
issuances of debt securities, which would rank senior to our common stock upon our bankruptcy
or liquidation, and future issuances of preferred stock, which could rank senior to our common
stock for the purposes of dividends and liquidating distributions, may adversely affect the
level of return you may be able to achieve from an investment in our common stock. |
| ● | Our
internal control over financial reporting currently may not meet all of the standards contemplated
by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal
control over financial reporting in accordance with Section 404 could impair our ability
to produce timely and accurate financial statements or comply with applicable regulations
and have a material adverse effect on our business. |
| ● | We
will incur significant increased costs as a result of operating as a public company, and
our management will be required to devote substantial time to new compliance initiatives. |
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with
the other information contained in this prospectus, before purchasing our common stock. We have listed below (not necessarily in order
of importance or probability of occurrence) what we believe to be the most significant risk factors applicable to us, but they do not
constitute all of the risks that may be applicable to us. Any of the following factors could harm our business, financial condition,
results of operations or prospects, and could result in a partial or complete loss of your investment. Some statements in this prospectus,
including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled “Cautionary
Statement Regarding Forward-Looking Statements”.
Risks
Related to the Offering
It
is not possible to predict the actual number of shares we will sell under the Purchase Agreement to the Selling Stockholder, or the actual
gross proceeds resulting from those sales.
On
January 5, 2024, we entered into the Purchase Agreement with Tumim, pursuant to which, upon the terms and subject to the satisfaction
of the conditions contained in the Purchase Agreement, Tumim has committed to purchase, at our direction in our sole discretion, up to
an aggregate of $25,000,000 of our common stock, subject to certain limitations set forth in the Purchase Agreement, from time to time
during the term of the Purchase Agreement. Sales of common stock by the Company to Tumim under the Purchase Agreement, if any, may occur,
from time to time at our sole discretion, over the period commencing upon the Commencement, or the initial satisfaction of all conditions
to Tumim’s purchase obligations set forth in the Purchase Agreement, including that the initial registration statement we are required
to file with the SEC pursuant to the Registration Rights Agreement, which is the registration statement of which this prospectus forms
a part, is declared effective by the SEC, and ending on the first day of the month next following the 24-month anniversary of the Closing
Date, unless the Purchase Agreement is terminated earlier under its terms.
We
may ultimately decide to sell to Tumim all, some or none of the shares that may be available for us to sell to Tumim pursuant to the
Purchase Agreement. Because the purchase price per share to be paid by Tumim for shares that we may elect to sell to Tumim under the
Purchase Agreement, if any, will fluctuate based on the market prices of our common stock during the applicable period for each purchase
made pursuant to the Purchase Agreement, if any, it is not possible for us to predict, as of the date of this prospectus and prior to
any such sales, the number of shares that we will sell to Tumim under the Purchase Agreement, the purchase price per share that Tumim
will pay for shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases
by Tumim under the Purchase Agreement, if any.
Our
ability to sell the maximum number of shares permitted to be sold under the Purchase Agreement to the Selling Stockholder may be limited
by its terms and conditions.
Although the Purchase Agreement provides that we may sell up to an
aggregate of $25,000,000 of our common stock to Tumim, only 4,661,102 Resale Shares, which include both 4,000,000 Purchase Shares and
the 661,102 Commitment Shares that we were required to issue as consideration for Tumim’s commitment to purchase shares of common
stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, are being registered for resale
by Tumim under the registration statement of which this prospectus forms a part. If after the Commencement Date we elect to sell to Tumim
only the 4,000,000 Purchase Shares registered for resale by the registration statement of which this prospectus forms a part, depending
on the market prices of our common stock during the applicable period for each VWAP Purchase made pursuant to the Purchase Agreement,
the actual gross proceeds from the sale of all such shares may be substantially less than the $25,000,000 available to us under the Purchase
Agreement. Additional sales beyond the 4,000,000 Purchase Shares under the Purchase Agreement may require us to file one or more additional
registration statements, and such registration statements would be required to be declared effective by the SEC.
In
addition, under the applicable rules of the NYSE American, in no event may we issue to Tumim under the Purchase Agreement more than the
Exchange Cap or 2,648,385 shares of common stock, which represents 19.99% of the shares of the common stock outstanding immediately prior
to the execution of the Purchase Agreement, unless we obtain the Stockholder Approval to issue shares of common stock in excess of the
Exchange Cap in accordance with applicable NYSE American listing rules. The Exchange Cap will not be applicable to limit the number of
Purchase Shares that we may sell to Tumim in any VWAP Purchase that we effect pursuant to the Purchase Agreement (if any), to the extent
the purchase price per share paid by Tumim for such Purchase Shares is equal to or greater than “the greater of book or market
value” of our common stock (calculated in accordance with the applicable listing rules of the NYSE American) at the time we
deliver the VWAP Purchase Notice for such VWAP Purchase, adjusted as required by the NYSE American to take into account our payment of
the Commitment Fee to Tumim and the amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection
with the CEFF, and otherwise as may be necessary to ensure compliance with the applicable rules of the NYSE American. In any event, the
Purchase Agreement specifically provides that we may not issue or sell any shares of common stock under the Purchase Agreement if such
issuance or sale would breach any applicable rules or regulations of NYSE American.
Moreover,
we may not issue or sell any shares of common stock to Tumim under the Purchase Agreement which, when aggregated with all other shares
of common stock then beneficially owned by Tumim and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and
Rule 13d-3 promulgated thereunder), would result in Tumim beneficially owning more than 4.99% of the outstanding shares of the common
stock.
These
requirements and limitations could materially adversely affect the liquidity and availability of the CEFF provided for under the Purchase
Agreement.
The
sale and issuance of our common stock to the Selling Stockholder may cause dilution to our existing stockholders, and the sale of the
shares of common stock acquired by the Selling Stockholder, or the perception that such sales may occur, could cause the price of our
common stock to fall.
The
purchase price for the Resale Shares that we have sold or may sell to the Selling Stockholder under the Purchase Agreement will fluctuate
based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of
our common stock to fall.
If
and when we elect to sell Purchase Shares to Tumim pursuant to the Purchase Agreement and after Tumim has acquired such Purchase Shares,
Tumim may also resell all, some or none of the Purchase Shares at any time or from time to time in its discretion and at different prices.
Therefore, sales by the Selling Stockholder of the Commitment Shares and sales to the Selling Stockholder by us of the Purchase Shares
available for resale by the Selling Stockholder could result in substantial dilution to the interests of other holders of our common
stock. Additionally, the sale of a substantial number of shares of our common stock to the Selling Stockholder, or the anticipation of
such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that
we might otherwise wish to effect sales.
Investors
who buy shares at different times will likely pay different prices.
Pursuant
to the Purchase Agreement, we will have discretion, subject to market demand and certain limitations set forth in the Purchase Agreement,
to sell Purchase Shares to Tumim at varying times, prices, and numbers. Tumim may resell all, some or none of the Commitment Shares at
any time or from time to time in its discretion and at different prices. If and when we elect to sell Purchase Shares to Tumim pursuant
to the Purchase Agreement and after Tumim has acquired such Purchase Shares, Tumim may also resell all, some or none of the Purchase
Shares at any time or from time to time in its discretion and at different prices. As a result, investors who purchase shares from Tumim
in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution
and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a decline in the
value of the shares they purchase from Tumim in this offering as a result of future sales made by us to Tumim at prices lower than the
prices such investors paid for their shares in this offering.
Our
management team will have broad discretion over the use of the net proceeds from our sale of shares of common stock to the Selling Stockholder,
if any, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully.
Our
management team will have broad discretion as to the use of the net proceeds from our sale of shares of common stock to the Selling Stockholder,
if any, and we could use such proceeds for purposes other than those contemplated at the time of commencement of this offering. Accordingly,
you will be relying on the judgment of our management team with regard to the use of those net proceeds, and you will not have the opportunity,
as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their
use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management
team to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash
flows.
Risks
Related to the Company’s Business, Operations and Industry
The
currently evolving situation related to the COVID-19 pandemic could adversely affect our business, financial condition and
results of operations.
In
January 2020, the World Health Organization declared the COVID-19 outbreak to be a public health emergency and, in March 2020, it declared
the outbreak to be a pandemic. The COVID-19 pandemic has caused severe global economic and societal disruptions and uncertainties. In
response to the virus, countries and local governments instituted policies and measures to curtail the spread of the virus, including
“stay at home” orders, travel restrictions and restrictions on the operation of non-essential businesses and services. Companies
have also taken precautions, such as requiring employees to work remotely and temporarily closing or minimizing operations. Although
initial restrictions have been relaxed, some restrictions have remained and these and future prevention and mitigation measures imposed
by governments and private companies may have a severe adverse impact on global economic conditions and consumer confidence and spending.
The COVID-19 pandemic may negatively affect our business by causing or contributing to, among other things, the following:
| ● | Cessation
or significant reductions in the operations of, or the inability, or significant disruptions
in the ability, to meet obligations to us, of significant third-party suppliers, vendors,
external manufacturers and other business or commercial partners, which may be caused by
their business, operational or financial difficulties, among other reasons. |
| ● | Significant
decreases in sales of or demand for, or significant volatility in sales of or demand for,
one or more of our significant products or service offerings due to, among other things,
closure or reduction in occupancy of sporting events which could affect our key customers;
changes in customer behavior or preference; any negative impact to our reputation resulting
from an adverse perception of our response to the COVID-19 pandemic; or the worldwide, regional
and local adverse economic and financial market conditions. |
| ● | Significant
disruptions to our business operations due to, among other things, unavailability of key
employees, including our senior management team, as a result of illness to themselves or
their families; cancellation or other disruptions of sales and marketing events; disruptions
to trade promotion initiatives; and any delays or modifications to any significant strategic
initiatives. |
| ● | Additional
or renewed significant governmental actions, including closures, quarantines or other restrictions
on the ability of our employees to travel or perform necessary business functions or our
ability to market or sell our products; changes in costs associated with governmental actions
or general economic trends; or other limitations or restrictions on our ability to market
or sell our products or the ability of our suppliers, customers or third-party partners to
effectively run their operations, which may negatively impact demand and our ability to market
and sell our products. |
The
Company does not believe that the COVID-19 pandemic has had a significant adverse impact on the Company’s business to date. As
described under “Business – Market for Recruiting Services”, the ongoing COVID-19 global pandemic has increased
both the need for, and familiarity with, remote interactions. As a result of the COVID-19 pandemic, the Company believes that its business
can generate more revenues, at little or no additional cost, from more customers as a result of their search for alternatives to in-person
recruiting events. Therefore, we do not believe that the COVID-19 pandemic has had an adverse impact on the Company’s business
to date, or on the Company’s revenues or expenses. However, the ultimate extent of the COVID-19 pandemic’s effect on our
operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic
and our continued ability to provide our services and products, as well as any future government actions affecting consumers and the
economy generally, all of which are uncertain and difficult to predict, especially in light of the rapidly evolving social and political
situations in response to the pandemic. We will continue to actively monitor the situation and may take further actions that alter our
business operations as may be required by local, state or federal authorities or that we determine are in the best interests of our employees,
consumers, customers or business partners. Although the potential effects that COVID-19 may have on us are not clear, such impacts could
materially adversely affect our business, financial condition and results of operations.
We
have a limited operating history. There can be no assurance that we will be successful in growing our business.
We
have a limited history of operations. As a result, there can be no assurance that we will be successful in providing our sports recruitment
technology services. Any potential for future growth will place additional demands on our executive officers, and any increased scope
of our operations will present challenges due to our current limited management resources. There can be no assurance that we will be
successful in our efforts. Our inability to locate additional opportunities, to hire additional management and other personnel, or to
enhance our management systems, could have a material adverse effect on our results of operations. There can be no assurance that our
operations will be profitable.
We
have a history of losses since our inception and may continue to incur losses for the foreseeable future.
To
date, we have been unable to sell our services in quantities sufficient to be operationally profitable. Consequently, we have sustained
substantial losses. There can be no assurances that the Company will ever achieve the level of revenues needed to be operationally profitable
in the future and if profitability is achieved, that it will be sustained. Our revenues have fluctuated and may likely continue to fluctuate
significantly from quarter to quarter and from year to year. We will need to obtain additional capital and increase sales to become profitable.
Our
management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our current and former
auditors have included an explanatory paragraph relating to our ability to continue as a going concern in their respective audit reports
for the fiscal years ended December 31, 2022 and 2021.
Our
management has concluded that our historical recurring losses from operations and negative cash flows from operations as well as our
dependence on private equity and other financings raise substantial doubt about our ability to continue as a going concern and our current
and former auditors have included an explanatory paragraph relating to our ability to continue as a going concern in their respective
audit reports for the fiscal years ended December 31, 2022 and 2021.
Our
financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments would likely
include substantial impairment of the carrying amount of our assets and potential contingent liabilities that may arise if we are unable
to fulfill various operational commitments. In addition, the value of our securities, including common stock issued in the Company’s
initial public offering, would be greatly impaired. Our ability to continue as a going concern is dependent upon generating sufficient
cash flow from operations and obtaining additional capital and financing, including funds to be raised in the initial public offering.
If our ability to generate cash flow from operations is delayed or reduced and we are unable to raise additional funding from other sources,
we may be unable to continue in business even if the initial public offering is successful. For further discussion about our ability
to continue as a going concern and our plan for future liquidity, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources – Going Concern.”
We
will need to obtain additional funding to continue operations. If we fail to obtain the necessary financing or fail to become profitable
or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations and we may be forced to
significantly delay, scale back or discontinue our operations.
We
will require additional capital to fund our operations, and if we fail to obtain necessary financing, our business plan may not be successful.
Our
operations have consumed substantial amounts of cash since inception, and we expect they will continue to consume substantial amounts
of cash as we aggressively build our platform and our internal marketing, compliance and other administrative functions. Although we
believe the net proceeds from the Company’s initial public offering together with existing cash and cash equivalents will be sufficient
to fund our projected operating expenses for some period of time, we will require additional capital to maintain our business operations,
and we may also need to raise additional funds sooner if our operating and other expenses are higher than we expect.
Our
forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking
statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this
estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect.
If
a lack of available capital means that we are unable to expand our operations or otherwise capitalize on our business opportunities,
our business, financial condition and results of operations could be materially adversely affected.
Adverse
developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by
financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our
financial condition and results of operations.
Actual
events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions,
transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns
or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity
problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”), was closed by the California Department of Financial
Protection and Innovation, which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank Corp. (“Signature”),
and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve
and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure,
including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial
instruments with SVB, Signature or any other financial institution that is placed into receivership by the FDIC may be unable
to access undrawn amounts thereunder. In addition, on May 1, the FDIC announced that First Republic had been closed by the California
Department of Financial Protection and Innovation and its assets seized by the FDIC. JPMorgan Chase eventually won the auction,
paying the FDIC $10.6 billion for nearly all of First Republic’s assets. Although we are not a borrower under or party to any material
letter of credit or any other such instruments with SVB, Signature or any other financial institution currently in receivership, if we
enter into any such instruments and any of our lenders or counterparties to such instruments were to be placed into receivership, we
may be unable to access such funds. In addition, if any of our customers, suppliers or other parties with whom we conduct business are
unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability
to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected.
In this regard, counterparties to credit agreements and arrangements with these financial institutions, and third parties such as beneficiaries
of letters of credit (among others), may experience direct impacts from the closure of these financial institutions and uncertainty remains
over liquidity concerns in the broader financial services industry. Similar impacts have occurred in the past, such as during the 2007-2008
financial crisis.
Inflation
and rapid increases in interest rates have led to a decline in the trading value of previously-issued government securities with interest
rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced
a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial
institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or
other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program.
Our
access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future
business operations could be significantly impaired by factors that affect us, any financial institutions with which we enter into credit
agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others,
events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity
agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative
expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions
or financial services industry companies with which we have financial or business relationships, but could also include factors involving
financial markets or the financial services industry generally.
The
results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our
current and projected business operations and our financial condition and results of operations. These risks include, but may not be
limited to, the following:
| ● | delayed
access to deposits or other financial assets or the uninsured loss of deposits or other financial
assets; |
| ● | inability
to enter into credit facilities or other working capital resources; |
| ● | potential
or actual breach of contractual obligations that require us to maintain letters of credit
or other credit support arrangements; or |
| ● | termination
of cash management arrangements and/or delays in accessing or actual loss of funds subject
to cash management arrangements. |
In
addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing
terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit
and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available
funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses
or other obligations, financial or otherwise, result in breaches of our financial and/or contractual obligations, or result in violations
of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other
related or similar factors, could have material adverse impacts on our liquidity and our current and/or projected business operations
and financial condition and results of operations.
In
addition, any further deterioration in the economy or financial services industry could lead to losses or defaults by our customers,
service providers, vendors, or suppliers, which in turn, could have a material adverse effect on our current and/or projected business
operations and results of operations and financial condition. For example, a customer may fail to make payments when due, default under
their agreements with us, become insolvent or declare bankruptcy, or a service provider, vendor, or supplier may determine that it will
no longer deal with us as a customer. In addition, a service provider, vendor or supplier could be adversely affected by any of the liquidity
or other risks that are described above as factors that could result in material adverse impacts on us, including but not limited to
delayed access or loss of access to uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled
or failed financial institution. The bankruptcy or insolvency of any customers, service providers, vendors, or suppliers, or the failure
of any customer to make payments when due, or any breach or default by a customer, service provider, vendor, or supplier, or the loss
of any significant supplier relationships, could cause us to suffer material losses and may have a material adverse impact on our business.
Our ability to use our
net operating loss carryforwards and certain other tax attributes may be limited.
We
have incurred net losses since our inception in 2019, and we may never achieve or sustain profitability. Federal net operating loss,
or NOL, carryforwards we generated since our incorporation may be carried forward indefinitely but may only be used to offset 80% of
our taxable income annually. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes
an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership
by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change
tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We have not completed a study
to assess whether an ownership change for purposes of Section 382 or 383 has occurred, or whether there have been multiple ownership
changes since our inception. For purposes of Section 382 or 383, we may have experienced ownership changes in the past and may experience
ownership changes in the future as a result of shifts in our stock ownership (some of which shifts are outside our control). As a result,
if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset such taxable income will be subject to limitations.
Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. Therefore, if we attain profitability,
we may be unable to use a material portion of our NOL carryforwards and other tax attributes, which could adversely affect our future
cash flows.
We
operate in the highly competitive sports recruitment industry which is subject to rapid and significant technological changes.
The
sports recruitment industry in which the Company is engaged is intensely competitive and characterized by rapid changes in technology,
customer requirements, and industry standards, and by frequent new product and service offerings and improvements. We compete with an
array of established and emerging recruiting solution providers. Conditions in our market could change rapidly and significantly as a
result of technological advancements, partnerships, or acquisitions by our competitors or continuing market consolidation. With the introduction
of new technologies and market entrants, we expect the competitive environment to remain intense. There can be no assurance that Company’s
systems can be upgraded to meet future innovations in the industry or that new technologies will not emerge, or existing technologies
will not be improved, which would render the Company’s offerings obsolete or non-competitive. Many of the companies we compete
with enjoy significant competitive advantages over us, including but not limited to greater name recognition; greater financial, technical
and service resources; established networks; additional product offerings; and greater resources for product development and sales and
marketing. In addition, there can be no assurance that other established sports recruiting companies, any of which would likely have
greater resources than the Company, will not enter the market. There can be no assurance that the Company will be able to compete successfully
against any of its competitors.
If
we fail to acquire new customers, we may not be able to increase net sales or achieve profitability.
We
have invested in marketing and branding related to customer acquisition and expect to continue to do so. We must continue to acquire
subscription customers in order to increase net sales and achieve profitability. In order to expand our customer base, we must appeal
to and acquire customers who have historically used other means to recruit athletes and may prefer alternatives to do so. We cannot assure
you that the net sales from new customers we acquire will ultimately exceed the cost of acquiring those customers. If consumers do not
perceive the platform we offer to be of high value and quality, we may not be able to acquire new customers. If we are unable to acquire
new customers, the net sales we generate may decrease, and our business, financial condition and operating results may be materially
and adversely affected.
We
use social networking sites, such as Facebook, Instagram and YouTube, online services, search engines, affiliate marketing websites,
directories and other social media websites and ecommerce businesses to advertise, market and direct potential customers to use our platform.
As social networking continues to rapidly evolve, we must continue to use social media channels that are used by our current and prospective
customers and cost-effectively drive traffic to our platform. We believe that failure to utilize these channels as sources of traffic
to our site to generate new customers would adversely affect our financial condition.
Our
software or services may not operate properly, which could damage our reputation, give rise to claims against us, or divert application
of our resources from other purposes, any of which could harm our business and operating results.
We
may encounter human or technical obstacles that prevent our website and apps from operating properly. If our offerings do not function
reliably or fail to achieve customer expectations in terms of performance, customers could assert liability claims against us or cancel
their contracts with us. This could damage our reputation and impair our ability to attract or maintain customers. We cannot assure you
that material performance problems or defects in our service offerings will not arise in the future. Errors may result from receipt,
entry, or interpretation of customer information or from interface of our services. These defects and errors and any failure by us to
identify and address them could result in loss of revenue or market share, liability to customers or others, failure to achieve market
acceptance or expansion, diversion of development resources, injury to our reputation, and increased service and maintenance costs. The
costs incurred in correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely
affect our operating results.
If
our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may be perceived
as insecure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.
Our
services involve the Internet-based storage and transmission of customers’ information. We rely on proprietary and commercially
available systems, software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage
of such information. Because of the sensitivity of this information and due to requirements under applicable laws and regulations, the
effectiveness of our security efforts is very important. If our security measures are breached or fail as a result of third-party action,
acts of terror, social unrest, employee error, malfeasance or for any other reasons, someone may be able to obtain unauthorized access
to customer data. Improper activities by third-parties, advances in computer and software capabilities and encryption technology, new
tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our security systems. Our
security measures may not be effective in preventing unauthorized access to the customer data stored on our servers. If a breach of our
security occurs, we could face damages for contract breach, penalties for violation of applicable laws or regulations, possible lawsuits
by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In addition, whether
there is an actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be
harmed and we could lose current or potential customers.
We
depend on sophisticated information technology systems and data processing to operate our business. If we experience security or data
privacy breaches or other unauthorized or improper access to, use of, or destruction of our proprietary or confidential data, customer
data or personal data, we may face costs, significant liabilities, harm to our brand and business disruption.
We
rely on information technology systems and data processing that we or our service providers, collaborators, consultants, contractors
or partners operate to collect, process, transmit and store electronic information in our day-to-day operations, including
a variety of personal data, such as name, mailing address, email addresses, academic records, phone numbers and potentially other sensitive
user information. Additionally, we, and our service providers, collaborators, consultants, contractors or partners, do or will collect,
receive, store, process, generate, use, transfer, disclose, make accessible, protect and share personal information and other information
to operate our business, for legal and marketing purposes, and for other business-related purposes. Our internal computer systems and
data processing and those of our third-party vendors, consultants, collaborators, contractors or partners, may be vulnerable to a cyber-attack,
malicious intrusion, breakdown, destruction, loss of data privacy, actions or inactions by our employees or contractors that expose security
vulnerabilities, theft or destruction of intellectual property or other confidential or proprietary information, business interruption
or other significant security incidents. As the cyber-threat landscape evolves, these attacks are growing in frequency, level of persistence,
sophistication and intensity, and are becoming increasingly difficult to detect. In addition to traditional computer “hackers,”
threat actors, software bugs, malicious code (such as viruses and worms), employee theft or misuse, denial-of-service attacks (such
as credential stuffing), phishing and ransomware attacks, sophisticated nation-state and nation-state supported actors now engage in
attacks (including advanced persistent threat intrusions). These risks may be increased as a result of COVID-19, owing to an
increase in personnel working remotely and higher reliance on internet technology. Furthermore, because the techniques used to obtain
unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may
be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may
remain undetected for an extended period.
There
can be no assurance that we, our service providers, collaborators, consultants, contractors or partners will be successful in efforts
to detect, prevent or fully recover systems or data from all breakdowns, service interruptions, attacks or breaches of systems that could
adversely affect our business and operations and/or result in the loss of critical or sensitive data. Any failure by us or our service
providers, collaborators, consultants, contractors or partners to detect, prevent, respond to or mitigate security breaches or improper
access to, use of, or inappropriate disclosure of any of this information or other confidential or sensitive information, including customers’
personal data, or the perception that any such failure has occurred, could result in claims, litigation, regulatory investigations and
other proceedings, significant liability under state, federal and international law, and other financial, legal or reputational harm
to us. Further, such failures or perceived failures could result in liability and a material disruption of our development programs and
our business operations, which could lead to significant delays, lost revenues or other adverse consequences, any of which could have
a material adverse effect on our business, results of operations, financial condition, prospects and cashflow.
Additionally,
applicable laws and regulations relating to privacy, data protection or cybersecurity, external contractual commitments
and internal privacy and security policies may require us to notify relevant stakeholders if there has been a security breach, including
affected individuals, business partners and regulators. Such disclosures are costly, and the disclosures or any actual or alleged failure
to comply with such requirements could lead to a materially adverse impact on the business, including negative publicity, a loss of confidence
in our services or security measures by our business partners or breach of contract claims. There can be no assurance that the limitations
of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages if we fail to
comply with applicable data protection laws, privacy policies or other data protection obligations related to information
security or security breaches.
We
have incorporated, and plan to incorporate in the future, artificial intelligence, or AI, features into our platform. This
technology is new and developing and may present risks that could affect our business.
We
have incorporated, and plan to incorporate in the future, features of AI, including large language models, such as GPT, into our platform.
AI is a new and emerging technology that is in its early stages of commercial use. If our platform’s use of AI has perceived or
actual negative impacts on the athletes or recruiters who use them, we may experience brand or reputational harm, competitive harm or
legal liability. The rapid evolution of AI may also require the application of significant resources to develop, test and maintain our
products and services that incorporate AI in order to help ensure that it is implemented in a socially responsible manner, to minimize
any real or perceived unintended harmful impacts. In addition, AI is subject to a complex and evolving regulatory landscape, including
data protection, privacy, and potentially other laws and different jurisdictions have taken and may take in the future varying approaches
to regulating AI. Compliance with these laws and regulations can be complex, costly and time-consuming, and there is a risk of regulatory
enforcement actions or litigation if we fail to comply with these requirements. As regulations evolve, we may have to alter our business
practices or products in order to comply with regulatory requirements.
If
we are unable to protect the confidentiality of our trade secrets, know-how and other proprietary and internally developed information,
the value of our technology could be adversely affected.
We may not be able to protect our trade secrets, know-how and other
internally developed information adequately. Although we use reasonable efforts to protect this internally developed information and technology,
our employees, consultants and other parties (including independent contractors and companies with which we conduct business) may unintentionally
or willfully disclose our information or technology to competitors. Enforcing a claim that a third party illegally disclosed or obtained
and is using any of our internally developed information or technology is difficult, expensive and time-consuming, and the outcome is
unpredictable. We rely, in part, on non-disclosure, confidentiality and assignment-of-invention agreements with our employees, independent
contractors, consultants and companies with which we conduct business to protect our internally developed information. These agreements
may not be self-executing, or they may be breached and we may not have adequate remedies for such breach. Moreover, third parties may
independently develop similar or equivalent proprietary information or otherwise gain access to our trade secrets, know-how and other
internally developed information.
Claims
by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.
Our
competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual property.
We have not conducted an independent review of patents and other intellectual property issued to third-parties, who may have patents
or patent applications relating to our proprietary technology. We have not received notice of any claims alleging infringement of third
parties’ intellectual property. However, we may in the future receive letters from third parties alleging, or inquiring about,
possible infringement, misappropriation or violation of their intellectual property rights. Any party asserting that we infringe, misappropriate
or violate proprietary rights may force us to defend ourselves, and potentially our customers, against the alleged claim. These claims
and any resulting lawsuit, if successful, could subject us to significant liability for damages and/or invalidation of our proprietary
rights or interruption or cessation of our operations. Any such claims or lawsuit could:
| ● | be
time-consuming and expensive to defend, whether meritorious or not; |
| ● | require
us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property; |
| ● | divert
the attention of our technical and managerial resources; |
| ● | require
us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable; |
| ● | prevent
us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could
be difficult and expensive and may make the performance or value of our product or service offerings less attractive; |
| ● | subject
us to significant liability for damages or result in significant settlement payments; or |
| ● | require
us to indemnify our customers. |
Furthermore,
during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery
requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual property litigation
could materially adversely affect our business. Some of our competitors may be able to sustain the costs of intellectual property litigation
more effectively than we can because they have substantially greater resources. In addition, any litigation could significantly harm
our relationships with current and prospective customers. Any of the foregoing could disrupt our business and have a material adverse
effect on our business, operating results and financial condition.
There
may be challenges to our patents and proprietary technology.
The
Company holds one or more pending utility patent applications, know-how and trade secret rights relating to various aspects of its technologies,
which are of material importance to the Company and its future prospects. Any patent we have obtained or do obtain may be challenged
by re-examination or otherwise invalidated or eventually found unenforceable. Both the patent application process and the process of
managing patent disputes can be time consuming and expensive. Competitors may attempt to challenge or invalidate our patents, or may
be able to design alternative techniques or devices that avoid infringement of our patents, or develop products with functionalities
that are comparable to ours. In the event a competitor infringes upon our patent or other intellectual property rights, litigation to
enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time
consuming and could require significant time and attention from our management. Furthermore, there can be no assurance that the Company’s
products and services will not infringe on any patents of others. We may not have sufficient resources to enforce our intellectual property
rights or to defend our patents against challenges from others.
If
we fail to renew and/or expand our existing licenses, we may be required to discontinue or limit our use of the products that include
or incorporate the licensed intellectual property.
Our
third-party licenses, or support for such licensed products and technologies, may not continue to be available to us on commercially
reasonable terms, if at all. In the event that we cannot renew and/or expand existing licenses, we may be required to discontinue or
limit our use of the products that include or incorporate the licensed intellectual property. Although to date we have not encountered
such issues, licensing requirements may preclude us from using technologies owned or developed by third parties if those parties are
unwilling to allow us to comply with related disclosure requirements or other regulatory requirements. In any such event, we may be unable
to operate on a profitable basis.
Some
aspects of our products and services incorporate open source software, and our use of open source software
could negatively affect our business, results of operations, financial condition, and prospects.
Some
aspects of our app platform incorporate and are dependent on the use and development of open source software. Open source software
is software licensed under an open source license, which may include a requirement that we make available, or grant licenses
to, any modifications or derivative works created using the open source software, make our proprietary source code publicly
available, or make our products or services available for free or for nominal amounts. If an author or other third party that uses or
distributes such open source software were to allege that we had not complied with the legal terms and conditions of one
or more of these open source licenses, we could incur significant legal expenses defending against such allegations, could
be subject to significant damages, and could be required to comply with these open source licenses in ways that cause
substantial competitive harm to our business.
The
terms of various open source licenses have not been interpreted by U.S. and international courts, and there is a risk
that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our products or services.
In such an event, we could be required to re-engineer all or a portion of our technologies, seek licenses from third parties in order
to continue offering our products and services, discontinue the use of our platform in the event re-engineering cannot be accomplished,
or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and
loan products and services. If portions of our proprietary software are determined to be subject to an open source license,
we could also be required to, under certain circumstances, publicly release or license, at no cost, our products or services that incorporate
the open source software or the affected portions of our source code, which could allow our competitors or other third
parties to create similar products and services with lower development effort, time, and costs, and could ultimately result in a loss
of transaction volume for us. We cannot ensure that we have not incorporated open source software in our software in a
manner that is inconsistent with the terms of the applicable license or our current policies, and our employees or our consultants, third
party contractors or suppliers may inadvertently or willfully use open source in a manner that we do not intend or that
could expose us to claims for breach of contract or intellectual property infringement, misappropriation, or other violation. If we fail
to comply, or are alleged to have failed to comply, with the terms and conditions of our open source licenses, we could
be required to incur significant legal expenses defending such allegations, be subject to significant damages, be enjoined from the sale
of our products and services, and be required to comply with onerous conditions or restrictions on our products and services, any of
which could be materially disruptive to our business.
In
addition to risks related to license requirements, usage of open source software can lead to greater risks than use of
third-party commercial software because open source licensors generally do not provide warranties or other contractual
protections regarding infringement, misappropriation, or other violations, the quality of code, or the origin of the software. Many of
the risks associated with the use of open source software cannot be eliminated and could adversely affect our business,
results of operations, financial condition, and prospects. For instance, open source software is often developed by different
groups of programmers outside of our control that collaborate with each other on projects. As a result, open source software
may have security vulnerabilities, defects, or errors of which we are not aware. Even if we become aware of any security vulnerabilities,
defects, or errors, it may take a significant amount of time for either us or the programmers who developed the open source software
to address such vulnerabilities, defects, or errors, which could negatively impact our products and services, including by adversely
affecting the market’s perception of our products and services, impairing the functionality of our products and services, delaying
the launch of new products and services, or resulting in the failure of our products and services, any of which could result in liability
to us, our vendors, and our service providers. Further, our adoption of certain policies with respect to the use of open source software
may affect our ability to hire and retain employees, including engineers.
Changes
in government policy, legislation or regulatory or judicial interpretations could hinder or prevent our ability to conduct our business
operations.
Changes
in government policy, legislation or regulatory or judicial interpretations could hinder or prevent our ability to conduct our business
operations. For example, we could be deemed to be subject to insurance and other regulations, which in some circumstances may be applied
retrospectively. Any other changes in or interpretations of current laws and regulations could also require us to increase our compliance
expenditures, inhibit our ability to enter into new contracts or conduct our business operations. In addition, our failure to comply
with applicable laws and regulations could lead to significant penalties, fines or other sanctions. If we are unable to effectively respond
to any such changes or comply with existing and future laws and regulations, our competitive position, results of operations, financial
condition and cash flows could be materially adversely impacted.
We
are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan
in a timely manner, or at all.
Our
success depends largely upon the continued services of our executive officers and other key personnel, particularly Daniel D. Nelson,
our Chief Executive Officer and Chairman; Damon Rich, our Interim Chief Financial Officer; David O’Hara, our Chief Operating Officer
and Secretary; and Richard Symington, our President and Chief Technology Officer. Our executive officers or key employees could terminate
their employment with us at any time without penalty. In addition, we do not maintain key person life insurance policies on any of our
employees or any of our contract parties. The loss of one or more of these executive officers or key employees could seriously harm our
business and may prevent us from implementing our business plan in a timely manner, or at all.
The
failure to attract and retain additional qualified personnel could harm our business and culture and prevent us from executing our business
strategy.
To
execute our business strategy, we must attract and retain highly qualified personnel. Competition for executives, software developers,
experienced sports industry advisors such as Kevin Grogan, sales personnel, and other key personnel in our industry is intense. In particular,
we compete with many other companies for software developers with high levels of experience in designing, developing, and managing software
for college sports recruitment technologies, as well as for skilled sales and operations professionals with connections and experience
in the intensely competitive college sports recruitment system. Recently we have experienced, and we may continue to experience, employee
turnover, and we may not be able to fill positions in a timely manner or at all. These risks may be exacerbated by perceptions of our
recent restructuring actions in preparation for our recent initial public offering, including potential confusion or misgivings regarding
the intent and effect of the Reverse Stock Split, changes in executive management, efforts to rapidly expand the utility of our platform,
multiple capital raises through private placements of debt and equity at valuations of our common stock that are or may be the same or
less than the implied valuations of our common stock upon which their equity awards were granted, and any similar future actions. In
addition, our recruiting personnel, methodology, and approach may need to be altered to address a changing candidate pool and profile.
We may not be able to identify or implement such changes in a timely manner. New hires and other personnel require training and take
time before they achieve full productivity. New employees and other personnel may not become as productive as we expect, and we may be
unable to hire or retain sufficient numbers of qualified individuals. If we fail to attract new personnel or fail to retain and motivate
our current personnel, our business could be harmed.
Many
of the companies with which we compete for experienced personnel have greater resources than we have, and some of these companies may
offer more attractive compensation packages. In particular, job candidates and existing employees and other personnel carefully consider
the value of the equity awards they receive in connection with their employment or engagement. If the perceived value of our equity awards
declines, or if the mix of equity and cash compensation that we offer is unattractive, it may adversely affect our ability to recruit
and retain highly skilled employees and other personnel. Job candidates may also be threatened with legal action under agreements with
their existing employers if we attempt to hire them, which could impact hiring and result in a diversion of our time and resources. Additionally,
laws and regulations, such as restrictive immigration laws, may limit our ability to recruit internationally. We must also continue to
retain and motivate existing employees and other personnel through our compensation practices, company culture, and career development
opportunities. If we fail to attract new personnel or to retain our current personnel, our business would be harmed.
If
we fail to effectively manage our growth, our business, financial condition and operating results could be harmed.
To
effectively manage our growth, we must continue to implement our operational plans and strategies, improve and expand our infrastructure
of people and information systems and expand, train and manage our employee and contractor base. We have increased employee and contractor
headcount since our inception to support the growth in our business, and we intend for this growth to continue for the foreseeable future.
To support continued growth, we must effectively integrate, develop and motivate new employees, while maintaining our corporate culture.
We face competition for qualified personnel. Additionally, we may not be able to hire new employees quickly enough to meet our needs.
If we fail to effectively manage our hiring needs or successfully integrate our new hires, our efficiency and ability to meet our forecasts
and our employee morale, productivity and retention could suffer, which may have a material adverse effect on our business, financial
condition and operating results.
Additionally,
the growth and expansion of our business and our product offerings in the future will place significant demands on our management. The
growth of our business may require significant additional resources, which may not scale in a cost-effective manner or may negatively
affect the quality of our customer experience. We are also required to manage multiple relationships with various vendors, customers
and other third parties. Further growth of our operations, our vendor base, our fulfillment process, information technology systems or
our internal controls and procedures may not be adequate to support our operations. If we are unable to manage the growth of our organization
effectively, our business, financial condition and operating results may be materially and adversely affected.
We
are subject to complex and growing user data privacy use and other governmental laws and regulations, and any failure to comply with
these laws and regulations may have a material negative effect on our business and results of operations.
We
are subject to substantial governmental regulations affecting our business. These include, but are not limited to, data privacy and protection
laws, regulations, and policies that apply to the collection, transmission, storage, processing and use of personal information or personal
data, which among other things, impose certain requirements relating to the privacy and security of personal information. The variety
of laws and regulations governing data privacy and protection, and the use of the internet as a commercial medium are rapidly evolving,
extensive, and complex, and may include provisions and obligations that are inconsistent with one another or uncertain in their scope
or application.
Under
our user agreements and certain sponsorship agreements, we collect certain information about student-athletes that have been submitted
by the student-athletes and, if applicable, their coaches, recruiters, or other teaching professionals or institutions. This data includes
or may include age, date of birth, name, email address, athletic statistics and educational data including student transcripts and SAT
and other test scores, and payment information. We intend to use such data for purposes of providing platform services to the submitting
student-athletes and, if applicable, their coaches, recruiters, and other teaching professionals and institutions. In order to provide
such services, we may need to share certain data with certain third-party services providers. We do not intend to share such data for
any other purposes. The collection, use and sharing of user data is subject to disclosures of our data collection, use and sharing practices
and opt-out, access, correction, deletion, portability, and security provisions in our website and app user terms of service and privacy
policy. All such data collection, use, and sharing is subject to our prior receipt of electronically- or physically-signed written consents
or acceptance of terms of use and terms and conditions of our platform app software by student-athletes and, if applicable, their coaches,
recruiters, or other teaching professionals or institutions, granting us rights to share such information for posting on our platform.
Such consents or acceptances of terms of use and terms and conditions of our app software explicitly includes the student-athlete’s
and, if applicable, their coach, recruiter, or other teaching professional or institution’s grant of a license to each coach, recruiter,
or other teaching professional or institution on our platform to view, compare, analyze and store platform player data. Each coach, recruiter,
or other teaching professional or institution on our platform is in turn required to agree to such terms of use and terms and conditions
to access and use such player data only as permitted under all applicable international, national, state, and local law, including laws
applicable to the use of data of minors. Regardless of these agreements and consents, however, we are subject to a number of data protection
requirements relating to the management and safeguarding of information of users, including minors, including those described below.
Relevant
U.S. federal data privacy laws include the Family Educational Rights and Privacy Act of 1974
(“FERPA”), which regulates the use and disclosure of student education records held by certain educational institutions;
the Controlling the Assault of Non-Solicited Pornography And Marketing Act, as amended (the “CAN-SPAM Act”), which, among
other things, restricts data collection and use in connection with CAN-SPAM Act’s opt-out process requirements for senders of commercial
emails; and the U.S. Children’s Online Privacy Protection Act (“COPPA”), which regulates the collection of information
by operators of websites and other electronic solutions that are directed to children under 13 years of age, although our website and
app user terms of service and privacy policy expressly prohibit children under 13 from submitting information to or on our website or
app. These laws and regulations promulgated under these laws restrict our collection, processing, storage, use and disclosure of personal
information, may require us to notify individuals of our privacy practices and provide individuals with certain rights to prevent the
use and disclosure of protected information, and mandate certain procedures with respect to safeguarding and proper description of stored
information.
Moreover,
certain laws and regulations of U.S states and the European Union (the “EU”) impose similar or greater data protection requirements
and may also subject us to scrutiny or attention from regulatory authorities. For example, the EU and California have passed comprehensive
data privacy laws, the EU General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”)
and regulations promulgated under the CCPA, respectively, which impose data protection obligations on enterprises, including limitations
on data uses and constraints on certain uses of sensitive data. Of particular importance, the CCPA, which became effective on January
1, 2020, limits how we may collect and use personal information, including by requiring companies that process information relating to
California residents to make disclosures to consumers about their data collection, use and sharing practices, provide consumers with
rights to know and delete personal information and allow consumers to opt out of certain data sharing with third parties. The CCPA also
creates an expanded definition of personal information, imposes special rules on the collection of consumer data from minors,
and provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase
the likelihood and cost of data breach litigation. The potential effects of this legislation are far-reaching and may require us to modify
our data processing practices and policies and incur substantial costs and expenses in compliance and potential ligation efforts.
Effective January 1, 2023, we also became subject to the California Privacy Rights Act (“CPRA”), which expands upon the consumer
data use restrictions, penalties and enforcement provisions under the CCPA, and Virginia’s Consumer Data Protection Act (“VCDPA”),
another comprehensive data privacy law, and regulations promulgated under the CPRA and the VCDPA.
In
addition, effective July 1, 2023, we may also be subject to the Colorado Privacy Act (the “CPA”) and Connecticut’s
An Act Concerning Personal Data Privacy and Online Monitoring (“CDPA”) and regulations promulgated under these laws, which
are also comprehensive consumer privacy laws. Effective December 31, 2023, we may also become subject to the Utah Consumer Privacy Act
(“UCPA”), regarding business handling of consumers’ personal data. Effective January 1, 2025, we may also become subject
to the Iowa Consumer Privacy Act (“ICPA”), a similar consumer data privacy law. Further, there are several legislative proposals
in the United States, at both the federal and state level, that could impose new privacy and security obligations. We cannot yet determine
the impact that these laws and regulations may have on our business.
We
believe that our compliance programs include adequate business processes, procedures, including annual audits, and reliance on experts
to ensure substantial compliance with applicable privacy law. Despite such safeguards, in the course of collecting the user data described
above, our employees, independent contractors, suppliers, or service providers may have inadvertently or willfully used, and may in the
future inadvertently or willfully use, protected user data in a manner that we do not intend or in a manner that could expose
us to claims for violation of data privacy rights. In addition, our agreements with our employees, contractors, suppliers and service
providers generally do not address compliance with applicable privacy law and indemnify the Company against mis-use of regulated data
or unauthorized practices, although we have recently made efforts to include such terms in new agreements with such parties. Therefore,
these programs and agreements may have failed, or may in the future fail, to prevent violations of our users’ data privacy rights,
or to protect us from damages relating to such failures.
If
we fail to comply, or are alleged to have failed to comply, with any applicable user privacy laws or regulations, we could be required
to incur significant legal expenses defending such allegations, be subject to significant damages, be enjoined from the sale of our products
and services, and be required to comply with onerous conditions or restrictions on our products and services, any of which could be materially
disruptive to our business.
In
addition, our business is, and may in the future be, subject to a variety of other laws and regulations, including working conditions,
labor, immigration and employment laws, and health, safety and sanitation requirements. Our inability or failure to comply with these
governmental laws and regulations, or to maintain necessary permits or licenses, could result in liability that could have a material
negative effect on our business and results of operations.
Climate
change and increased focus by governmental organizations on sustainability issues, including those related to climate change, may have
a material adverse effect on our business and operations.
Federal,
state and local governments are beginning to respond to climate change issues. This increased focus on sustainability may result in new
legislation or regulations and vendor and customer requirements that could negatively affect us as we may incur additional costs or be
required to make changes to our operations in order to comply with any new regulations. Legislation or regulations that potentially impose
restrictions, caps, taxes, or other controls on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil
fuels could force us to incur additional costs and we may fail to pass such additional costs on to our customers, which could also have
a material adverse effect on our business.
In
addition, on March 21, 2022, the SEC proposed new rules requiring a range of climate-related disclosure
that would be applicable to all companies that file annual reports or registration statements with the SEC, including the Company.
The proposed climate-related disclosure framework is modeled in part on the Task Force on Climate Related Financial
Disclosures’ recommendations, and also draws upon the Greenhouse Gas (“GHG”) Protocol (“GHG
Protocol”). In particular, the proposed rules would require a registrant to disclose information about: The oversight and
governance of climate-related risks by the registrant’s board and management; how any climate-related risks identified by the
registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may
manifest over the short-, medium-, or long-term; how any identified climate-related risks have affected or are likely to affect the
registrant’s strategy, business model, and outlook; the registrant’s processes for identifying, assessing, and managing
climate-related risks and whether any such processes are integrated into the registrant’s overall risk management system or
processes; the impact of climate-related events (severe weather events and other natural conditions as well as physical risks
identified by the registrant) and transition activities (including transition risks identified by the registrant) on the line items
of a registrant’s consolidated financial statements and related expenditures, and disclosure of financial estimates and
assumptions impacted by such climate-related events and transition activities; “Scope 1” and “Scope 2” (as
defined by the SEC’s proposed rule) GHG emissions metrics, separately disclosed, expressed both by disaggregated constituent
greenhouse gases and in the aggregate, and in absolute and intensity terms; “Scope 3” (as defined by the SEC’s
proposed rule) GHG emissions and intensity, if material, or if the registrant has set a GHG emissions reduction target or goal that
includes its Scope 3 emissions; and the registrant’s climate-related targets or goals, and transition plan, if any. The
proposed rules would be subject to certain accommodations and phase-in periods. For example, companies meeting the definition of
“smaller reporting company” in Rule 12b-2 of the Exchange Act, which currently includes the Company (see below,
“—We are a smaller reporting company and are exempt from certain disclosure requirements, which could make our common
stock less attractive to potential investors.” and “As a ‘smaller reporting company,’ we may choose to
exempt our company from certain corporate governance requirements that could have an adverse effect on our public
stockholders.”), would be exempt from the Scope 3 emissions disclosure requirement. The proposed rules would also require
an attestation report provided by a third-party attestation service provider that satisfies a minimum level of attestation services
for a company that meets the definition of “accelerated filer” or “large accelerated filer” in Rule 12b-2 of
the Exchange Act, including: (1) limited assurance for Scopes 1 and 2 emissions disclosure that scales up to reasonable assurance
after a specified transition period; (2) minimum qualifications and independence requirements for the attestation service provider;
and (3) minimum requirements for the accompanying attestation report. A company that is not an “accelerated filer” or
“large accelerated filer”, which currently includes the Company, would not be subject to this attestation requirement
(see also “—As a non-accelerated filer, we will not be required to comply with the auditor attestation requirements
of the Sarbanes-Oxley Act.” and “—We are subject to ongoing public reporting requirements that are less
rigorous than Exchange Act rules for companies that are not emerging growth companies and our stockholders could receive less
information than they might expect to receive from more mature public companies.”).
Although
we cannot predict the costs of implementation or any potential adverse impacts resulting from the proposed rule, the SEC estimated that
compliance costs for a “smaller reporting company” in the first year of compliance would be $490,000 ($140,000 for internal
costs and $350,000 for outside professional costs), while annual costs in the subsequent five years were estimated to be $420,000 ($120,000
for internal costs and $300,000 for outside professional costs). For non-“smaller reporting company” registrants, the costs
in the first year of compliance were estimated to be $640,000 ($180,000 for internal costs and $460,000 for outside professional costs),
while annual costs in the subsequent five years were estimated to be $530,000 ($150,000 for internal costs and $380,000 for outside professional
costs). To the extent that this rule is finalized as proposed, we could therefore incur significant increased costs relating to the assessment
and disclosure of climate-related matters.
These
potential additional costs, forced changes in operations, or loss of revenues may have a material adverse effect on our business and
operations.
Risks
Related to Our Common Stock
There
was no public market for our common stock prior to the Company’s initial public offering, and an active market in which investors
can resell their shares of our common stock may not develop.
Prior
to the Company’s initial public offering, which closed on November 16, 2023, there was no public market for our common stock. Since
November 14, 2023, our common stock has been listed on the NYSE American under the symbol “SGN”. However, a liquid public
market for our common stock may not develop. The initial public offering price for our common stock was determined by negotiation between
us and the underwriters based upon several factors, including prevailing market conditions, our historical performance, estimates of
our business potential and earnings prospects, and the market valuations of similar companies. The price at which the common stock is
traded after the initial public offering has declined below the initial public offering price, and you may experience a decrease in the
value of your common stock regardless of our operating performance or prospects.
The
market price of our common stock has fluctuated significantly and may continue to do so.
The
market price for our common stock has been volatile and is likely to continue to be, in part because our shares were not traded publicly
prior to our initial public offering, which closed on November 16, 2023. In addition, the market price of our common stock may fluctuate
significantly in response to several factors, most of which we cannot control, including:
| ● | actual
or anticipated variations in our periodic operating results; |
| ● | increases
in market interest rates that lead investors of our common stock to demand a higher investment
return; |
| ● | changes
in earnings estimates; |
| ● | changes
in market valuations of similar companies; |
| ● | actions
or announcements by our competitors; |
| ● | adverse
market reaction to any increased indebtedness we may incur in the future; |
| ● | additions
or departures of key personnel; |
| ● | actions
by stockholders; |
| ● | speculation
in the media, online forums, or investment community; and |
| ● | our
intentions and ability to list our common stock on the NYSE American and our subsequent ability
to maintain such listing. |
Volatility
in the market price of our common stock may prevent investors from being able to sell their common stock at or above their purchase price.
As a result, investors in our common stock may suffer a loss on their investment.
Certain
recent initial public offerings of companies with relatively small public floats comparable to our public float have experienced extreme
volatility that was seemingly unrelated to the underlying performance of the respective company. Our common stock has likewise experienced
rapid and substantial price volatility, which may make it difficult for prospective investors to assess the value of our common stock.
In
addition to the risks addressed above under “—The market price of our common stock has fluctuated significantly and may
continue to do so,” our common stock may be subject to rapid and substantial price volatility due to our small market float.
Recently, companies with comparably small public floats and initial public offering sizes have experienced instances of extreme stock price run-ups followed
by rapid price declines, and such stock price volatility was seemingly unrelated to the respective company’s underlying performance.
Since our recent initial public offering in November 2023, our stock price has rapidly declined and has not recovered most of its value
as of the date of this prospectus. Although the specific cause of such volatility is unclear, our small public float may amplify the
impact the actions taken by a few stockholders have on the price of our stock, which may cause our stock price to deviate, potentially
significantly, from a price that better reflects the underlying performance of our business. Our common stock may experience run-ups
and declines that are seemingly unrelated to our actual or expected operating performance and financial condition or prospects, making
it difficult for prospective investors to assess the rapidly changing value of our common stock. In addition, investors in shares of
our common stock may experience losses, which may be material, if the price of our common stock declines after the Company’s initial
public offering or if such investors purchase shares of our common stock prior to any price decline. For example, if the trading volumes
of our common stock are low, persons buying or selling in relatively small quantities may easily influence prices of our common stock.
This low volume of trades could also cause the price of our common stock to fluctuate greatly, with large percentage changes in price
occurring in any trading day session. Holders of our common stock also may not be able to readily liquidate their investment or may be
forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions
may also adversely affect the market price of our common stock. As a result of this volatility, investors may experience losses on their
investment in our common stock. A decline in the market price of our common stock also could adversely affect our ability to sell additional
shares of common stock or other securities and our ability to obtain additional financing in the future. No assurance can be given that
an active market in our common stock will develop or be sustained. If an active market does not develop, holders of our common stock
may be unable to readily sell the common stock they hold or may not be able to sell their common stock at all.
Short
sellers of our stock may be manipulative and may drive down the market price of our common stock.
Short selling is
the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with
the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in
the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller
expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price
of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant
issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them
to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading
volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks.
The
publication of any such commentary regarding us by a short seller may bring about a temporary, or possibly long term, decline in the
market price of our common stock. No assurances can be made that we will not become a target of such commentary and declines in the market
price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.
We
may not be able to maintain a listing of our common stock on the NYSE American stock exchange.
We
must meet certain financial and liquidity criteria to maintain the listing of our common stock on the NYSE American. If we violate the
NYSE American’s listing requirements or fail to meet its listing standards, our common stock may be delisted. In addition, our
board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of
such listing. A delisting of our common stock from the NYSE American may materially impair our stockholders’ ability to buy and
sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common
stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.
Substantial
future sales or issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or
the perception in the public markets that these sales or issuances may occur, may depress our stock price. Also, future issuances of
our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders
and could cause our stock price to fall. The expiration of lock-up agreements that restrict the issuance of new common stock or the trading
of outstanding common stock could also cause the market price of our common stock to decline.
Future
issuances of our common stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration
of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market
price of our common stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations
of lock-up agreements, on the price of our common stock. In all events, future issuances of our common stock would result in the dilution
of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties
will sell their securities when the lock-ups expire, could adversely affect the market price of our common stock. In connection with
our initial public offering in November 2023, we, our executive officers, directors and stockholders holding 5% or more of our shares
(as well as holders of convertible or exercisable securities which convert into or are exercisable into common stock) entered into lock-up
agreements that prevent us and the other locked-up parties, subject to certain exceptions, from offering or selling shares of capital
stock for up to 12 months, from the date on which the trading of our common stock commenced, or November 14, 2023, as to our directors,
officers and security holders, and from the closing date of our initial public offering, or November 16, 2023, as to us. In addition
to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may
be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our common stock may become available
for resale, subject to applicable law, including without notice, which could reduce the market price for our common stock.
We
have also granted 90,000 shares of restricted common stock to an officer and employee; options to certain employees, consultants, officers
and directors that may be exercised to purchase up to 198,000 shares of common stock at an exercise price per share equal to $3.10 per
share; 193,000 shares of common stock at an exercise price per share equal to $2.50 per share; and 250,000 shares of common stock at
an exercise price per share equal to $2.25 per share, not including stock options or portions of stock options that have terminated due
to employee, officer, or director departures. We have filed registration statements on Form S-8 to register the offerings of these shares
as well as other shares under stock options or other equity compensation that may be granted to our officers, directors, employees and
service providers or reserved for future issuance under the Plan. Subject to the satisfaction of vesting conditions and the expiration
of lock-up agreements, all of these shares registered under the registration statements on Form S-8 will be available for resale immediately
in the public market without restriction other than those restrictions imposed on sales by affiliates pursuant to Rule 144.
Additionally,
certain of our employees, executive officers, and directors may enter into Rule 10b5-1 trading plans providing for sales of shares of
our common stock from time to time. Under a Rule 10b5-1 trading plan, a broker executes trades pursuant to parameters established by
the employee, director, or officer when entering into the plan, without further direction from the employee, officer, or director. A
Rule 10b5-1 trading plan may be amended or terminated in some circumstances. Our employees, executive officers, and directors also may
buy or sell additional shares outside of a Rule 10b5-1 trading plan when they are not in possession of material, non-public information,
subject to the expiration of the lock-up restrictions and Rule 144 requirements referred to above.
Resales
of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate. These sales could also cause the trading price of our common stock to
decline and make it more difficult for you to sell shares of our common stock. The market price of shares of our common stock may drop
significantly when the lock-up agreements and other restrictions on resale by our existing stockholders and beneficial owners lapse.
See “Shares Eligible for Future Sale” for a description of our obligations to file registration statements following
our initial public offering in November 2023. The dilutive effect of these grants on the value of your shares may therefore be substantial.
We
expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research
and development, hiring new personnel, marketing our products, and continuing activities as an operating public company. To the extent
we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock,
convertible securities or 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 existing stockholders.
In
the event that the market price of shares of our common stock drops significantly when the restrictions on resale by our existing stockholders
lapse, existing stockholders’ dilution might be reduced to the extent that the decline in the price of shares of our common stock
impedes our ability to raise capital through the issuance of additional shares of our common stock or other equity securities. However,
in the event that our capital-raising ability is weakened as a result of a lower stock price, we may be unable to continue to fund our
operations, which may further harm the value of our stock price.
We
do not expect to declare or pay dividends in the foreseeable future.
We
do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development
and growth of our business. Therefore, holders of our common stock will not receive any return on their investment unless they sell their
securities, and holders may be unable to sell their securities on favorable terms or at all.
If
securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market
trading volume of our common stock could be negatively affected.
Any
trading market for our common stock may be influenced in part by any research reports that securities industry analysts publish about
us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts
commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we
are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues
coverage of us, the market price and market trading volume of our common stock could be negatively affected.
Future issuances of debt securities, which
would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior
to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able
to achieve from an investment in our common stock.
In the future, we may attempt to increase our
capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect
to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders
of our common stock. Moreover, if we authorize and issue preferred stock, the holders of such preferred stock could be entitled to preferences
over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision
to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other
factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders
of our common stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return,
if any, they may be able to achieve from an investment in our common stock.
If our shares of common stock become subject
to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00,
other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system.
If we do not retain a listing on the NYSE American or another national securities exchange and if the price of our common stock is less
than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny
stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition,
the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks;
and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
We are subject to ongoing public reporting
requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our stockholders
could receive less information than they might expect to receive from more mature public companies.
We are required to publicly report on an ongoing
basis as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange
Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements
that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to:
| ● | not
being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act; |
| ● | being
permitted to comply with reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements; and |
| ● | being
exempt from the requirement to hold a non-binding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously approved. |
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits
of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards.
We expect to take advantage of these reporting
exemptions until we are no longer an emerging growth company. We would remain an emerging growth company for up to five years, although
if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would
cease to be an emerging growth company as of the following December 31.
Because we are subject to ongoing public reporting
requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our stockholders could
receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find
our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less
active trading or more volatility in the price of our common stock.
We are a smaller reporting company and will
be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.
Rule 12b-2 of the Exchange Act defines a “smaller
reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent
that is not a smaller reporting company and that:
| ● | had
a public float of less than $250 million as of the last business day of its most recently
completed second fiscal quarter, computed by multiplying the aggregate worldwide number of
shares of its voting and non-voting common equity held by non-affiliates by the price at
which the common equity was last sold, or the average of the bid and asked prices of common
equity, in the principal market for the common equity; or |
| ● | in
the case of an initial registration statement under the Securities Act or the Exchange Act
for shares of its common equity, had a public float of less than $250 million as of a date
within 30 days of the date of the filing of the registration statement, computed by multiplying
the aggregate worldwide number of such shares held by non-affiliates before the registration
plus, in the case of a Securities Act registration statement, the number of such shares included
in the registration statement by the estimated public offering price of the shares; or |
| ● | in
the case of an issuer whose public float as calculated under paragraph (1) or (2) of this
definition was zero or whose public float was less than $700 million, had annual revenues
of less than $100 million during the most recently completed fiscal year for which audited
financial statements are available. |
If a company determines
that it does not qualify for smaller reporting company status because it exceeded one or more of the above thresholds, it will remain
unqualified unless when making its annual determination it meets certain alternative threshold requirements which will be lower than the
above thresholds if its prior public float or prior annual revenues exceed certain thresholds.
As a smaller reporting company, we are not required
to include a Compensation Discussion and Analysis section in our proxy statements; we must provide only two years of financial statements;
and we need not provide the table of selected financial data. We also have other “scaled” disclosure requirements that are
less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential
investors, which could make it more difficult for our stockholders to sell their shares.
As a “smaller reporting company,”
we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public stockholders.
Under NYSE American rules, a “smaller reporting
company,” as defined in Rule 12b-2 under the Exchange Act, is not subject to certain corporate governance requirements otherwise
applicable to companies listed on the NYSE American. For example, a smaller reporting company is exempt from the requirement of having
a compensation committee composed solely of directors meeting certain enhanced independence standards, as long as the compensation committee
has at least two members who do meet such standards. Although we have not yet determined to avail ourselves of this or other exemptions
from the NYSE American requirements that are or may be afforded to smaller reporting companies, while we will seek to maintain our shares
on the NYSE American in the future we may elect to rely on any or all of them. By electing to utilize any such exemptions, our company
may be subject to greater risks of poor corporate governance, poorer management decision-making processes, and reduced results of operations
from problems in our corporate organization. Consequently, our stock price may suffer, and there is no assurance that we will be able
to continue to meet all continuing listing requirements of the NYSE American from which we will not be exempt, including minimum stock
price requirements.
As a non-accelerated filer, we will not
be required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.
We are not an “accelerated filer”
or a “large accelerated filer” under the Exchange Act. Rule 12b-2 under the Exchange Act defines an “accelerated filer”
to mean any company that first meets the following conditions at the end of each fiscal year: The company had a public float of $75 million
or more, but less than $700 million, as of the last business day of the company’s most recently completed second fiscal quarter;
the company has been subject to the reporting requirements of the Exchange Act for at least twelve calendar months; the company has filed
at least one annual report under the Exchange Act; and the company is not eligible to use the requirements for a “smaller reporting
company” under the revenue test in paragraph (2) or (3)(iii)(B), as applicable, of the “smaller reporting company” definition
in Rule 12b-2 of the Exchange Act. Rule 12b-2 under the Exchange Act defines a “large accelerated filer” in the same way except
that the company meeting the definition must have a public float of $700 million or more as of the last business day of the company’s
most recently completed second fiscal quarter.
A non-accelerated filer is not required to file
an auditor attestation report on internal control over financial reporting that is otherwise required under Section 404(b) of the Sarbanes-Oxley
Act.
Therefore, our internal control over financial
reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports
of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will find our common
stock less attractive because we are not required to comply with the auditor attestation requirements. If some investors find our common
stock less attractive as a result, there may be a less active trading market for our common stock and the trading price for our common
stock may be negatively affected.
Our internal control over financial reporting
currently may not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain
effective internal control over financial reporting in accordance with Section 404 could impair our ability to produce timely and accurate
financial statements or comply with applicable regulations and have a material adverse effect on our business.
As a public company, we have significant requirements
for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous
effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments and to expend
significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail
to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm
our operating results. In addition, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management
on, among other things, the effectiveness of our internal control over financial reporting in the second annual report on Form 10-K following
the completion of our initial public offering in November 2023. This assessment will need to include disclosure of any material weaknesses
identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for
our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and
possible remediation through the implementation of new internal controls and procedures and hiring accounting or internal audit staff.
Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business.
If we are not able to complete our initial assessment of our internal controls and otherwise implement the requirements of Section 404
in a timely manner or with adequate compliance, we may not be able to certify as to the adequacy of our internal control over financial
reporting.
Moreover, in the course of our former auditor’s
audit of our financial statements as of and for the year ended December 31, 2021, several material weaknesses in our internal control
over financial reporting were identified: (i) Ineffective controls over period end financial disclosures and reporting process: Due to
resource constraints, we have not formally defined internal controls over the period end financial disclosure and reporting process, including
the identification of subsequent events, which increases susceptibility to fraud or error; and (ii) Revenue recognition – customer
contracts: In connection with our former auditor’s testing of revenue, several test selections did not have documentation such as
a corresponding contract or third party written documentation of the customer’s order. While management is in the process of developing measures
intended to remediate these material weaknesses in internal control, there can be no assurance that these measures will succeed.
Matters impacting our internal controls may cause
us to be unable to report our financial information on a timely basis and thereby be required to restate our financial statements or otherwise
be subject to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules,
which may result in a breach of the covenants under existing or future financing arrangements. If we fail to meet our public reporting
obligations, investors could lose confidence in us and the reliability of our financial statements, which could have a negative effect
on the trading price of our common stock. Confidence in the reliability of our financial statements also could suffer if we report a material
weakness in our internal control over financial reporting. This could materially adversely affect us and lead to a decline in the market
price of our common stock.
We will incur significant increased costs
as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we must incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act has imposed various
requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our
management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules
and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more
time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us
to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified
members of our board of directors. We cannot predict or estimate the amount of additional costs we will incur as a public company or the
timing of such costs.
The Sarbanes-Oxley Act requires, among other things,
that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform
system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness
of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required
to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting
the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer
an emerging growth company or a non-accelerated filer. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we
incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and
we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting
firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the value of our
securities could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would
require additional financial and management resources.
Our ability to successfully
implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We
expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls
to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures
or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is
effective and to obtain an unqualified report on internal controls from our auditors if so required under Section 404 of the Sarbanes-Oxley
Act and the SEC’s implementing rules. This, in turn, could have an adverse impact on the value of our securities, and could adversely
affect our ability to access the capital markets.
Our principal stockholders, executive officers
and directors beneficially own a significant percentage of the outstanding voting power of the Company. As a result, they will be able
to exercise significant influence over all matters requiring stockholder approval.
As of the date of this prospectus, our executive officers and directors
collectively beneficially own shares representing approximately 13.6% of our outstanding common stock. Dennis Gile, our largest stockholder
and a former officer and director, beneficially owns and has voting power over approximately 15.6% of our outstanding common stock. John
Dorsey, the second-largest beneficial owner of our common stock and a former officer and director, beneficially owns and has voting power
over approximately 9.8% of our outstanding common stock. Beneficial ownership includes shares over which an individual or entity has investment
or voting power and includes shares that could be issued upon the exercise of options and warrants within 60 days after the date of determination.
On matters submitted to our stockholders for approval, holders of our common stock are entitled to one vote per share. Each of Mr. Gile
and Mr. Dorsey, individually, and our executive officers and directors collectively if they choose to act together, would have significant
influence over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these individuals
would have significant influence on the election of directors and approval of any merger, consolidation, or sale of all or substantially
all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders
may desire.
Anti-takeover
provisions contained in our Second Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
We are subject to Section 203 of
the Delaware General Corporation Law, or DGCL, which prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with
the following exceptions:
| ● | before
such date, the board of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an interested stockholder; |
| ● | upon
completion of the transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding
at the time the transaction began, excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares
owned (i) by persons who are directors and also officers and (ii) employee stock
plans in which employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer; or |
| ● | on
or after such date, the business combination is approved by the board of directors and authorized
at an annual or special meeting of the stockholders, and not by written consent, by the affirmative
vote of at least 66 2∕3% of the outstanding voting stock that is not owned by the interested
stockholder. |
In
general, Section 203 defines a “business combination” to include the following:
| ● | any
merger or consolidation involving the corporation and the interested stockholder; |
| ● | any
sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation
involving the interested stockholder; |
| ● | subject
to certain exceptions, any transaction that results in the issuance or transfer by the corporation
of any stock of the corporation to the interested stockholder; |
| ● | any
transaction involving the corporation that has the effect of increasing the proportionate
share of the stock or any class or series of the corporation beneficially owned by the interested
stockholder; and |
| ● | the
receipt by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits by or through the corporation. |
In general, Section 203 defines
an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially
owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding
voting stock of the corporation.
The statute could prohibit or delay mergers or
other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may
offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
A Delaware corporation may “opt out”
of these provisions with an express provision in its certificate of incorporation. We have not opted out of these provisions, which may,
as a result, discourage or prevent mergers or other takeover or change of control attempts of us.
In
addition, our Second Amended and Restated Bylaws contain certain provisions that may have anti-takeover effects, making it more difficult
for or preventing a third party from acquiring control of our company or changing our board of directors and management. Our Amended
and Restated Certificate of Incorporation provides that a majority of the board
of directors has the sole authority to establish the number of directors and fill any vacancies and newly created directorships. These
provisions may prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors
by filling the resulting vacancies with its own nominees. In addition, our Second Amended and Restated Bylaws provide that in addition
to any other vote required by law, no member of our board of directors may be removed from office by our stockholders without the approval
of not less than the majority of the total voting power of all of our outstanding shares of capital stock then entitled to vote in the
election of directors. Our Second Amended and Restated Bylaws also do not provide our stockholders with the power to call a special meeting
of stockholders and contain certain advance notice provisions for the submission and presentation of stockholder meeting proposals or
director nominations at a stockholder meeting, which may limit the ability of stockholders to influence the composition and business decisions
of our management.
Our Second Amended and Restated Bylaws also provide
that the Company may agree with any stockholders to restrict the sale or other disposal of the stock of the Company owned by such stockholders.
Furthermore, the holders of our common stock do
not have cumulative voting rights in the election of our directors. The combination of the present ownership by a few stockholders of
a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders
to replace our board of directors or for a third party to obtain control of our company by replacing its board of directors.
TUMIM STONE CAPITAL COMMITTED
EQUITY FINANCING FACILITY
On January 5, 2024, we entered into the Purchase
Agreement with Tumim, providing for a CEFF, pursuant to which, upon the terms and subject to the satisfaction of the conditions contained
in the Purchase Agreement, Tumim has committed to purchase, at our direction in our sole discretion, up to an aggregate of $25,000,000
of our common stock, subject to certain limitations set forth in the Purchase Agreement, from time to time during the term of the Purchase
Agreement. Concurrently with the execution of the Purchase Agreement, we and Tumim also entered into the Registration Rights Agreement,
pursuant to which we agreed to file with the SEC one or more registration statements to register under the Securities Act the offer and
resale by Tumim of all of the shares of common stock that may be issued and sold by us to Tumim from time to time under the Purchase
Agreement.
Sales of common stock by the Company to Tumim
under the Purchase Agreement, if any, may occur, from time to time at our sole discretion, over the period commencing upon the Commencement,
or the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement, including that
the initial registration statement we are required to file with the SEC pursuant to the Registration Rights Agreement, which is the registration
statement of which this prospectus forms a part, is declared effective by the SEC, and ending on the first day of the month next following
the 24-month anniversary of the Closing Date, unless the Purchase Agreement is terminated earlier under its terms.
The net proceeds from sales, if any, under the
Purchase Agreement to the Company will depend on the frequency and prices at which we sell Purchase Shares to Tumim. We expect that any
proceeds received by us from such sales to Tumim will be used for working capital and general corporate purposes.
As consideration for Tumim’s commitment to purchase shares of
common stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, on the date of the initial
filing with the SEC of the registration statement of which this prospectus forms a part, the Company was required to issue to Tumim the
Commitment Shares in an amount equal to the number of shares of common stock valued at $500,000 in the aggregate, subject to the Beneficial
Ownership Limit. The per share value of the Commitment Shares was calculated by dividing (i) the $500,000 Commitment Fee, by (ii) the
average of the daily VWAPs during the five consecutive trading day period ending on (and including) the trading day immediately prior
to the date of the initial filing of the registration statement of which this prospectus forms a part. If any shares that were otherwise
required to be issued as Commitment Shares were not permitted to be issued due to the Beneficial Ownership Limit, the Company was required
to pay to Tumim in cash the amount equal to the product of (i) the number of shares that may not be issued as Commitment Shares due to
the Beneficial Ownership Limit and (ii) the average of the daily VWAPs during the five consecutive trading day period ending on (and including)
the trading day immediately prior to the date of the initial filing of the registration statement of which this prospectus forms a part.
Accordingly, on the date of the initial filing with the SEC of the registration statement of which this prospectus forms a part, the Company
issued the Commitment Shares to Tumim, which were valued at $470,360.45 in the aggregate, based on the average of the daily VWAPs during
the five consecutive trading day period ending on (and including) the trading day immediately prior to the date of the initial filing
of the registration statement of which this prospectus forms a part, which constituted approximately 4.99% of the outstanding shares of
common stock, and, due to the Beneficial Ownership Limit and pursuant to the terms and conditions of the Purchase Agreement summarized
above, we paid Tumim $29,639.55 in cash, which equaled the number of the Commitment Shares that would have been issued but for the application
of the Beneficial Ownership Limit, multiplied by the average of the daily VWAPs during the five consecutive trading day period ending
on (and including) the trading day immediately prior to the date of the initial filing of the registration statement of which this prospectus
forms a part. In the event that the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase
Agreement does not occur by February 15, 2024, the Company will be required to pay Tumim $500,000 less the amount of the Commitment Fee
previously paid in cash upon the return and cancellation of the Commitment Shares. In addition, as required under the Purchase Agreement,
the Company has reimbursed Tumim for the reasonable legal fees and disbursements of Tumim’s legal counsel in the amount of $75,000.
In the event that the initial satisfaction of
all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement does not occur by February 15, 2024, and Tumim
terminates the Purchase Agreement as a result, the Company will be required to issue to Tumim Penny Warrants to purchase 750,000 shares
as a break-up fee. The Penny Warrants will have an exercise price of $0.01 per share, subject to full-ratchet price protection with a
floor price equal to the par value of the Company’s common stock, and customary antidilution protection. The Penny Warrants will
have a term of five years. In addition, the Company will be required to file a registration statement on Form S-1 covering the resale
by Tumim of all of the shares of common stock that may be issued upon exercise of the Penny Warrants, which must be declared effective
by the SEC by the earlier of the 45th calendar day after the date that such registration statement is filed if subject to review by the
SEC, and the 5th calendar day after the date that such registration statement is filed if the Company is notified that it will not be
reviewed by the SEC. The Company will be required to maintain the effectiveness of the registration statement until the later of the
date that the Penny Warrants are terminated and all shares that were purchased by exercise of the Penny Warrants are sold.
Under the Boustead Engagement Letter, Boustead is acting as the placement
agent in connection with the transactions contemplated by the Purchase Agreement. We agreed to issue Boustead 49,193 shares of common
stock immediately after we issued the Commitment Shares to Tumim on January 26, 2024, equal to 7.0% of the number of Commitment Shares
that would have been issued but for the application of the Beneficial Ownership Limit, as a fee pursuant to the Boustead Engagement Letter.
Under the Boustead Engagement Letter, the Company is also required to issue to Boustead warrants to purchase a number of shares equal
to 7.0% of the shares of common stock issued to Tumim pursuant to purchases under the Purchase Agreement, with an exercise price equal
to the applicable purchase price per share, or, in the event that the Penny Warrants are required to be issued pursuant to the Purchase
Agreement, warrants to purchase 52,500 shares of common stock, with the same exercise price terms as the Penny Warrants. The warrants
that are required to be issued to Boustead will be exercisable for a period of five years from the date of issuance and contain cashless
exercise provisions. Boustead also has certain registration rights with respect to these warrants, which Boustead has waived with respect
to the registration statement of which this prospectus forms a part. Boustead and its affiliates are not in any manner related to Tumim
or any of Tumim’s affiliates. Boustead’s compensation under the Boustead Engagement Letter in connection with the Purchase
Agreement is subject to reduction or adjustment to the extent that such compensation is determined to be in excess of or otherwise noncompliant
with applicable rules of FINRA.
The terms and conditions of the Purchase Agreement
and the Registration Rights Agreement are further described below.
Purchase of Shares Under the Purchase Agreement
From and after the Commencement Date, we will
have the right, but not the obligation, from time to time at our sole discretion, to direct Tumim to effect a VWAP Purchase as to amounts
of common stock that are specified by the Company to Tumim in writing, subject to certain maximum amounts calculated pursuant to the
Purchase Agreement. The purchase price per share to be paid by Tumim for shares of common stock that the Company may elect to sell to
Tumim will be equal to 95% of the lowest daily VWAP of the common stock during the three consecutive trading days immediately following
the date that the VWAP Purchase Notice with respect to the particular VWAP Purchase is timely delivered from the Company to Tumim, provided
that (i) the Company may not deliver more than one VWAP Purchase Notice to Tumim on any single trading day, (ii) at least three trading
days have elapsed since the trading day on which the most recent VWAP Purchase Notice was delivered by the Company to Tumim, (iii) the
closing sale price of the common stock on such date is not lower than $0.15, as adjusted for stock splits and similar transactions, and
(iv) all shares of common stock subject to all prior VWAP Purchases by Tumim under the Purchase Agreement have been received by Tumim
electronically as set forth in the Purchase Agreement.
The maximum number of shares of common stock
that may be required to be purchased pursuant to a VWAP Purchase Notice will be equal to the lowest of:
| § | (i)
100% of the average daily trading volume in the common stock for the five consecutive trading
day period ending on (and including) the trading day immediately preceding the applicable
day Tumim receives a VWAP Purchase Notice; |
| § | (ii)
the product obtained by multiplying (A) the daily trading volume in the common stock on the
applicable day Tumim receives a VWAP Purchase Notice and (B) 0.30; and |
| § | (iii)
the quotient obtained by dividing (A) $2,000,000 by (B) the VWAP of the common stock on the
trading day immediately preceding the applicable day Tumim receives a VWAP Purchase Notice. |
There are no upper limits on the price per share
that Tumim must pay for shares of common stock we direct Tumim to purchase in a VWAP Purchase under the Purchase Agreement. The purchase
price per share of common stock that we direct Tumim to purchase in a VWAP Purchase under the Purchase Agreement will be appropriately
adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction during
the period used to determine the purchase price to be paid by Tumim for such Purchase Shares in such VWAP Purchase.
Tumim has no right to require us to sell any
shares of common stock to Tumim, but Tumim is obligated to make purchases of common stock as directed by the Company, subject to the
satisfaction of conditions set forth in the Purchase Agreement at Commencement and thereafter at each time that we may direct Tumim to
purchase shares of common stock under the Purchase Agreement. Actual sales of common stock by the Company to Tumim under the Purchase
Agreement, if any, will depend on a variety of factors to be determined by the Company in its sole discretion from time to time, including,
among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources
of funding for the Company and its operations.
Conditions to Commencement and Delivery of VWAP Purchase Notices
Our ability to deliver VWAP Purchase Notices
to Tumim under the Purchase Agreement are subject to the satisfaction, both at the time of Commencement and at the time of delivery by
the Company of any VWAP Purchase Notice to Tumim, of certain conditions, all of which are entirely outside of Tumim’s control,
including, among other things, the following:
| ● | the
accuracy in all material respects of our representations and warranties included in the Purchase
Agreement; |
| ● | us
having performed, satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Purchase Agreement to be performed, satisfied or complied
with by us; |
| ● | the
effectiveness of this registration statement that includes this prospectus (and any one or
more additional registration statements required to be filed with the SEC pursuant to the
Registration Rights Agreement that include shares of common stock that may be issued and
sold by us to Tumim under the Purchase Agreement); |
| ● | the
SEC shall not have issued any stop order suspending the effectiveness, prohibiting or suspending
the use of the registration statement that includes this prospectus (or any one or more additional
registration statements filed with the SEC that include shares of common stock that may be
issued and sold by us to Tumim under the Purchase Agreement); |
| ● | there
shall not have occurred any event and there shall not exist any condition or state of facts,
which makes any statement of a material fact made in the registration statement of which
this prospectus forms a part (or in any one or more additional registration statements filed
with the SEC that include shares of common stock that may be issued and sold by us to Tumim
under the Purchase Agreement) untrue or which requires the making of any additions to or
changes to the statements contained therein in order to state a material fact required by
the Securities Act to be stated therein or necessary in order to make the statements then
made therein (in the case of this prospectus or the prospectus included in any one or more
additional registration statements filed with the SEC under the Registration Rights Agreement,
in light of the circumstances under which they were made) not misleading; |
| ● | trading
in our common stock shall not have been suspended by the SEC or the NYSE American, we shall
not have received any final and non-appealable notice that the listing or quotation of the
common stock on the NYSE American shall be terminated on a date certain (unless, prior to
such date, the common stock is listed or quoted on the New York Stock Exchange (“NYSE”),
the Nasdaq Capital Market tier of The Nasdaq Stock Market LLC (“Nasdaq”), the
Nasdaq Global Market tier of Nasdaq, the Nasdaq Global Select Market tier of Nasdaq, or the
NYSE Arca (or any nationally recognized successor to any of the foregoing) (each, an “Eligible
Market”), and there shall be no suspension of, or restriction on, accepting additional
deposits of the common stock, electronic trading or book-entry services by DTC with respect
to the common stock; |
| ● | we
shall have complied with all applicable federal, state and local governmental laws, rules,
regulations and ordinances in connection with the execution, delivery and performance of
the Purchase Agreement and the Registration Rights Agreement; |
| ● | the
absence of any statute, regulation, order, decree, writ, ruling or injunction by any court
or governmental authority of competent jurisdiction which prohibits the consummation of or
that would materially modify or delay any of the transactions contemplated by the Purchase
Agreement or the Registration Rights Agreement; |
| ● | the
absence of any action, suit or proceeding before any arbitrator or any court or governmental
authority seeking to restrain, prevent or change the transactions contemplated by the Purchase
Agreement or the Registration Rights Agreement, or seeking material damages in connection
with such transactions; |
| ● | all
of the shares of common stock that may be issued pursuant to the Purchase Agreement shall
have been approved for listing or quotation on the NYSE American (or if the common stock
is not then listed on the NYSE American, on any Eligible Market); |
| ● | no
condition, occurrence, state of facts or event constituting a Material Adverse Effect shall
have occurred and be continuing; |
| ● | the
absence of any voluntary or involuntary participation or threatened participation in insolvency
or bankruptcy proceedings by or against us; and |
| ● | the
receipt by Tumim of the opinions, bring-down opinions and negative assurances from outside
counsel to us, the comfort letters and bring-down comfort letters from our current and former
auditors, if applicable, and compliance certificates in the forms mutually agreed to by us
and Tumim. |
No Short-Selling or Hedging by Tumim Stone Capital
During the term of the Purchase Agreement, Tumim
covenanted not to enter into or effect, in any manner whatsoever, directly or indirectly, any short sales of the common stock or hedging
transaction which establishes a net short position with respect to the common stock.
Prohibition on Variable Rate Transactions
There are no restrictions on future financings,
rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement,
other than a prohibition (with certain limited exceptions) on the Company entering into specified “Variable Rate Transactions”
(as such term is defined in the Purchase Agreement). Such transactions include, among others, the issuance of convertible securities
with a conversion or exercise price that is based upon or varies with the trading price of the common stock after the date of issuance,
or the Company effecting or entering into an agreement to effect an “equity line of credit,” an “at the market offering”
or other similar continuous offering with a third party, in which the Company may offer, issue or sell common stock or any securities
exercisable, exchangeable or convertible into common stock at future determined prices. Such restrictions shall remain in effect for
a period commencing on the Closing Date and ending on the earlier of (i) the first day of the month next following the 24-month anniversary
of the Closing Date and (ii) the six-month anniversary of the effective date of the termination of the Purchase Agreement pursuant to
its terms.
Beneficial Ownership Limit
We may not issue or sell any shares of common
stock to Tumim under the Purchase Agreement which, when aggregated with all other shares of common stock then beneficially owned by Tumim
and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act, and Rule 13d-3 promulgated thereunder), would result
in Tumim beneficially owning more than 4.99% of the outstanding shares of the common stock.
Exchange Cap
Under the applicable rules of the NYSE American,
in no event may we issue to Tumim under the Purchase Agreement more than the Exchange Cap of 2,648,385 shares of common stock, which
number of shares represents 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Purchase Agreement,
unless we obtain the Stockholder Approval, to issue shares of common stock in excess of the Exchange Cap in accordance with applicable
NYSE American listing rules. The Exchange Cap will not be applicable to limit the number of shares of common stock that we may sell to
Tumim in any VWAP Purchase that we effect pursuant to the Purchase Agreement (if any), to the extent the purchase price per share paid
by Tumim for the shares of common stock in such VWAP Purchase is equal to or greater than the greater of book or market value of the
common stock (calculated in accordance with the applicable listing rules of the NYSE American) at the time we deliver the VWAP Purchase
Notice for such VWAP Purchase to Tumim, adjusted as required by the NYSE American to take into account our payment of the Commitment
Fee to Tumim and the amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection with the
CEFF, each as described in more detail above, and otherwise as may be necessary to ensure compliance with the applicable rules of the
NYSE American. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of common stock under
the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of NYSE American.
Stockholder Meeting Covenant
Pursuant to the Purchase Agreement, we are obligated
to convene a special meeting of our stockholders at the earliest reasonably practical date, but in no event later than 120 days after
the date of the Purchase Agreement for the purpose of obtaining the Stockholder Approval, and to use our reasonable best efforts to obtain
the Stockholder Approval at such stockholder meeting. Accordingly, as set forth in the definitive proxy materials the Company has filed
with the SEC on December 29, 2023 and on January 2, 2024, the Company has scheduled the Special Stockholders’ Meeting to be held
on February 27, 2024 for the purpose of, among other things, obtaining the Stockholder Approval. If the Company does not obtain the Stockholder
Approval at the Special Stockholders’ Meeting on February 27, 2024, the Purchase Agreement requires the Company to convene another
stockholders’ meeting at least every three months after February 27, 2024 for the purpose of obtaining the Stockholder Approval,
until the earlier of (i) the date on which the Stockholder Approval is finally obtained and (ii) the termination of the Purchase Agreement.
Termination of the Purchase Agreement
The Purchase Agreement will automatically terminate
upon the earliest of:
| ● | the
first day of the month next following the 24-month anniversary of the Closing Date; |
| ● | Tumim’s
purchase of shares of common stock having an aggregate purchase price equal to $25,000,000
under the Purchase Agreement; |
| ● | the
date on which the common stock shall have failed to be listed or quoted on NYSE American
or any other Eligible Market; |
| ● | the
30th trading day next following the date on which we commence a voluntary bankruptcy
case or any third party commences a bankruptcy proceeding against us, in each case that
is not discharged or dismissed prior to such 30th trading day; or |
| ● | the
date on which a custodian is appointed for us in a bankruptcy proceeding for all or substantially
all of our property, or we make a general assignment for the benefit of our creditors. |
The
Company has the right to terminate the Purchase Agreement at any time after Commencement, upon five trading days’ prior written
notice to Tumim, provided that:
| ● | the
Company shall have paid the entire Commitment Fee to Tumim (in cash or by the issuance of
Commitment Shares, as required pursuant to the Purchase Agreement) in accordance with the
Purchase Agreement and paid all fees and amounts to Tumim’s counsel required to be
paid pursuant to the Purchase Agreement prior to such termination; and |
| ● | prior
to issuing any press release, or making any public statement or announcement, with respect
to such termination, the Company will consult with Tumim and its counsel on the form and
substance of such press release or other disclosure. |
We
and Tumim may also terminate the Purchase Agreement at any time by mutual written consent.
Tumim
may terminate the Purchase Agreement upon five trading days’ prior written notice upon the occurrence of certain events, including:
| ● | the
occurrence of a Material Adverse Effect; |
| ● | the
occurrence of a Fundamental Transaction (as defined in the Purchase Agreement) involving
us; |
| ● | our
failure to file with the SEC or have declared effective by the SEC the registration statement
of which this prospectus forms a part or any additional registration statement we file with
the SEC pursuant to the Registration Rights Agreement, within the time periods set forth
in the Registration Rights Agreement or our breach or default of the Registration Rights
Agreement; |
| ● | the
effectiveness of the registration statement of which this prospectus forms a part or any
additional registration statement we file with the SEC pursuant to the Registration Rights
Agreement lapses for any reason (including the issuance of a stop order by the SEC), or this
prospectus or the prospectus included in any additional registration statement we file with
the SEC pursuant to the Registration Rights Agreement otherwise becomes unavailable to Tumim
for the resale of all of the shares of common stock included therein, and such lapse or unavailability
continues for a period of 20 consecutive trading days or for more than an aggregate of 60
trading days in any 365-day period, other than due to acts of Tumim; |
| ● | trading
in the common stock on the NYSE American (or if the common stock is then listed on an Eligible
Market, trading in the common stock on such Eligible Market) has been suspended for a period
of three consecutive trading days; |
| ● | our
material breach or default under the Purchase Agreement; or |
| ● | the
Commencement shall not have occurred on or prior to February 15, 2024. |
No
termination of the Purchase Agreement by us or by Tumim will become effective prior to the fifth trading day immediately following the
applicable settlement date related to any pending VWAP Purchase that has not been fully settled in accordance with the terms and conditions
of the Purchase Agreement.
In
addition, a termination of the Purchase Agreement will not affect:
| ● | any
of our respective rights and obligations under the Purchase Agreement with respect to any
pending VWAP Purchase; |
| ● | the
Commitment Fee payable to Tumim (whether payable in cash or by the issuance of Commitment
Shares); |
| ● | Tumim’s
right to be paid for the reasonable legal fees and disbursements of Tumim’s legal counsel
in the amount of $75,000; and |
| ● | our
and Tumim’s respective obligations with respect to any such pending VWAP Purchase under
the Purchase Agreement. |
Furthermore,
no termination of the Purchase Agreement will affect:
| ● | the
Registration Rights Agreement, which will survive any termination of the Purchase Agreement; |
| ● | the
prohibition on any Variable Rate Transactions until the earlier of (i) the first day of the
month next following the 24-month anniversary of the date of the Purchase Agreement or (ii)
the six-month anniversary of the effective date of the termination of the Purchase Agreement; |
| ● | in
the event that the initial satisfaction of all conditions to Tumim’s purchase obligations
set forth in the Purchase Agreement does not occur by February 15, 2024, and Tumim terminates
the Purchase Agreement as a result, the Company’s obligation to issue Tumim the Penny
Warrants, and to comply with the registration requirements relating to the Penny Warrants
as described above; or |
| ● | as
long as Tumim owns any of the Commitment Shares or the Purchase Shares, the Company’s
other covenants and agreements under the Purchase Agreement, which shall remain in full force
and effect for the six-month period following such termination. |
Representations, Warranties, Conditions and
Indemnification Obligations
The Purchase Agreement and the Registration Rights
Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations,
warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely
for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
Effect of Performance of the Purchase Agreement
on our Stockholders
The Purchase Shares may be issued and sold by
us to Tumim from time to time at our discretion over the period beginning on the Commencement Date and ending on the first day of the
month next following the 24-month anniversary of the Closing Date, unless the Purchase Agreement is terminated earlier under its terms.
All shares of common stock that have been or may be issued or sold by us to Tumim under the Purchase Agreement that are being registered
under the Securities Act for resale by Tumim in this offering are expected to be freely tradable. The resale by Tumim of a significant
amount of shares registered for resale in this offering at any given time, or the perception that these sales may occur, could cause
the market price of our common stock to decline and to be highly volatile.
We do not know what the purchase price will be for Purchase Shares
that we may issue and sell to Tumim under the Purchase Agreement, if any, and therefore cannot be certain as to the number of shares of
our common stock we might issue to Tumim under the Purchase Agreement after the Commencement Date. As of January 26, 2024, there were
13,958,847 shares of our common stock outstanding, of which 8,831,246 shares are estimated to be held by non-affiliates. Although the
Purchase Agreement provides that we may sell up to $25,000,000 of common stock to Tumim, only 4,661,102 shares of common stock are being
registered for resale by the Selling Stockholder by means of this prospectus, which represent (i) the 661,102 Commitment Shares which
have previously been issued and (ii) up to 4,000,000 shares of common stock that may be issued and sold by us to Tumim as Purchase Shares
under the Purchase Agreement from and after the Commencement Date, if and when we elect to sell Purchase Shares to Tumim under the Purchase
Agreement. Depending on the market prices of our common stock at the time we elect to issue and sell Purchase Shares to Tumim under the
Purchase Agreement, we may need to register for resale under the Securities Act additional shares of our common stock in order to receive
aggregate gross proceeds equal to the aggregate $25,000,000 available to us under the Purchase Agreement. If, in addition to the 661,102
Commitment Shares that are currently issued and outstanding, all of the 4,000,000 Purchase Shares that may be offered and resold by Tumim
by means of this prospectus were issued and outstanding as of the date hereof (without taking into account the 19.99% Exchange Cap limitation
and the 4.99% Beneficial Ownership Limit), such Commitment Shares and Purchase Shares, collectively, would represent approximately 26.0%
of the total number of shares of our common stock outstanding and approximately 52.8% of the total number of outstanding shares held by
non-affiliates, in each case as of the date hereof. If we elect to issue and sell more than the 4,000,000 Purchase Shares offered by means
of this prospectus to Tumim, which we have the right, but not the obligation, to do, we must first register for resale under the Securities
Act any such additional shares, which could cause additional substantial dilution to our stockholders. The total number of shares of common
stock ultimately offered for resale by Tumim by means of this prospectus is dependent upon the number of Purchase Shares that we may ultimately
elect to sell to Tumim under the Purchase Agreement from and after the Commencement Date.
There are substantial risks to our stockholders
as a result of the sale and issuance of common stock to by us to Tumim under the Purchase Agreement. See “Risk Factors”
above. Issuances of our common stock to Tumim pursuant to the Purchase Agreement will not affect the rights or privileges of our existing
stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such
issuance. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our
existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance of shares of our common
stock by us to Tumim pursuant to the Purchase Agreement.
The following table sets forth the amount of
gross proceeds we would receive from Tumim from our sale of shares to Tumim under the Purchase Agreement at varying purchase prices:
Assumed Average Purchase Price Per Share | |
Number of Registered Purchase Shares to be Issued if Full Purchase(1) | |
Percentage of Outstanding Shares After Giving Effect to the Issuance to Tumim(2) | |
Gross Proceeds from the Sale of Purchase Shares to Tumim Under the Purchase Agreement |
$0.50 | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 2,000,000 | |
$0.75 | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 3,000,000 | |
$0.68(3) | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 2,720,000 | |
$1.00 | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 4,000,000 | |
$1.50 | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 6,000,000 | |
$2.00 | |
| 4,000,000 | | |
| 22.2 | % | |
$ | 8,000,000 | |
(1) | Although the Purchase Agreement provides that we may sell up to $25,000,000
of our common stock to Tumim, we are only registering 4,661,102 shares under this prospectus which represents 661,102 Commitment Shares
which have been issued to Tumim and 4,000,000 Purchase Shares which may be issued to Tumim in the future under the Purchase Agreement
if and when we sell shares in the future to Tumim under the Purchase Agreement, and which may or may not cover all the shares we ultimately
sell to Tumim under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only
those shares that we are registering in this offering, without regard to the Beneficial Ownership Cap or the Exchange Cap. If we seek
to issue shares of our common stock, including shares from other transactions that may be aggregated with the transactions contemplated
by the Purchase Agreement under the applicable rules of the NYSE American, in excess of the Exchange Cap, we may be required to obtain
the Stockholder Approval in order to be in compliance with the rules of the NYSE American. The assumed average purchase prices per share
are solely for illustrative purposes and are not intended to be estimates or predictions of the future performance of our common stock. |
(2) | The denominator is based on 13,958,847 shares outstanding as of January
26, 2024, which includes the 661,102 Commitment Shares issued to Tumim as consideration to purchase the Purchase Shares, and adjusted
to include the number of shares set forth in the adjacent column which we would have sold to Tumim, assuming the purchase price in the
first column. The numerator is based on the number of Purchase Shares issuable under the Purchase Agreement at the corresponding assumed
purchase price set forth in the first column. |
(3) | The closing sale price of our common stock on January 25, 2024. |
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than
statements of historical facts are forward-looking statements. The forward-looking statements are contained principally in, but not limited
to, the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to
future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
| ● | anticipated
benefits from strategic alliances and collaborations with certain sports organizations or
celebrity professional sports consultants; |
| ● | our
ability to implement certain desired artificial intelligence features into our platform; |
| ● | our
anticipated ability to obtain additional funding to develop additional services and offerings; |
| ● | expected
market acceptance of our existing and new offerings; |
| ● | anticipated
competition from existing online offerings or new offerings that may emerge; |
| ● | anticipated
favorable impacts from strategic changes to our business on our net sales, revenues, income
from continuing operations, or other results of operations; |
| ● | our
expected ability to attract new users and customers, with respect to football, sports other
than football, or both; |
| ● | our
expected ability to increase the rate of subscription renewals; |
| ● | our
expected ability to slow the rate of user attrition; |
| ● | our
expected ability and third parties’ abilities to protect intellectual property rights; |
| ● | our
expected ability to adequately support future growth; |
| ● | our
expected ability to comply with user data privacy laws and other legal requirements; |
| ● | anticipated
legal and regulatory requirements and our ability to comply with such requirements; and |
| ● | our
expected ability to attract and retain key personnel to manage our business effectively. |
In some cases, you can identify forward-looking
statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,”
“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “project” or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions. Factors that may cause actual results to differ materially from current expectations include,
among other things, those listed under the heading “Risk Factors” and elsewhere in this prospectus. If one or more
of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly
from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
The forward-looking statements made in this prospectus
relate only to events or information as of the date on which the statements are made in this prospectus. Although we will become a public
company after the Company’s initial public offering and have ongoing disclosure obligations under United States federal securities
laws, we do not intend to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information,
future events or otherwise.
USE OF PROCEEDS
This prospectus relates to shares of our common
stock that may be offered and sold from time to time by the Selling Stockholder. All of the common stock offered by the Selling Stockholder
pursuant to this prospectus will be sold by the Selling Stockholder for its own account. We will not receive any of the proceeds from
these sales. We may receive up to $25,000,000 aggregate gross proceeds under the Purchase Agreement from any sales we make to Tumim pursuant
to the Purchase Agreement. The net proceeds from sales, if any, under the Purchase Agreement, will depend on the frequency and prices
at which we sell shares of common stock to the Selling Stockholder after the date of this prospectus. See the section titled “Plan
of Distribution” elsewhere in this prospectus for more information.
We expect to use any proceeds that we receive
under the Purchase Agreement for working capital and general corporate purposes. As of the date of this prospectus, we cannot specify
with certainty all of the particular uses, and the respective amounts we may allocate to those uses, for any net proceeds we receive.
Accordingly, we will retain broad discretion over the use of these proceeds.
DIVIDEND POLICY
We have never declared or paid cash dividends
on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business
and do not anticipate paying any cash dividends on our common stock in the near future. We may also enter into credit agreements or other
borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. Any future
determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition,
operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors
may deem relevant. See also “Risk Factors – Risks Related to Our Common Stock – We do not expect to declare or pay
dividends in the foreseeable future.”
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes
the significant factors affecting our operating results, financial condition, liquidity and cash flows of our company as of and for the
periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related
notes thereto included elsewhere in this prospectus. The discussion contains forward-looking statements that are based on the beliefs
of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially
from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this prospectus, particularly in the sections titled “Risk Factors” and “Cautionary Statement Regarding
Forward-Looking Statements”.
Overview
We are a technology
company developing and operating a platform to give significantly more student-athletes the opportunity to go to college and
continue playing sports. Our platform, Signing Day Sports, is a digital ecosystem to help athletes get discovered and recruited by
coaches and recruiters across the country. We fully support football, baseball, softball, and men’s and women’s soccer,
and we plan to expand the Signing Day Sports platform to include additional sports. Each sport is led by former professional
athletes and coaches who know what it takes to get to the big leagues.
Signing Day Sports launched
in 2019, and as of September 2023, many high schools, sports clubs, and aspiring high school athletes have subscribed to the Signing
Day Sports platform. Colleges in the NCAA Division I, Division II, and Division III, and the NAIA, have utilized our platform for recruitment
purposes. Signing Day Sports initially supported football athletes, and now also offers a platform for baseball, softball, and men’s
and women’s soccer, resulting in even more recruiter and athlete platform participants.
We founded Signing Day
Sports to reinvent the high school and college sports recruiting process for the digital era. When we started the Company, recruiting
was still being done largely as it had been done since before the mass availability of Internet-connected devices and was still limited
by that model. We identified the flaws in the recruiting process and the unique opportunity it presented for us to become a solution
provider in the industry. We developed and operated our platform with the objective of optimizing and enhancing the sports recruitment
process across all sizes of colleges and athletic departments.
Our ability to leverage
modern technologies to bring coaches and athletes together in a mutually beneficial ecosystem has shown significant benefits for both
sides of the student-athlete recruitment process. Parents and athletes can use the platform to understand and provide what recruiters
want to see, seek and gain offers of better athletic scholarships or other financial aid packages, and maximize the potential of an athlete’s
career. Recruiters now have a comprehensive recruitment application that shows video verification of key attribute data and gives the
recruiter the ability to narrow down their search with a highly optimized search engine and athlete screening process.
In short, we offer a comprehensive solution that
services the needs of all participants in the sports recruitment process. We are aware of no other platform that offers what our platform
does. Our goal is to change the way sports recruitment is done for the betterment of everyone.
Our Historical Performance
We have incurred losses
for each period from our inception and a significant accumulated deficit. For the nine months ended September 30, 2023 and 2022, our
net loss was approximately $2.676 million and $4.723 million, respectively, and our net cash used in operating activities was approximately
$1.497 million and $4.545 million, respectively. As of September 30, 2023, December 31, 2022, we had cumulative losses of approximately
$20.8 million and $18.1 million, respectively. For the fiscal years ended December 31, 2022 and 2021, our net loss was approximately
$6.7 million and $8.8 million, respectively, our cash used in operating activities was approximately $4.9 million and $5.7 million, respectively,
and we had cumulative losses of approximately $18.1 million and $11.5 million,
respectively. We expect to incur expenses and operating losses over the next several years. We plan to finance our operations
primarily using proceeds from our recent initial public offering in November 2023, the use of our committed equity financing facility,
and other capital raises until our transition to profitable operations, at which point we plan to finance operations primarily from profits.
These plans, if successful, will mitigate the factors which raise substantial doubt about the Company’s ability to continue
as a going concern. However, there can also be no assurance that our financial resources will be sufficient to remain in operation or
that necessary financing will be available on satisfactory terms, if at all. There can also be no assurance that we will succeed in generating
sufficient revenues to continue our operations as a going concern.
For further discussion,
see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources – Going Concern”.
Emerging Growth Company
We
qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions
from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have
an auditor report on our internal control over financial reporting pursuant to Section 404(b)
of the Sarbanes-Oxley Act; |
| ● | being
permitted to present only two years of audited financial statements, in addition to any required
unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure
in this prospectus; |
| ● | comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report providing
additional information about the audit and the financial statements (i.e., an auditor discussion
and analysis); |
| ● | submit
certain executive compensation matters to stockholder advisory votes, such as “say-on-pay”
and “say-on-frequency;” and |
| ● | disclose
certain executive compensation related items such as the correlation between executive compensation
and performance and comparisons of the chief executive officer’s compensation to median
employee compensation. |
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits
of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards.
We will remain an emerging growth company for
up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed
$1,235,000,000, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.
Principal Factors Affecting Our Financial
Performance
Our operating results are primarily affected
by the following factors:
| ● | our ability to acquire new customers and users or retain
existing customers and users; |
| ● | our ability to offer competitive product pricing; |
| ● | our ability to broaden product offerings; |
| ● | our ability to leverage technology and use and develop efficient
processes; |
| ● | our ability to attract and retain talented employees; |
| ● | industry demand and competition; and |
| ● | market conditions and our market position. |
Results of Operations
Comparison of Three Months Ended September
30, 2023 and 2022
| |
Three Months Ended | |
| |
September 30, 2023 | | |
September 30, 2022 | |
Revenues, net | |
$ | 55,212 | | |
$ | 3,352 | |
Cost of revenues | |
| 10,238 | | |
| 162,050 | |
Gross profit (loss) | |
| 44,974 | | |
| (158,698 | ) |
| |
| | | |
| | |
Operating cost and expenses | |
| | | |
| | |
Advertising and marketing | |
| 75,565 | | |
| 131,075 | |
General and administrative | |
| 567,522 | | |
| 733,191 | |
| |
| | | |
| | |
Total operating expenses | |
| 643,087 | | |
| 864,266 | |
| |
| | | |
| | |
Net income (loss) from operations | |
| (598,113 | ) | |
| (1,022,964 | ) |
| |
| | | |
| | |
Other Income (expense) | |
| | | |
| | |
Interest expense | |
| (309,217 | ) | |
| - | |
Interest income | |
| - | | |
| 5 | |
Other expense | |
| (2,347 | ) | |
| - | |
Other income | |
| (9,894 | ) | |
| 29,682 | |
| |
| | | |
| | |
Total other income (expense) | |
| (321,512 | ) | |
| 29,687 | |
| |
| | | |
| | |
Net loss | |
$ | (919,625 | ) | |
$ | (993,277 | ) |
Revenues, Net
Net revenues for the three months ended
September 30, 2023 and 2022 were approximately $0.055 million and $0.003 million, respectively. Net revenues increased approximately
$0.052 million, or approximately 1,547.1%, primarily due to an increase in user subscriptions. The increase in net revenues during the
three months ended September 30, 2023 compared to the three months ended September 30, 2022 was offset by a reduction in the average
revenues per subscription to approximately $28 per monthly subscription during the third quarter of 2023 from approximately $32 per monthly
subscription during the third quarter of 2022. The reduced average revenues per user subscription was in turn due to the reduction
of monthly subscriptions to $24.99 from $29.99, the non-renewal of all of our former high school sports program group subscriptions,
and a subscription conversion rate of users under a former free use arrangement of less than 1%.
The following table presents information about
the number of users of our app under subscriptions by type of subscription plan for each of the three-month periods ended September 30,
2023 and 2022. Subscriptions to our app require payment prior to app access except that group subscriptions may make payments on a monthly
installment basis. See also “—Critical Accounting Policies – Payment Terms”.
| |
Users with Subscriptions | |
Subscription Type | |
Three Months
Ended September 30,
2023 | | |
Three Months
Ended September 30,
2022 | |
Monthly | |
| 1,201 | | |
| 95 | |
Annual | |
| 1 | | |
| 0 | |
Semi-Annual | |
| - | (1) | |
| 19 | |
Group – High School | |
| - | | |
| 1 | |
Group – General | |
| 0 | | |
| 1 | |
Total: | |
| 1,202 | | |
| 116 | |
(1) Semi-annual subscriptions were not offered
after 2022.
The following table presents information about
the number of users of our app under a former free use arrangement and the number of users with subscriptions for each of the three-month
periods ended September 30, 2023 and 2022.
| |
Number of Users | |
User Type | |
Three Months
Ended September 30,
2023 | | |
Three Months
Ended September 30,
2022 | |
Free Use Arrangement(1) | |
| - | | |
| 531 | |
Subscription | |
| 1,202 | | |
| 116 | |
Total(1): | |
| 1,202 | | |
| 647 | |
(1) | Does not include users that were provided free use as college
coaches. |
We anticipate that the number of users with subscriptions
and revenues will continue to increase in future periods due to four strategic changes to our business during the fourth quarter of 2022.
First, our former promotional free use arrangement for certain high school sports programs was discontinued, and since that time we have
generally required that all users other than college coaches be covered under a subscription after a temporary trial period. Second,
we reextended our app and website design and related marketing approach from the prior model of a recruitment tool for college sports
recruiters to restore a major direct-to-consumer component including by increasing in-person recruiting events and consumer digital marketing,
reducing our monthly subscription fee from $29.99 to $24.99, and enhancing education resources on our website and other communication
channels. Third, we have signed strategic alliance, marketing, sponsorship, and collaboration agreements with significant college sports
recruiting industry participants, including GOAT Farm Sports, the owner of the U.S. Army Bowl, providing preferential access to student-athletes
at many sports combines and events throughout the year for which we have committed to act as an official events sponsor and college sports
recruitment platform, initially primarily for college football recruitment-related events due to our historic strengths in this sport
and eventually for other college sports recruitment-related events. Fourth, we determined to extend our app and website to support baseball,
softball, and men’s and women’s soccer recruitment as well as football, to support other sports in the future, to support
the particular priorities of strategic sports recruiting allies and collaborators, and apply the other aspects of our business model
to the end of generating revenues from the significant markets for these major college sports areas, alliances, and collaborations. These
changes are anticipated to increase first-time subscriptions by both individual users and groups, increase the rate of subscription renewals
by individual monthly subscribers, and slow individual user attrition due to the inherently limited college recruiting cycle for each
student-athlete.
However, we caution that the extent and timing
of any favorable impacts from the strategic changes to our business described above on our net sales, revenues, income from continuing
operations, or other results of operations, are subject to, and may be offset by, unfavorable impacts on our results of operations, due
to many other factors and uncertainties that are discussed throughout this prospectus, including under “Risk Factors”,
“Cautionary Statement Regarding Forward-Looking Statements”, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, the notes to the financial statements accompanying this prospectus, and
in the reports of our current and former independent registered public accounting firms accompanying this prospectus.
Cost of Revenues
Cost of revenues for the three months ended September
30, 2023 and 2022 was approximately $0.01 million and $0.16 million, respectively. Cost of revenue decreased approximately $0.15 million,
or 93.7%, primarily due to a reduction in software development staff, which reduced cost of revenues by approximately $0.12 million,
and the full capitalization of approximately $0.4 million of software development labor costs during the three months ended September
30, 2023, which reduced cost of revenues by approximately $0.4 million. Amortization of the Company’s platform’s capitalized
costs for purposes of football recruitment started on January 1, 2023 due to its ready-for-use status. The capitalized cost for the period
ending September 30, 2023 will have straight-line amortization expense to cost of revenue for a period of five years beginning January
1, 2023. The Company expects that it may continue to advance toward a positive operating margin in future periods by optimal use
of its previous software investments and streamlined and outsourced software development staff. However, we caution that the extent and
timing of any favorable impacts from the measures described above on our net sales, revenues, income from continuing operations, or other
results of operations, are subject to, and may be offset by, unfavorable impacts on our results of operations, due to many other factors
and uncertainties that are discussed throughout this prospectus, including under “Risk Factors”, “Cautionary
Statement Regarding Forward-Looking Statements”, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”, the notes to the financial statements accompanying this prospectus, and in the reports of our current
and former independent registered public accounting firms accompanying this prospectus.
Advertising and Marketing
Advertising and marketing expenses were approximately
$0.075 million and $0.131 million for the three months ended September 30, 2023 and 2022, respectively. The decrease of approximately
$0.056 million, or 42.3%, was due to minimal advertising and marketing costs during the three months ended September 30, 2023 principally
relating to promotion of the Company and its app in connection with the U.S. Army Bowl, reliance on enhancements to our app and website’s
direct-to-consumer design and resources, preferential access to mass in-person recruiting events, and determination to extend the functionality
of our app to support baseball, softball, and men’s and women’s soccer college recruitment in order to increase users during
the three months ended September 30, 2023, and the non-repetition of incurred expenses for a $0.1 million payment in September 2022 required
under our sponsorship agreement relating to the U.S. Army Bowl and an approximately $0.02 million social media marketing campaign conducted
during the three months ended September 30, 2022.
General and Administrative
General and administrative expenses were approximately
$0.57 million and $0.73 million for the three months ended September 30, 2023 and 2022, respectively. The decrease of approximately
$0.17 million, or 22.6%, was primarily due to a decrease in legal expenses of approximately $0.09 million and reduction in nonessential
employees of approximately $0.07 million.
Interest Expense
Interest expense was approximately $0.3 million
and $0 for the three months ended September 30, 2023 and 2022, respectively. The increase was due to an increase in nonconvertible
notes payable.
Comparison of Nine Months Ended September
30, 2023 and 2022
| |
Nine Months Ended | |
| |
September 30, 2023 | | |
September 30, 2022 | |
Revenues, net | |
$ | 226,042 | | |
$ | 71,701 | |
Cost of revenues | |
| 36,273 | | |
| 680,557 | |
Gross profit (loss) | |
| 189,769 | | |
| (608,856 | ) |
| |
| | | |
| | |
Operating cost and expenses | |
| | | |
| | |
Advertising and marketing | |
| 312,295 | | |
| 818,028 | |
General and administrative | |
| 1,838,026 | | |
| 3,329,038 | |
| |
| | | |
| | |
Total operating expenses | |
| 2,150,321 | | |
| 4,147,066 | |
| |
| | | |
| | |
Net income (loss) from operations | |
| (1,960,552 | ) | |
| (4,755,922 | ) |
| |
| | | |
| | |
Other Income (expense) | |
| | | |
| | |
Interest expense | |
| (764,719 | ) | |
| - | |
Interest income | |
| - | | |
| 1,100 | |
Other expense | |
| - | | |
| (53,640 | ) |
Other income | |
| 49,470 | | |
| 85,724 | |
| |
| | | |
| | |
Total other income (expense) | |
| (715,249 | ) | |
| 33,184 | |
| |
| | | |
| | |
Net loss | |
$ | (2,675,801 | ) | |
$ | (4,722,738 | ) |
Revenues, Net
Net revenues for the nine months ended September
30, 2023 and 2022 were approximately $0.23 million and $0.07 million, respectively. Net revenues increased approximately $0.16 million,
or approximately 215.3%, primarily due to an increase in user subscriptions. In addition, in June 2022, refunds totaling $30,942 were
issued to certain high school sports program group accounts under our former free use arrangement for these accounts. The former free
use arrangement for these accounts was discontinued during the fourth quarter of 2022, and user refunds during the nine months ended
September 30, 2023 totaled less than $1,000. The increase in net revenues during the nine months ended September 30, 2023 compared to
the nine months ended September 30, 2022 was offset by a reduction in the average revenues per subscription to approximately $28 per
monthly subscription during the nine months ended September 30, 2023 from approximately $32 per monthly subscription during the nine
months ended September 30, 2022. The reduced average revenues per user subscription was in turn due to the reduction of monthly subscriptions
to $24.99 from $29.99, the non-renewal of all of our former high school sports program group subscriptions, and a subscription conversion
rate of users under a former free use arrangement of less than 1%.
The following table presents information about
the number of users of our app under subscriptions by type of subscription plan for each of the nine-month periods ended September 30,
2023 and 2022. Subscriptions to our app require payment prior to app access except that group subscriptions may make payments on a monthly
installment basis. See also “—Critical Accounting Policies – Payment Terms”.
| |
Users with Subscriptions | |
Subscription Type | |
Nine Months Ended September 30, 2023 | | |
Nine Months Ended September 30, 2022 | |
Monthly | |
| 2,967 | | |
| 1,006 | |
Annual | |
| 38 | | |
| 6 | |
Semi-Annual | |
| - | (1) | |
| 4 | |
Group – High School | |
| 0 | | |
| 275 | |
Group – General | |
| 658 | | |
| 0 | |
Total: | |
| 3,663 | | |
| 1,291 | |
(1) | Semi-annual subscriptions were not offered after 2022. |
The following table presents information about
the number of users of our app under a former free use arrangement and the number of users with subscriptions for each of the nine-month
periods ended September 30, 2023 and 2022.
| |
Number of Users | |
User Type | |
Nine Months Ended September 30, 2023 | | |
Nine Months Ended September 30, 2022 | |
Free Use Arrangement(1) | |
| - | | |
| 46,929 | |
Subscription | |
| 3,663 | | |
| 1,286 | |
Total(1): | |
| 3,663 | | |
| 48,215 | |
(1) | Does not include users that were provided free use as college
coaches. |
We anticipate that the number of users with subscriptions
and revenues will continue to increase in future periods due to four strategic changes to our business during the fourth quarter of 2022.
First, our former promotional free use arrangement for certain high school sports programs was discontinued, and since that time we have
generally required that all users other than college coaches be covered under a subscription after a temporary trial period. Second,
we reextended our app and website design and related marketing approach from the prior model of a recruitment tool for college sports
recruiters to restore a major direct-to-consumer component including by increasing in-person recruiting events and consumer digital marketing,
reducing our monthly subscription fee from $29.99 to $24.99, and enhancing education resources on our website and other communication
channels. Third, we have signed strategic alliance, marketing, sponsorship, and collaboration agreements with significant college sports
recruiting industry participants, including GOAT Farm Sports, the owner of the U.S. Army Bowl, providing preferential access to student-athletes
at many sports combines and events throughout the year for which we have committed to act as an official events sponsor and college sports
recruitment platform, initially primarily for college football recruitment-related events due to our historic strengths in this sport
and eventually for other college sports recruitment-related events. Fourth, we determined to extend our app and website to support baseball,
softball, and men’s and women’s soccer recruitment as well as football, to support other sports in the future, to support
the particular priorities of strategic sports recruiting allies and collaborators, and apply the other aspects of our business model
to the end of generating revenues from the significant markets for these major college sports areas, alliances, and collaborations. These
changes are anticipated to increase first-time subscriptions by both individual users and groups, increase the rate of subscription renewals
by individual monthly subscribers, and slow individual user attrition due to the inherently limited college recruiting cycle for each
student-athlete.
However, we caution that the extent and timing
of any favorable impacts from the strategic changes to our business described above on our net sales, revenues, income from continuing
operations, or other results of operations, are subject to, and may be offset by, unfavorable impacts on our results of operations, due
to many other factors and uncertainties that are discussed throughout this prospectus, including under “Risk Factors”,
“Cautionary Statement Regarding Forward-Looking Statements”, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, the notes to the financial statements accompanying this prospectus, and
in the reports of our current and former independent registered public accounting firms accompanying this prospectus.
Cost of Revenues
Cost of revenues for the nine months ended September
30, 2023 and 2022 was approximately $0.036 million and $0.681 million, respectively. Cost of revenue decreased approximately $0.645 million,
or 94.7%, primarily due to a reduction in software development staff, which reduced cost of revenue by approximately $0.450 million,
and the full capitalization of approximately $0.114 million of software development labor costs during the nine months ended September
30, 2023, which reduced cost of revenues by approximately $0.114 million. Amortization of the Company’s platform’s capitalized
costs for purposes of football recruitment started on January 1, 2023 due to its ready-for-use status. The capitalized cost for the period
ending September 30, 2023 will have straight-line amortization expense to cost of revenue for a period of five years beginning January
1, 2023. The Company expects that it may continue to advance toward a positive operating margin in future periods by optimal
use of its previous software investments and streamlined and outsourced software development staff. However, we caution that the extent
and timing of any favorable impacts from the measures described above on our net sales, revenues, income from continuing operations,
or other results of operations, are subject to, and may be offset by unfavorable impacts on our results of operations due to, many other
factors and uncertainties that are discussed throughout this prospectus, including under “Risk Factors”, “Cautionary
Statement Regarding Forward-Looking Statements”, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”, the notes to the financial statements accompanying this prospectus, and in the reports of our current
and former independent registered public accounting firms accompanying this prospectus.
Advertising and Marketing
Advertising and marketing expenses were approximately
$0.3 million and $0.8 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease of approximately $0.5
million, or 61.8%, was due to minimal advertising and marketing during the nine months ended September 30, 2023 principally relating
to promotion of the Company and its app in connection with the U.S. Army Bowl, reliance on enhancements to our app and website’s
direct-to-consumer design and resources, preferential access to mass in-person recruiting events, and determination to extend the functionality
of our app to support baseball, softball, and men’s and women’s soccer college recruitment in order to increase users during
the nine months ended September 30, 2023, and the non-repetition of incurred expenses for approximately $0.3 million in costs for special
promotional events, an approximately $0.2 million professional business-to-business digital marketing campaign, a $0.1 million payment
in September 2022 required under our sponsorship agreement relating to the U.S. Army Bowl, an approximately $0.093 million public relations
campaign, and an approximately $0.02 million social media marketing campaign conducted during the nine months ended September 30, 2022.
General and Administrative
General and administrative expenses were approximately
$1.8 million and $3.3 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease of approximately
$1.5 million, or 44.8%, was primarily due to a reduction of nonessential employees, which reduced costs by approximately $1.0 million,
and reduced legal expenses, which reduced costs by approximately $0.5 million.
Interest Expense
Interest expense was approximately $0.8 million
and $0 for the nine months ended September 30, 2023 and 2022, respectively. The increase was due to an increase in convertible
and nonconvertible notes payable.
Other Expense
Other expense was $0 and approximately $0.05
million for the nine months ended September 30, 2023 and 2022, respectively. The decrease was due to a decrease in severance
payments.
Comparison of Fiscal Years Ended December
31, 2022 and 2021
The following table sets forth
key components of our results of operations during the years ended December 31, 2022 and 2021.
| |
Years Ended | |
| |
December 31, 2022 | | |
December 31, 2021 | |
Revenues, net | |
$ | 78,336 | | |
$ | 340,984 | |
Cost of revenues | |
| 783,064 | | |
| 504,342 | |
Gross profit (loss) | |
| (704,728 | ) | |
| (163,358 | ) |
| |
| | | |
| | |
Operating cost and expenses | |
| | | |
| | |
Advertising and marketing | |
| 1,842,666 | | |
| 1,104,939 | |
General and administrative | |
| 3,025,223 | | |
| 5,027,820 | |
Impairment charge | |
| 820,951 | | |
| 2,276,159 | |
| |
| | | |
| | |
Total operating expenses | |
| 5,688,840 | | |
| 8,408,918 | |
| |
| | | |
| | |
Net income (loss) from operations | |
| (6,393,568 | ) | |
| (8,572,276 | ) |
| |
| | | |
| | |
Other Income (expense) | |
| | | |
| | |
Interest expense | |
| (597,747 | ) | |
| (78,503 | ) |
Interest income | |
| 1,100 | | |
| 1,187 | |
Deferred tax income | |
| 100,000 | | |
| - | |
Change in fair value of SAFE Agreements | |
| 154,635 | | |
| (154,635 | ) |
Other expense | |
| (53,640 | ) | |
| - | |
Other Income | |
| 115,406 | | |
| - | |
| |
| | | |
| | |
Total other income (expense) | |
| (280,246 | ) | |
| (231,951 | ) |
| |
| | | |
| | |
Net loss | |
$ | (6,673,814 | ) | |
$ | (8,804,227 | ) |
Revenues, Net
Net revenues for the years ended December 31,
2022 and 2021 was approximately $0.08 million and $0.3 million, respectively. Net revenues decreased approximately $0.26 million, or
approximately 77.0%, due to an 89.8% decline in subscriptions by organizations, a 75.2% increase in users under a former free use arrangement
that may have otherwise been in group subscriptions, and subscription conversion rate of users under a former free use arrangement of
less than 1%.
The following table presents information about
the number of users of our website and app under subscriptions by type of subscription plan for each of the fiscal years ended December
31, 2022 and 2021. Subscriptions to our website and app require payment prior to website and app access except that group subscriptions
may make payments on a monthly installment basis. See also “—Critical Accounting Policies – Payment Terms”.
| |
Number of Users with Subscriptions | |
Subscription Type | |
Year Ended December 31, 2022 | | |
Year Ended December 31, 2021 | |
Monthly | |
| 1,193 | | |
| 1,214 | |
Annual | |
| 33 | | |
| 47 | |
Semi-Annual | |
| 27 | | |
| 7 | |
PRO+(1) | |
| 13 | | |
| - | |
Group – High School | |
| 256 | | |
| 2,250 | |
Group – General | |
| 3 | | |
| 292 | |
Total: | |
| 1,525 | | |
| 3,810 | |
(1) | PRO+ subscriptions were offered during the fourth quarter
of 2022 only. |
The following table presents information about
the number of users of our website and app under a former free use arrangement and the number of users with subscriptions for each of
the fiscal years ended December 31, 2022 and 2021.
| |
Number of Users | |
User Type | |
Year Ended December 31, 2022 | | |
Year Ended December 31, 2021 | |
Free Use Arrangement | |
| 46,961 | (1) | |
| 26,808 | (1) |
Subscription | |
| 1,525 | | |
| 3,810 | |
Total: | |
| 48,486 | (1) | |
| 30,618 | (1) |
(1) | Does not include users that were provided free use as college
coaches. |
We anticipate that the number of users with subscriptions
and revenues will increase in future periods due to four strategic changes to our business during the fourth quarter of 2022. First,
our former promotional free use arrangement for certain high school sports programs was discontinued, and since that time we have generally
required that all users other than college coaches be covered under a subscription after a temporary trial period. Second, we reextended
our app and website design and related marketing approach from the prior model of a recruitment tool for college sports recruiters to
restore a major direct-to-consumer component including through increasing in-person recruiting events, reducing the monthly subscription
fee from $29.99 to $24.99, and enhancing education resources on our website. Third, we have signed strategic alliance, marketing, sponsorship,
and collaboration agreements with significant college sports recruiting industry participants, including GOAT Farm Sports, the owner
of the U.S. Army Bowl, providing preferential access to student-athletes at many sports combines and events throughout the year for which
we have committed to act as an official events sponsor and college sports recruitment platform, initially primarily for college football
recruitment-related events due to our historic strengths in this sport and eventually for other college sports recruitment-related events.
Fourth, we determined to extend our app and website to support baseball, softball, and men’s and women’s soccer recruitment
as well as football, and apply the other aspects of our business model to the end of generating revenues from the significant markets
for these major college sports areas. These changes are anticipated to increase first-time subscriptions by both individual users and
groups, increase the rate of subscription renewals by individual monthly subscribers, and slow individual user attrition due to the inherently
limited college recruiting cycle for each student-athlete. Therefore, we do not anticipate the decrease in revenues in 2022 compared
to 2021 to be indicative of future results.
However, we caution that the extent and timing
of any favorable impacts from the strategic changes to our business described above on our net sales, revenues, income from continuing
operations, or other results of operations are subject to, and could be offset by unfavorable impacts on our results of operations due
to, many other factors and uncertainties that are discussed throughout this prospectus, including under “Risk Factors”,
“Cautionary Statement Regarding Forward-Looking Statements”, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, the notes to the financial statements accompanying this prospectus, and
in the reports of our current and former independent registered public accounting firms accompanying this prospectus.
Cost of Revenues
Cost
of revenues for the years ended December 31, 2022 and 2021 was approximately $0.8 million
and $0.5 million, respectively. Cost of revenue increased approximately
$0.3 million, or approximately 55.3%, due to an increase in the
number of employees in our internal engineering and development team.
Advertising and Marketing
Advertising and marketing expenses
were approximately $1.8 million and $1.1 million
for the years ended December 31, 2022 and 2021, respectively. The increase of approximately $0.7 million, or 66.8%, was due to increased
advertising and marketing on social media platforms.
General and Administrative
General
and administrative expenses were approximately $3.0 million and
$5.0 million for the years ended December 31, 2022 and 2021, respectively.
The decrease of approximately $2.0 million, or 41.2%, was due to a reduction of nonessential employees and the move of our corporate
headquarters to office space under a lower rental rate.
Impairment Charge
An
impairment charge of approximately $0.8 million and $2.3 million
was recorded for the years ended December 31, 2022 and 2021, respectively. The decrease of approximately $1.5 million,
or 63.9%, was due to an increase in the proportion of customers using our technology platform under a free use arrangement. For the reasons
discussed under “—Revenues, Net” above, these results may not be indicative of future periods.
Interest Expense
Interest expense was
approximately $0.6 million and $0.08 million for the years ended December 31, 2022 and 2021, respectively. The increase of approximately
$0.52 million, or 661.4%, was due to an increase in convertible notes payable.
Deferred Tax Income
Deferred tax income was $0.1 million and none
for the years ended December 31, 2022 and 2021, respectively. The increase
was due to recognition of deferred tax assets.
Change in Fair Value of SAFE Agreements
Change in fair value of SAFE Agreements (as defined
in “—Liquidity and Capital Resources – Contractual Obligations – SAFEs” below) was
approximately $0.2 million and $(0.2 million)
for the years ended December 31, 2022 and 2021, respectively. The change was due to a change in fair value measurement.
Other Expense
Other expense was
approximately $0.05 million and none for the years ended December
31, 2022 and 2021, respectively. The increase was due to an increase in events-related equipment expense.
Other Income
Other income was
approximately $0.1 million and none for the years ended December
31, 2022 and 2021, respectively. The increase was due to tax deductions relating to employee travel expenses.
Liquidity and Capital Resources
As of September 30, 2023, we had cash and cash
equivalents of $22,517. As of September 30, 2023, we have financed our operations primarily through revenue generated from operations
and private placements of securities. In November 2023, we raised approximately $4.8 million in net proceeds from our initial public
offering.
We believe that our current levels of cash, with
the proceeds of the initial public offering, will be sufficient to meet our anticipated cash needs for our operations and other cash
requirements until September 30, 2024 and for at least 12 months beyond that period, including our costs associated with being a public
reporting company. We may, however, in the future require additional or alternative cash resources due to changing business conditions,
pursuit of rapid product development, significant expansion or introduction of major marketing campaigns, or to fund significant business
investments or acquisitions. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell
additional equity or debt securities in private placements or credit facilities. The sale of additional equity securities could result
in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require
us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on
terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability
to expand our business operations and could harm our overall business prospects.
Going Concern
Our
current auditor and former auditor’s opinions included in our audited financial statements for the years ended December 31, 2022
and 2021 contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. For the
nine months ended September 30, 2023 and 2022, our net loss was approximately $2.676 million and $4.723 million, respectively, and our
net cash used in operating activities was approximately $1.497 million and $4.545 million, respectively. As of September 30, 2023 and
December 31, 2022, we had cumulative losses of approximately $20.8 million and $18.1 million, respectively. For the fiscal years ended
December 31, 2022 and 2021, our net loss was approximately $6.7 million and $8.8 million, respectively, our cash used in operating activities
was approximately $4.9 million and $5.7 million, respectively, and we had cumulative losses of approximately $18.1 million and $11.5
million, respectively. In recent years, we have suffered recurring losses from
operations, have negative working capital and cash outflows from operating activities, and therefore we are dependent upon external sources
for financing our operations.
Our ability to continue as a going concern
is conditioned on generating a level of revenue adequate to support our cost structure. We must continue our path to profitability through
increased business development, marketing and sales of the Company’s app subscriptions. Our management has evaluated the significance
as well as the time in which we have to complete these tasks and has determined that we can meet these operating obligations for the
foreseeable future. We plan to finance our operations primarily using proceeds from our recent initial public offering in November 2023,
the use of our CEFF after the Commencement Date, and other capital raises until our transition to profitable operations, at which point
we plan to finance operations primarily from profits. These plans, if successful, will mitigate the factors which raise substantial doubt
about the Company’s ability to continue as a going concern.
However, there can be no assurance that we will
succeed in generating sufficient revenues to continue our operations as a going concern. There can also be no assurance that our financial
resources will be sufficient to remain in operation or that necessary financing will be available on satisfactory terms, if at all. If
we are unable to secure needed financing, management may be forced to take additional restructuring actions, which may include significantly
reducing our anticipated level of expenditures, which may slow or reverse our growth or ability to become profitable. The consolidated
financial statements that accompany this prospectus do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Signing Day Sports, Inc. 2022 Equity Incentive
Plan
On August 31, 2022, the Company adopted the Plan
for the purpose of granting restricted stock, stock options, and other forms of incentive compensation to officers, employees, directors,
and consultants of the Company. A total of 750,000 shares of common stock are reserved for issuance under the Plan. Stock options have
been granted under the Plan to certain officers, directors, employees, and consultants that may be exercised to purchase a total of 651,000
shares of common stock, not including stock options that subsequently terminated due to employee, officer, or director departures. In
addition, 90,000 shares of restricted stock have been granted to a certain officer and employee. See “Executive Compensation
– 2022 Equity Incentive Plan” for a summary of the principal features of the Plan.
Summary of Cash Flow
The following table provides detailed information about our net cash
flow for all financial statement periods presented in this prospectus:
Cash Flow
| |
Nine Months Ended | | |
Year Ended | |
| |
September 30, 2023 | | |
September 30, 2022 | | |
December 31, 2022 | | |
December 31,
2021 | |
| |
| | |
| | |
| | |
(Restated) | |
Net cash used in operating activities | |
$ | (1,496,716 | ) | |
$ | (4,545,340 | ) | |
$ | (4,928,461 | ) | |
$ | (5,729,483 | ) |
Net cash used in investing activities | |
| (1,066,570 | ) | |
| (670,791 | ) | |
| (855,480 | ) | |
| (1,086,278 | ) |
Net cash provided by (used in) financing activities | |
| 2,331,394 | | |
| 820,000 | | |
| 1,350,800 | | |
| 10,452,434 | |
Net increase (decrease) in cash and cash equivalents | |
| (231,892 | ) | |
| (4,396,131 | ) | |
| (4,433,141 | ) | |
| 3,636,673 | |
Cash and cash equivalents, beginning of period | |
| 254,409 | | |
| 4,687,550 | | |
| 4,687,550 | | |
| 1,050,877 | |
Cash and cash equivalents, end of period | |
$ | 22,517 | | |
$ | 291,419 | | |
$ | 254,409 | | |
$ | 4,687,550 | |
Net cash used in operating activities was approximately
$1.5 million for the nine months ended September 30, 2023, as compared to net cash used in operating activities of approximately $4.5
million for the nine months ended September 30, 2022. The decrease was primarily due to a decrease of net loss to approximately $2.7
million from approximately $4.7 million, offset in part by an increase of approximately $1.5 million in accounts payable and accrued
liabilities and an increase in deferred offering costs of approximately $0.4 million.
Net
cash used in operating activities was approximately $4.9 million for
the year ended December 31, 2022, as compared to net cash used in operating activities of approximately $5.7 million for
the year ended December 31, 2021. The decrease was primarily due to a reduction of nonessential employees and movement into office
space at a reduced rental rate.
Net cash used in investing activities was approximately
$1.1 million for the nine months ended September 30, 2023 and approximately $0.7 million for the nine months ended September 30, 2022.
The increase was primarily due to an increase in software development expenditures.
Net cash used in investing activities was approximately
$0.9 million for the year ended December 31, 2022 and approximately $1.1 million for the year ended December 31, 2021. The decrease was
primarily due to reductions in computer equipment.
Net cash provided by financing activities was
approximately $2.3 million for the nine months ended September 30, 2023 and $0.8 million for the nine months ended September 30, 2022.
The increase was primarily due to an increase in proceeds from private placements of debt securities of approximately $2.6 million and
proceeds from loans of approximately $0.6 million, offset in part by the purchase of stock from a stockholder for an aggregate payment
of $0.8 million.
Net
cash provided by financing activities was approximately $1.4 million
for the year ended December 31, 2022 and approximately $10.4 million for the year ended December 31, 2021. The decrease was primarily
due to a decrease in proceeds from private placements of debt and equity securities.
Recent Developments
Committed Equity
Financing Facility
On January 5, 2024, we entered into the Purchase
Agreement with Tumim, providing for a CEFF, pursuant to which, upon the terms and subject to the satisfaction of the conditions contained
in the Purchase Agreement, Tumim has committed to purchase, at our direction in our sole discretion, up to an aggregate of $25,000,000
of our common stock, subject to certain limitations set forth in the Purchase Agreement, from time to time during the term of the Purchase
Agreement. See “Tumim Stone Capital Committed Equity Financing Facility” above for a discussion of the terms and conditions
of the CEFF.
Term Sheet for an
Equity Line of Credit
On November 16, 2023,
the Company entered into a Term Sheet for an Equity Line of Credit with 3i Management (the “Term Sheet”). The Term Sheet
was non-binding except as described below, and was subject to the preparation and execution of definitive documentation to effect the
transactions contemplated under the Term Sheet. The Term Sheet provides that 3i LP (“3i”) will commit to invest up to $25,000,000
as an equity line of credit under which the Company may require 3i to make purchases of its common stock for a 24-month term, as follows.
The Company may send a purchase notice (the “Purchase Notice”) between 4:00 PM and 6:30 PM Eastern Time stating the number
of shares that the Investor will be required to purchase, subject to a purchase limit (the “Purchase Limit”). The Company
may raise additional capital three trading days after the date that the Purchase Notice is sent (the “Purchase Notice Date”).
The purchase price for shares to be purchased pursuant to a Purchase Notice will be 95% of the lowest daily volume weighted average price
during the three trading days following the Purchase Notice Date. The Purchase Limit will be equal to the lesser of (i) 100% of the average
daily trading volume over the five days before the Purchase Notice Date, (ii) 30% of the daily trading volume on the Purchase Notice
Date, or (iii) $2,000,000.
The Term Sheet stated
the Company will be required to file a registration statement with the SEC for the offering of any shares under the equity line of credit
within 30 calendar days and to cause such registration statement to be effective within 60 calendar days. Any purchase pursuant to a
Purchase Notice will be subject to a commitment fee equal to 2% of the amount purchased, paid in cash or shares of common stock, based
on the price equal to the five-day average volume-weighted average price prior to the filing of the registration statement in accordance
with the other terms described above. The Investor will not be required to purchase or hold more than 4.99% of the outstanding common
stock of the Company.
The Term Sheet also
contained the following binding terms: Upon the signing of the Term Sheet, the Company must pay $50,000 to the Investor’s legal
counsel for payment of legal and due diligence fees. In addition, if the Company does not close the equity line of credit by February
15, 2024, the Company must issue the Investor a warrant to purchase 750,000 shares of common stock, with an exercise price of $0.01 per
share, with full ratchet and anti-dilution protections and registration rights.
The Term Sheet expired
on November 24, 2023. See “—Committed Equity Financing Facility” above for related subsequent developments.
Midwestern Settlement
and Release Agreement
Under a Settlement Agreement and Release, dated
as of December 12, 2023 (the “Midwestern Release Date”), between the Company and Midwestern (the “Midwestern Release
Agreement”), the Company and Midwestern agreed to a mutual release of all claims that could have been asserted as of the Midwestern
Release Date. The Company further agreed to pay Midwestern $600,000.00 by making a payment of $300,000.00 within three business days
of the Midwestern Release Date and a payment of $300,000.00 on or before April 12, 2024 (the “Midwestern Release Amount”).
In addition, the Company agreed to execute a confession of judgment and affidavit of confession of judgment in favor of Midwestern as
to the obligations to pay the Midwestern Release Amount plus interest accruing on the Midwestern Release Amount at the rate of 9% per
annum from April 12, 2024 plus any costs or expenses, including, but not limited to, attorney’s fees and costs expended to pursue
the matter to judgment, and to enforce and collect the judgment, if necessary.
The Company and Midwestern
entered into the Midwestern Release Agreement to resolve a dispute between them involving allegations, on the one hand, by Midwestern
that it performed work on behalf of the Company for which Midwestern had not been paid pursuant to a Work for Hire – Acknowledgement
and Assignment, dated December 21, 2022 and, on the other hand, by the Company that Midwestern did not perform as required by the work
for hire agreement.
Initial Public Offering
and Underwriting Agreement
On November 13, 2023,
we entered into an Underwriting Agreement (the “Underwriting Agreement”), with Boustead, a registered broker-dealer, as representative
of the underwriters named on Schedule 1 thereto, relating to the Company’s initial public offering of 1,200,000 shares of common
stock (the “IPO Shares”). Pursuant to the Underwriting Agreement, in exchange for Boustead’s firm commitment to purchase
the IPO Shares, the Company agreed to sell the IPO Shares to Boustead at a purchase price (the “IPO Price”) of $4.65 (93%
of the public offering price per share of $5.00, after deducting underwriting discounts and commissions and before deducting a 1% non-accountable
expense allowance), and one or more Representative’s Warrants to purchase 7% of the aggregate number of the IPO Shares, at an exercise
price equal to $6.75, equal to 135% of the public offering price, subject to adjustment. The Underwriting Agreement also provided for
our payment of reasonable out-of-pocket expenses incurred by the representative of the underwriters in connection with the initial public
offering of up to $255,000.
On November 14, 2023,
the IPO Shares were listed and commenced trading on the NYSE American.
The closing of the initial
public offering took place on November 16, 2023. At the closing, the Company sold the IPO Shares for total gross proceeds of $6,000,000.
After deducting the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public
offering, the Company received net proceeds of approximately $4.8 million. The Company also issued Boustead a Representative’s
Warrant exercisable for the purchase of 84,000 shares of common stock at an exercise price of $6.75 per share, subject to adjustment.
The Representative’s Warrant may be exercised by payment of cash or by a cashless exercise provision, and may be exercised at any
time for five years following the date of issuance.
The IPO Shares were offered and sold, and the
Representative’s Warrant was issued, pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-271951),
as amended, initially filed with the SEC on May 15, 2023, and declared effective by the SEC on November 13, 2023 (the “IPO Registration
Statement”); pursuant to a Registration Statement on Form S-1 (File No. 333-275532), which was filed with the SEC pursuant
to Rule 462(b) under the Securities Act, which was effective immediately upon filing on November 13, 2023 (the “462(b) Registration
Statement”); and by means of the final prospectus relating to these shares, dated November 13, 2023, filed with the SEC on November
15, 2023 pursuant to Rule 424(b)(4) of the Securities Act (the “Final IPO Prospectus”). The IPO Registration Statement registered
for sale shares of common stock with a maximum aggregate offering price of $10,350,000; Representative’s Warrants; and shares of
common stock underlying Representative’s Warrants with a maximum aggregate offering price of $724,500. The 462(b) Registration
Statement registered for sale an additional amount of shares of common stock underlying Representative’s Warrants having a proposed
maximum aggregate offering price of $253,575.
The IPO Registration Statement included the registration
for sale of an additional 180,000 shares of common stock at the public offering price of $5.00 per share upon full exercise of the underwriters’
over-allotment option. The additional shares of common stock underlying the Representative’s Warrant registered for sale by the
IPO Registration Statement and the 462(b) Registration Statement included 12,600 shares of common stock that the underwriters had the
option to purchase upon exercise of a second Representative’s Warrant which would be issuable upon full exercise of the underwriters’
over-allotment option. The underwriters’ over-allotment option expired unexercised.
In addition, a maximum of 2,346,548 shares were
registered for resale by the selling stockholders named in the IPO Registration Statement, based on the assumed initial public offering
price of $4.00 per share, which was the low point of the price range set forth on the cover page of the IPO Registration Statement, of
which a total of 2,214,548 shares of common stock, based on the final public offering price of $5.00 per share, were included for resale
by means of the final prospectus relating to these shares, dated November 13, 2023, filed with the SEC on November 15, 2023 pursuant
to Rule 424(b)(3) of the Securities Act (the “Final Resale Prospectus”). As stated in the Final Resale Prospectus, any resales
of these shares occurred at a fixed price of $5.00 per share until the listing of the common stock on the NYSE American. Thereafter,
these sales may occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices. The Company will not receive any proceeds from the resale of common stock by the selling stockholders named
in the IPO Registration Statement.
In connection with the
closing of the Company’s initial public offering on November 16, 2023, the Company’s 6% convertible unsecured promissory
notes with aggregate outstanding principal of $6,305,000 automatically converted into a total of 2,774,200 shares of common stock at
a conversion price of $2.50 per share in accordance with a settlement notice undertaking to effect conversions of principal as if 110%
of the principal being converted was being converted, and the Company’s 8% convertible unsecured promissory notes with aggregate
outstanding principal of $1,465,000 automatically converted into a total of 586,000 shares of common stock at a conversion price of $2.50
per share, in each case at 50% of the public offering price of $5.00 per share, in accordance with the terms of the notes. All interest
accrued on such principal was waived upon conversion in accordance with the terms of the notes. In addition, warrants to purchase a total
of 940,000 shares of common stock at an exercise price of $2.50 per share were automatically exercised, and the proceeds were automatically
used to repay the outstanding principal underlying 8% nonconvertible promissory notes consisting of $2,350,000, in accordance with their
terms. On the same date, a total of $113,304 in accrued interest under the promissory notes became due. See “—Settlement
Notice to 6% Convertible Unsecured Promissory Note Holders” and “—Automatic Conversion of Convertible Promissory
Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory Notes” below for additional discussion.
As stated in the Final
IPO Prospectus, the Company intended to use the net proceeds from the initial public offering for product and technology development,
expansion of its sales team and marketing efforts, and general working capital and other corporate purposes, including repayment of indebtedness
used for working capital.
As of September 30,
2023, we had not used any of the proceeds from the initial public offering because the proceeds from the initial public offering were
not received until November 16, 2023.
As of the date of this
prospectus, none of the proceeds from the initial public offering were used to make direct or indirect payments to any of our directors
or officers, any of their associates, any persons owning 10% or more of any class of our equity securities, or any of our affiliates,
or direct or indirect payments to any others other than for the direct costs of the offering.
There has not been, and we do not expect, any
material change in the planned use of proceeds from the initial public offering as described in the IPO Registration Statement and the
Final IPO Prospectus.
Pursuant to the Underwriting Agreement, as of
November 13, 2023, we are subject to a lock-up agreement that provides that we may not, for 12 months, subject to certain exceptions,
(i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant or modify the terms of any option, right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable
for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to the offering
of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital
stock of the Company (other than pursuant to a registration statement on Form S-8 for employee benefit plans); or (iii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock
of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital
stock of the Company or such other securities, in cash or otherwise. These restrictions do not apply to certain transactions including
issuances of common stock under the Company’s existing and disclosed stock option or bonus plans, shares of common stock, options
or convertible securities issued to banks, equipment lessors, other financial institutions, real property lessors pursuant to an equipment
leasing or real property leasing transaction approved by a majority of the disinterested directors of the Company, or shares of common
stock, options or convertible securities issued in connection with sponsored research, collaboration, technology license, development,
marketing, investor relations or other similar agreements or strategic partnerships approved by a majority of the disinterested directors
of the Company.
The Underwriting Agreement contains other customary
representations, warranties and covenants by the Company, customary conditions to closing, indemnification obligations of the Company
and Boustead, including for liabilities under the Securities Act, other obligations of the parties, and termination provisions. The representations,
warranties and covenants contained in the Underwriting Agreement were made only for purposes of such agreement and as of specific dates,
were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties.
See “—Contractual Obligations – Contractual Obligations to Boustead Securities, LLC” for additional
discussion of certain provisions in the Underwriting Agreement.
Settlement Notice
to 6% Convertible Unsecured Promissory Note Holders
The subscription agreements
for the Company’s 6% convertible unsecured promissory notes provided that, in the event that within 12 months of the closing of
the private placement of the 6% convertible unsecured promissory notes, the convertible notes had not been converted automatically in
accordance with their terms, the Company may elect either (a) to repay all or part of each note, subject to the holder’s right
to convert each note, or (b) if the Company does not repay each note, the unpaid principal amount of each note will automatically increase
to 110% of the outstanding principal amount. As of the 12-month anniversary of the closing of this private placement, the Company had
not consummated an initial public offering or Alternative Liquidity Event (as defined in “Description of Securities –
6% Convertible Unsecured Promissory Notes”), and had not repaid any portion of the principal amounts under the convertible
notes. However, the convertible notes themselves only provided that in the event that by the maturity date, the Company had not consummated
an initial public offering of its common stock and the listing or trading of its common stock on one of certain securities exchanges
and had not consummated an Alternative Liquidity Event, the Company may elect either (a) upon 30 days prior written notice to the holder,
to prepay all or a portion of the principal amount of the notes and accrued interest hereon, subject to the holder’s right to convert
the note into common stock during such 30-day period, or (b) if the Company does not prepay the entire principal amount of the notes
or the remaining principal amount of the notes, the notes will automatically increase to 110% of the original or unpaid portion of the
outstanding principal amount. As the maturity date of these notes had not occurred, the outstanding principal amount under each note
had been determined not to have increased to 110% of that amount. However, in accordance with a settlement notice issued to the holders
of the 6% convertible unsecured promissory notes on November 13, 2023 undertaking to effect conversions of principal as if 110% of the
principal being converted was being converted to address possible claims with respect to the increase of the outstanding principal under
the convertible notes to 110% of the outstanding principal amount, the holders of the 6% convertible unsecured promissory notes were
issued a number of shares of common stock upon conversion of the convertible notes upon the closing of the initial public offering on
November 16, 2023 in the amount that would be applicable as if the principal under the convertible notes had been increased to 110% of
the outstanding principal. See “—Automatic Conversion of Convertible Promissory Notes and Automatic Repayment of Principal
Under Certain Nonconvertible Promissory Notes”.
Automatic Conversion of Convertible Promissory Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory
Notes
In connection with the
closing of the Company’s initial public offering on November 16, 2023, the Company’s 6% convertible unsecured promissory
notes with aggregate outstanding principal of $6,305,000 automatically converted into an aggregate of 2,774,200 shares of common stock
at a conversion price of $2.50 per share in accordance with the terms of these promissory notes and our settlement notice to the holders
of these notes undertaking to effect conversions of principal as if 110% of the principal being converted was being converted (see “—Settlement
Notice to 6% Convertible Unsecured Promissory Note Holders”). All accrued interest on the principal under the notes was waived
in accordance with the terms of the notes.
Similarly, in connection
with the closing of the Company’s initial public offering, the Company’s 8% convertible unsecured promissory notes with aggregate
outstanding principal of $1,465,000 automatically converted into an aggregate of 586,000 shares of common stock at a conversion price
of $2.50 per share in accordance with their terms. All accrued interest on the principal under the notes was waived in accordance with
the terms of the notes.
In addition, in connection
with the closing of the Company’s initial public offering, warrants to purchase a total of 940,000 shares of common stock at an
exercise price of $2.50 per share were automatically exercised. The proceeds were automatically used to repay the outstanding principal
underlying 8% nonconvertible promissory notes consisting of $2,350,000. On the same date, a total of $113,304 in accrued interest under
the promissory notes became due.
Repayment
of Related-Party Promissory Notes
The
following promissory notes held by related parties were fully prepaid subsequent to September 30, 2023, as follows:
| ● | On
October 10, 2023, the outstanding balance of $37,635.07 was fully repaid under a promissory
note issued on July 11, 2022 with outstanding principal of $35,000, incurring interest at
6%, to Daniel Nelson, Chief Executive Officer, Chairman and director of the Company. |
| ● | On
October 10, 2023, the outstanding balance of $97,670.41 was fully prepaid under a promissory
note issued on March 8, 2023 with outstanding principal of $95,000 to Nelson Financial Services
Inc., whose sole owner is Daniel Nelson, Chief Executive Officer, Chairman and director of
the Company. |
In
connection with the closing of the Company’s initial public offering on November 16, 2023, the following promissory notes held
by related parties became due within ten days, and were repaid as of November 22, 2023:
| ● | A
promissory note with an outstanding balance of $40,000 issued on January 12, 2023 to John
Dorsey, a former Chief Executive Officer and director of the Company. |
| ● | A
promissory note issued on July 23, 2023 with principal of $130,000, incurring interest at
6%, and with an outstanding balance of $130,000 held by Daniel Nelson, Chief Executive Officer,
Chairman and director of the Company. Mr. Nelson waived all interest owed under the promissory
note. |
| ● | A
promissory note with an outstanding balance of $10,263.36 issued on March 17, 2023 with principal
of $10,000, incurring interest at 6%, to Daniel Nelson, Chief Executive Officer, Chairman
and director of the Company. |
See “—Contractual Obligations
– January 2023 Settlement and Related-Party Promissory Note” and “—Contractual Obligations – Other
Related-Party Promissory Notes” for additional discussion of these promissory notes.
Management Employment Agreements
Subsequent to September 30, 2023, we entered
into certain executive employment agreements with certain executive officers. See “Executive Compensation – Management
Employment and Consulting Agreements” for related discussion.
Revolving Lines of
Credit with Commerce Bank of Arizona
Under a Business Loan
Agreement, dated October 6, 2023, between the Company and Commerce Bank of Arizona (“CBAZ”) (the “First CBAZ Loan Agreement”),
the Company and CBAZ entered into a $350,000 secured revolving line of credit (the “First CBAZ LOC”). In connection with
the First CBAZ LOC, CBAZ issued a promissory note to the Company, dated October 6, 2023 (the “First CBAZ Promissory Note”),
with an initial principal amount of $350,000. The Company paid loan origination and other fees totaling $4,124. The principal balance
under the First CBAZ Promissory Note bore interest at a variable rate per annum equal to one percentage point above The Wall Street Journal
Prime Rate, initially 9.5% per annum, and was to mature on April 6, 2024. There was no penalty for prepayment of the First CBAZ Promissory
Note. The First CBAZ LOC was required to be guaranteed by Daniel D. Nelson, Chief Executive Officer, Chairman and a director of the Company,
Jodi B. Nelson, who is Mr. Nelson’s wife, and The Nelson Revocable Living Trust, an Arizona trust provided for by the Nelson Revocable
Living Trust Agreement established on March 9, 1999 and amended and restated on November 21, 2005 (the “Nelson Trust”), and
secured by the property of the Company, Daniel D. Nelson, Chief Executive Officer and Chairman of the Company, Jodi B. Nelson, who is
Mr. Nelson’s wife, and The Nelson Revocable Living Trust, an Arizona trust provided for by the Nelson Revocable Living Trust Agreement
established on March 9, 1999 and amended and restated on November 21, 2005. The First CBAZ LOC had been further conditioned on the issuance
of Employee Retention Credit payroll tax refunds that the Company expects to be received by April 2024, and was subject to certain other
terms and conditions.
Under a Business Loan
Agreement, dated December 11, 2023, between the Company and CBAZ (the “Second CBAZ Loan Agreement”), the Company and CBAZ
entered into a $2,000,000 secured revolving line of credit (the “Second CBAZ LOC”). In connection with the Second CBAZ LOC,
CBAZ issued a promissory note to the Company, dated December 11, 2023 (the “Second CBAZ Promissory Note”), with principal
of $2,000,000. The Company paid loan origination and other fees totaling $5,500 and CBAZ immediately disbursed $334,624.85 of the funds
in connection with the Second CBAZ LOC for crediting the full prepayment of the balance in that amount outstanding in connection with
the First CBAZ LOC. The principal balance under the Second CBAZ Promissory Note bears interest at a fixed rate per annum of 7.21% per
annum, and will mature on December 11, 2024. There is no penalty for prepayment of the Second CBAZ Promissory Note. The Second CBAZ LOC
was required to be secured by a 12-month certificate of deposit account held with CBAZ with a minimum balance of $2,100,000 (the “CD
Collateral”) under an Assignment of Deposit Account, dated December 11, 2023, between the Company and CBAZ (the “Assignment
of Deposit Account”).
In connection with the Second CBAZ LOC, the Company
agreed to the following negative covenants: (i) incurring any other indebtedness; (ii) permitting other liens on its property, (iii)
selling any of its accounts receivable with recourse to any third party; (iv) engaging in substantially different business activities;
(v) ceasing operations, engaging in certain corporate transactions, or selling the CD Collateral; or (vi) paying cash dividends on its
stock except to pay certain income taxes of stockholders or repurchasing or retiring any of the Company’s outstanding common stock.
The following events will constitute a default under the Second CBAZ LOC: (i) the Company fails to comply with the negative covenants
described above; (ii) any change in ownership of 25% or more of the common stock of the Company; (iii) a material adverse change in the
Company’s financial condition or CBAZ believes the prospect of payment or performance under any loans under the Second CBAZ LOZ
is impaired; and (iv) other customary events of default including insolvency, foreclosure or forfeiture proceedings, and failure to make
payment when due. Any late payments due will be charged 5% of the regularly scheduled payments. Upon an event of default, the interest
rate on the Second CBAZ Promissory Note will increase to 13.21%; all indebtedness under the Second CBAZ Promissory Note will become due
at the option of CBAZ, except that if an event of default occurs due to an insolvency and certain similar events, the indebtedness will
become due immediately automatically; all of CBAZ’s obligations under the Second CBAZ Loan Agreement will terminate; and CBAZ may
take any actions permitted under the Assignment of Deposit Account, including application of account proceeds under the CD Collateral
to outstanding indebtedness, and use of all rights and remedies of a secured creditor under the Arizona Uniform Commercial Code. The
Second CBAZ LOC was also subject to certain other terms and conditions. The outstanding balance under the Second CBAZ LOC was $859,875.15
as of December 22, 2023.
Repayment of Certain
Original Issue Discount Promissory Notes
On November 20, 2023, the Company repaid the
aggregate balance of $117,648 under two 15% OID promissory notes, and on November 29, 2023, the Company repaid the balance of $117,647
under one 15% OID promissory note. On December 29, 2023, the Company repaid the balance of $117,647 under the last outstanding 15% OID
promissory note.
See “—Contractual Obligations
– Offering of 15% OID Promissory Notes” for additional discussion of these OID Notes.
Contractual Obligations
Contractual Obligations to Boustead Securities,
LLC
Under the Boustead Engagement Letter, we must
compensate Boustead with a cash fee equal to 7% and non-accountable expense allowance equal to 1% of the gross proceeds received by the
Company from the sale of securities in an investment transaction, or up to 10% of the gross proceeds from certain other merger, acquisition,
or joint venture, strategic alliance, license, research and development, or other similar transactions, with a party, including any investor
in a private placement in which Boustead served as placement agent, or in our recent initial public offering in November 2023, or who
became aware of the Company or who became known to the Company prior to the termination or expiration of the Boustead Engagement Letter,
for such transactions that occur during the 12-month period following the termination or expiration of the Boustead Engagement Letter
(the “Tail Rights”). The Boustead Engagement Letter will expire upon the later to occur of November 16, 2024 (12 months from
the completion date of the initial public offering), or mutual written agreement of the Company and Boustead. Notwithstanding the foregoing,
in the event the Boustead Engagement Letter is terminated for “Cause,” which shall mean a material breach by Boustead of
the Boustead Engagement Letter, and which such material breach is not cured, no Tail Rights will be due.
The Boustead Engagement Letter and the Underwriting
Agreement also provide Boustead a right of first refusal (the “Right of First Refusal”) for two years following the consummation
of the Company’s initial public offering on November 16, 2023, or 18 months following the termination or expiration of the engagement
with Boustead to act as financial advisor or to act as joint financial advisor on or at least equal economic terms on any public or private
financing (debt or equity), merger, business combination, recapitalization or sale of some or all of our equity or our assets.
In the event that we engage Boustead to provide such services, Boustead will be compensated consistent with the Boustead Engagement Letter,
unless we mutually agree otherwise. Notwithstanding the foregoing, in the event the Boustead Engagement Letter is terminated for “Cause,”
which shall mean a material breach by Boustead of the engagement agreement, and which such material breach is not cured, Boustead’s
Right of First Refusal will terminate, and the Company will be entitled to pursue any future transaction without adhering to the terms
of the Right of First Refusal. The exercise of such right of termination for cause will eliminate the Company’s obligations with
respect to the provisions of the Boustead Engagement Letter relating to the Right of First Refusal.
Under the Boustead Engagement Letter, in connection
with a transaction as to which Boustead duly exercises the Right of First Refusal or is entitled to the Tail Rights, Boustead shall receive
compensation as follows:
| ● | other
than normal course of business activities, as to any sale, merger, acquisition, joint venture,
strategic alliance, license, research and development, or other similar agreements, Boustead
will accrue compensation under a percentage fee of the Aggregate Consideration (defined to
include amounts paid or received, indebtedness assumed or remaining outstanding, fair market
value of excluded assets, fair market value of retained or non-acquired ownership interests,
and contingent payments in connection with the transaction) calculated as follows: |
| ○ | 10.0%
for Aggregate Consideration of less than $10,000,000; plus |
| ○ | 8.0%
for Aggregate Consideration between $10,000,000 and $25,000,000; plus |
| ○ | 6.0%
for Aggregate Consideration between $25,000,001 and $50,000,000; plus |
| ○ | 4.0%
for Aggregate Consideration between $50,000,001 and $75,000,000; plus |
| ○ | 2.0%
for Aggregate Consideration between $75,000,001 and $100,000,000; plus |
| ○ | 1.0%
for Aggregate Consideration above $100,000,000; |
| ● | for
any investment transaction including any common stock, preferred stock, convertible stock,
limited liability company or limited partnership memberships, debt, convertible debentures,
convertible debt, debt with warrants, or any other securities convertible into common stock,
any form of debt instrument involving any form of equity participation, and including the
conversion or exercise of any securities sold in any transaction, Boustead shall receive
upon each investment transaction closing a success fee, payable in (i) cash, equal to 7%
of the gross amount to be disbursed to the Company from each such investment transaction
closing, plus (ii) a non-accountable expense allowance equal to 1% of the gross amount to
be disbursed to the Company from each such investment transaction closing, plus (iii) warrants
equal to 7% of the gross amount to be disbursed to the Company from each such investment
transaction closing, including shares issuable upon conversion or exercise of the securities
sold in any transaction, and in the event that warrants or other rights are issued in the
investment transaction, 7% of the shares issuable upon exercise of the warrants or other
rights, and in the event of a debt or convertible debt financing, warrants to purchase an
amount of Company stock equal to 7% of the gross amount or facility received by the Company
in a debt financing divided by the warrant exercise share. The warrant exercise price will
be the lower of: (i) the price per share paid by investors in each respective financing;
(ii) in the event that convertible securities are sold in the financing, the conversion price
of such securities; or (iii) in the event that warrants or other rights are issued in the
financing, the exercise price of such warrants or other rights; |
| ● | any
warrants required to be issued to Boustead as compensation as described above will be transferable
in accordance with the rules of FINRA and SEC regulations, exercisable from the date of issuance
and for a term of five years, contain cashless exercise provisions, be non-callable and non-cancelable
with immediate piggy-back registration rights, have customary anti-dilution provisions and
will have adjustments to the exercise price in the event that other Company outstanding warrants
are re-priced below their exercise price or issues securities at a price below the exercise
price per share, will have terms no less favorable than the terms of any warrants issued
to participants in the related transaction, and provide for automatic exercise immediately
prior to expiration; and |
| ● | reasonable
out-of-pocket expenses in connection with the performance of its services, regardless of
whether a transaction occurs. |
The Boustead Engagement Letter
contains other customary representations, warranties and covenants by the Company, customary conditions to closing, indemnification obligations
of the Company and Boustead, including for liabilities under the Securities Act, other obligations of the parties, and termination provisions.
The representations, warranties and covenants contained in the Boustead Engagement Letter were made only for purposes of such agreement
and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon
by the contracting parties.
See “—Recent Developments – Initial Public Offering and Underwriting Agreement” for additional discussion of certain provisions in the Underwriting Agreement.
Convertible and Nonconvertible Interest-Bearing Unsecured Promissory Notes
As of September 30, 2023, December 31, 2022 and
December 31, 2021, the outstanding convertible and nonconvertible interest-bearing unsecured promissory notes of the Company consisted
of the following:
| |
September 30, 2023 | | |
December 31, 2022 | | |
December 31, 2021 | |
11, 0 and 0 8% unsecured promissory notes, maturing March 17, 2025 and May 2, 2025 | |
$ | 2,350,000 | | |
$ | - | | |
$ | - | |
15, 13 and 0 8% convertible unsecured promissory notes, maturing August 8, 2023 | |
| 1,465,000 | | |
| 1,315,000 | | |
| - | |
9 6% convertible unsecured promissory notes, maturing October 15, 2024 | |
| 3,300,000 | | |
| 3,300,000 | | |
| 3,300,000 | |
12 6% convertible unsecured promissory notes, maturing November 15, 2024 | |
| 1,205,000 | | |
| 1,205,000 | | |
| 1,205,000 | |
6 6% convertible unsecured promissory notes, maturing December 23, 2024 | |
| 1,800,000 | | |
| 1,800,000 | | |
| 1,800,000 | |
Total: | |
| 10,120,000 | | |
| 7,620,000 | | |
| 6,305,000 | |
Less unamortized debt issuance costs | |
| (315,143 | ) | |
| (387,920 | ) | |
| (495,007 | ) |
Long-term debt, less unamortized debt issuance costs | |
$ | 9,804,857 | | |
$ | 7,232,080 | | |
$ | 5,809,993 | |
As of September 30, 2023, the Company’s
unsecured promissory notes were scheduled to mature and require repayment in future years with respect to the total principal amounts
indicated below:
Years ending December 31, | |
Amount | |
Remainder of 2023 | |
$ | - | |
2024 | |
| 6,305,000 | |
2025 | |
| 3,815,000 | |
Total | |
$ | 10,120,000 | |
The 8% convertible unsecured promissory notes,
with original principal of $1,465,000, were initially due to mature on August 8, 2023 unless converted in accordance with their terms.
On August 7, 2023, an agreement was signed with the holders of the majority of the outstanding balance under these convertible notes.
The agreement amended the maturity date of all of these convertible notes to August 8, 2025. Pursuant to the agreement, a provision in
the convertible notes providing for an increase of the outstanding balance under the convertible notes to 120% of the original principal
amount upon non-repayment by the maturity date was accelerated, and the outstanding balance under the convertible notes was increased
in aggregate to $1,758,000. The agreement also provided for the immediate conversion of the additional amount of the outstanding balance
under the convertible notes into 146,500 shares of common stock at $2.00 per share instead of the applicable optional conversion price,
approximately $3.29 per share at the time of the conversion, not including any accrued but unpaid interest, which was waived with respect
to the converted outstanding balance. As a result, the 8% convertible unsecured promissory notes’ aggregate underlying principal
was $1,465,000 both before and after such increase of the outstanding balance and conversion of such increase.
See “—Recent Developments –
Settlement Notice to 6% Convertible Unsecured Promissory Note Holders” and “—Recent Developments – Automatic
Conversion of Convertible Promissory Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory Notes”
for a description of developments subsequent to September 30, 2023.
Leases
The Company formerly leased office space under
a lease agreement with a term from January 2022 to December 2026. The office space was owned by a former chief executive officer and
director of the Company. The lease agreement required monthly payments of approximately $20,800 plus tax and certain operating expenses,
with an increase of 3% at the beginning of every calendar year following the first year of the term of the lease agreement through January
2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411. In August 2022, the Company entered into a lease
termination agreement in which both parties agreed to terminate the lease and release each other from all future obligations.
The Company currently leases its corporate offices
consisting of approximately 3,154 square feet under a lease agreement dated November 1, 2022, as amended by an addendum dated November
2, 2022, and as further amended under a first amendment to lease dated April 1, 2023. As amended, the lease’s initial term from
November 1, 2022 to April 30, 2023 was extended for a 39-month term beginning on May 4, 2023 and ending on August 3, 2026. Under the
amended lease agreement, rent for the first month was $6,741.90 and was $7,491.00 for each subsequent month through April 2023, plus
applicable rental taxes, sales taxes, and operating expenses. Monthly rent will be $7,359 from May 4, 2023 to May 3, 2024, abated for
the first three months of this period; $7,580 from May 4, 2024 to May 3, 2025; $7,808 from May 4, 2025 to May 3, 2026; and $8,042 from
May 4, 2026 to August 3, 2026, plus applicable rental taxes. Parking fees were $290.50 for the first month and will be $325.00 for each
subsequent month. The Company also paid an initial security deposit of $8,000.00 in November 2022 and a second security deposit of $16,000
in May 2023. The initial security deposit will be refunded and credited toward monthly rent for the months beginning May 4, 2024 and
May 4, 2025 if the Company has performed all obligations under the amended lease agreement including making all rent payments when due.
The Company may exercise a one-time option to extend the amended lease agreement for an additional three-year term upon 9-12 months’
notice for the fair market rent at the time of the extension, as determined in accordance with the amended lease agreement and which
will not be less than 103% of the final rent amount under the current term. Under the amended lease agreement, the Company must pay for
any tenant improvements above the allowance provided for such improvements of $37,848 or that are not in compliance with the terms of
the amended lease agreement.
The Company also leased office space under a
lease agreement that expired on May 31, 2023. Monthly rent was $12,075 and included annual escalations. In December 2021, the Company
entered into an agreement to sublease its office space. The sublease ended on May 31, 2023 and included fixed rent of $9,894 per month.
As a result of the sublease, the Company incurred a loss on the transaction of $43,785 during the year ended December 31, 2021, which
is included within accrued liabilities in the balance sheet included with the audited financial statements accompanying this prospectus.
The lease liability will be amortized over the remainder of the lease. As of September 30, 2023 and December 31, 2022, the unamortized
balance was $0 and $13,924, respectively.
Offering of 15% OID Promissory Notes
On August 2, 2023, August 18, 2023, September
11, 2023, and September 22, 2023, the Company issued 15% OID promissory notes for total principal of $352,942 to certain accredited investors
in a private placement for gross proceeds of $300,000. The principal under the 15% OID promissory notes accrue 5% interest annually,
and principal and interest under the notes must be repaid by December 31, 2023. The notes may be prepaid without a premium or penalty.
As of September 30, 2023, accrued interest under these promissory notes totaled $52,942.
See “—Recent Developments –
Repayment of Certain Original Issue Discount Promissory Notes” above for related discussion of recent developments subsequent
to September 30, 2023.
January 2023 Settlement and Related-Party
Promissory Note
On or about November 29, 2022, John Dorsey, a
former Chief Executive Officer and director of the Company, through his counsel, sent the Company a letter demanding full payment on
a $50,000 loan that Mr. Dorsey allegedly made to the Company on or about July 21, 2022 while Mr. Dorsey was the Chief Executive Officer
of the Company that was due and payable two weeks thereafter (the “Alleged Loan”). The Company has generally denied entering
into a binding agreement with Mr. Dorsey on those terms and that payment is due and owing (the “Loan Dispute”). Under a Settlement
Agreement, Release of Claims, and Covenant Not To Sue between the Company and Mr. Dorsey, dated as of January 12, 2023 (the “January
2023 Dorsey Settlement Agreement”), Mr. Dorsey agreed to a discharge of the Alleged Loan and waiver and release of claims relating
to the Alleged Loan and Loan Dispute and covenant not to sue on the basis of such claims or otherwise commence any action or proceeding
that would be inconsistent with the release of such claims. The Company agreed to pay Mr. Dorsey $10,000 and issue a promissory note
to Mr. Dorsey in the principal amount of $40,000 payable on the earlier of ten business days following the successful closing of an initial
public offering of the Company’s common stock that generates at least $1 million in net proceeds to the Company or July 1, 2023.
Mr. Dorsey orally waived enforcement of the repayment obligation until the tenth day following the consummation of the Company’s
initial public offering. The net balance of this promissory note was $40,000 as of September 30, 2023. See “—Recent Developments
– Repayment of Related-Party Promissory Notes” above for related discussion of recent developments subsequent to September
30, 2023.
Other Related-Party Promissory Notes
On July 23, 2023, the Company issued a promissory
note in the amount of $130,000 to Daniel Nelson. Mr. Nelson is the Chief Executive Officer, Chairman and director of the Company. The
promissory note provided for 6% interest and maturity date of July 23, 2024 subject to acceleration upon the Company’s first equity
financing, or issuance of any debt convertible into equity, following the date of the promissory note. The amount could be prepaid at
any time.
On March 17, 2023, the Company issued a promissory
note in the amount of $10,000 to Daniel Nelson. Daniel Nelson is the Chief Executive Officer, Chairman and director of the Company. The
promissory note provided for 6% interest and maturity date of March 17, 2024 subject to acceleration upon the Company’s first equity
financing, or issuance of any debt convertible into equity, following the date of the promissory note. The amount was permitted to be
prepaid at any time.
On March 8, 2023, the Company issued a promissory
note in the amount of $95,000 to Nelson Financial Services Inc. Daniel Nelson is the Chief Executive Officer and sole owner of Nelson
Financial Services Inc. and the Chief Executive Officer, Chairman and director of the Company. The promissory note provided for 6% interest
and maturity date of March 1, 2024 subject to acceleration upon the Company’s first equity financing, or issuance of any debt convertible
into equity, following the date of the promissory note. The amount was permitted to be prepaid at any time.
On July 11, 2022, the Company issued a promissory
note in the amount of $35,000 to Daniel Nelson. Mr. Nelson is Chief Executive Officer, Chairman and director of the Company. The promissory
note provided for 6% interest and maturity date of July 11, 2023 subject to acceleration upon the Company’s first equity financing,
or issuance of any debt convertible into equity, following the date of the promissory note. At maturity, the balance due under the note
was required to be repaid within ten days. The amount was permitted to be prepaid at any time. Due to a subsequent issuance of debt convertible
into equity on August 8, 2022, the maturity date of the promissory note was accelerated to August 8, 2022. Repayment was not made within
ten days of that date. The promissory note provided that default interest under the promissory note accrues at the lesser of 12% or the
maximum permitted by law until the default is cured. Mr. Nelson agreed to extend the maturity date to the closing of the initial public
offering and waive payment of any default interest.
See “—Recent Developments –
Repayment of Related-Party Promissory Notes” above for discussion relating to the promissory notes described above of recent
developments subsequent to September 30, 2023.
On March 1, 2023, the Company issued a promissory
note in the amount of $75,000 to Nelson Financial Services Inc. Mr. Nelson is the Chief Executive Officer and sole owner of Nelson Financial
Services Inc. and the Chief Executive Officer, Chairman and director of the Company. The promissory note provided for 6% interest and
maturity date of March 1, 2024 subject to acceleration upon the Company’s first equity financing, or issuance of any debt convertible
into equity, following the date of the promissory note. At maturity, the balance due under the note must be repaid within ten days. The
amount may be prepaid at any time. The promissory note was fully repaid on May 18, 2023.
On July 11, 2022, the Company issued a promissory
note in the amount of $35,000 to Dennis Gile. Dennis Gile is our largest stockholder and a former Chief Executive Officer, President,
Secretary, Chairman, and director of the Company. The promissory note provides for 6% interest and maturity date of July 11, 2023 subject
to acceleration upon the Company’s first equity financing, or issuance of any debt convertible into equity, following the date
of the promissory note. At maturity, the balance due under the note must be repaid within ten days. The amount may be prepaid at any
time. Due to a subsequent issuance of debt convertible into equity on August 8, 2022, the maturity date of the promissory note was accelerated
to August 8, 2022. Repayment was not made within ten days of that date. The promissory note provides that default interest under the
promissory note accrues at the lesser of 12% or the maximum permitted by law until the default is cured. The promissory note was repaid
on April 6, 2023 with accrued interest not including default interest. Mr. Gile did not demand repayment or exercise any remedies under
the promissory note prior to such repayment and has not indicated any intent to do so.
Repurchase of Shares, Settlement and Release
On March 31, 2023, under the terms of a Repurchase
and Resignation Agreement, dated March 21, 2023, with Dennis Gile (the “Repurchase Agreement”), we paid an aggregate purchase
price of $800,000 for the repurchase (the “Repurchase”) of 600,000 shares of common stock from Dennis Gile, our largest stockholder
and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, at approximately $1.33 per share.
Pursuant to the Repurchase Agreement, $695,000 of the $800,000 payment was made to the attorneys for John Dorsey, a former officer and
director of the Company (the “Dorsey/Gile Settlement Payment”), as part of the settlement of a private lawsuit under a settlement
agreement between Mr. Gile and Mr. Dorsey (the “Dorsey/Gile Lawsuit”) between these individuals and Dorsey LLC (the “Dorsey/Gile
Settlement Agreement”). Pursuant to the Repurchase Agreement, the balance of the aggregate purchase price was paid to the attorneys
for Mr. Gile. Pursuant to the Repurchase Agreement, Mr. Gile agreed to resign his position as Chairman and every other director and officer
position he held with the Company effective as of March 21, 2023. Prior to such date, on March 20, 2023, Mr. Gile delivered notice of
resignation from such positions, which stated that it was effective March 19, 2023. Pursuant to the Repurchase Agreement, Mr. Gile will
not receive any severance payments in connection with any other agreement with the Company as a result of his resignation. The Repurchase
was also conditioned on the Company’s prior review of and consent to the Dorsey/Gile Settlement Agreement prior to its execution,
and receipt of a certificate from the Chief Financial Officer of the Company that the Repurchase will not impair the Company’s capital
within the meaning of Section 160 of the DGCL or the Company’s ability to pay down its debts as they become due (the “CFO
Certificate”). Under the Repurchase Agreement, the Dorsey/Gile Settlement Agreement was required to fully resolve, settle and dismiss
the Dorsey/Gile Lawsuit and contain a general release of claims by all the plaintiffs in the Dorsey/Gile Lawsuit in favor of Mr. Gile,
the Company, the Company’s affiliates, stockholders, and certain other Company releasees. Under the Repurchase Agreement, Mr. Gile
agreed to indemnify the Company for claims arising out of or based upon the Repurchase Agreement. Pursuant to the Repurchase Agreement,
a copy of the Dorsey/Gile Settlement Agreement was reviewed and consented to by the Company and entered into as of March 20, 2023. Under
the Dorsey/Gile Settlement Agreement, between Mr. Gile, Mr. Dorsey, and Dorsey LLC, Mr. Gile agreed to pay the Dorsey/Gile Settlement
Payment, transfer 40,000 shares of the Company to Mr. Dorsey. The Company consented to the transfer and waived the application of the
Company’s rights of first refusal under the Shareholder Agreement, to which Mr. Gile was a party. Pursuant to the requirements
of the Shareholder Agreement, Mr. Dorsey also agreed to become a party to the Shareholder Agreement. Mr. Gile, Mr. Dorsey and Dorsey
LLC agreed to mutual releases of all claims relating to the Dorsey/Gile Lawsuit and to dismiss the Dorsey/Gile Lawsuit. Although the
Dorsey/Gile Settlement Agreement did not contain a release of the Company and did not contain releases by the plaintiffs of Mr. Gile
other than with respect to the Dorsey/Gile Lawsuit, the Company waived any related requirements under the Repurchase Agreement in light
of the expected execution of the Mutual Release Agreement (as defined below). The CFO Certificate was received as of March 21, 2023.
The repurchased shares were cancelled as of March 31, 2023. The transfer of 40,000 shares by Mr. Gile to Mr. Dorsey occurred on April
4, 2023, after waiver of the board of directors of the repurchase rights and purchase rights provided for under the Shareholder Agreement
by resolutions adopted on March 24, 2023.
Effective March 29, 2023, a Confidential Mutual
General Release and Covenant Not to Sue Agreement was entered into between the Company and Mr. Dorsey (the “Mutual Release Agreement”).
Under the Mutual Release Agreement, Mr. Dorsey agreed to a general release of claims against and covenant not to sue the Company, the
Company’s affiliates, stockholders, and certain other Company releasees, and the Company agreed to a general release of claims
against and covenant not to sue Mr. Dorsey, Mr. Dorsey’s affiliates, and certain other releasees, subject to payment of the Dorsey/Gile
Settlement Payment, which, as indicated above, was made on March 31, 2023. The releases of claims and covenants not to sue under the
Mutual Release Agreement do not apply to breach of the Dorsey/Gile Settlement Agreement or to the January 2023 Dorsey Settlement Agreement.
SAFEs
From March 2021 through July 2021, the Company
entered into eight agreements consisting of a “Simple Agreement for Future Equity” (the “SAFE Agreements”) totaling
$1,980,000. The SAFE Agreements provided a right to the holder to future equity in the Company in the form of these agreements.
In September 2022 and October 2022, all of the
SAFE Agreements were canceled and in exchange a total of 591,048 shares of common stock were issued to the former SAFE holders pursuant
to cancellation and exchange agreements with the former SAFE holders.
If the Company had conducted an Equity Financing
(as defined in the SAFE Agreements), the SAFE Agreements would have automatically converted into the number of shares of preferred stock
equal to the Purchase Amount (as defined in the SAFE Agreements) divided by the conversion price per share.
If there had been a SAFE Liquidity Event (as
defined in the “Description of Securities – SAFEs – Specific Conversion Terms”), the holder of the SAFE
Agreement would have been automatically entitled to receive a portion of the proceeds equal to the greater of (i) the Purchase Amount
or (ii) an amount equal to a percentage of the proceeds to be received in a SAFE Liquidity Event with such percentage calculated by dividing
the Purchase Amount by the Liquidity Event Amount (as defined in the SAFE Agreements).
If there had been a Dissolution Event (as defined
in the SAFE Agreements), the holder of the SAFE Agreement will automatically receive a portion of the Proceeds equal to the Purchase
Amount/Cash-out Amount, due and payable immediately prior to the consummation of the Dissolution Event.
If after eighteen months, there had been no Equity
Financing, SAFE Liquidity Event, or Dissolution Event, the SAFE Agreement would have automatically converted into the number of shares
of common stock equal to the Purchase Amount divided by the Valuation Discount Price Per Share (as defined in the SAFE Agreements) resulting
in an approximate 20% discount.
The SAFE Agreements were not subject to mandatory
redemption, and they could have required the Company to issue a variable number of shares. Management of the Company determined that
the SAFE Agreements contained a liquidity event provision that embodied an obligation indexed to the fair value of the equity shares
and that could have required the Company to settle the SAFE obligation by transferring assets or cash. The SAFE Agreements represented
a recurring measurement that is classified within Level 3, disclosed and defined in Note 6 to the audited financial statements accompanying
this prospectus of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs.
Off-Balance Sheet
Arrangements
We have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical
Accounting Policies
The
following discussion relates to critical accounting policies for our company. The preparation of financial statements in conformity with
GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto,
and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant
to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition
and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition
and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates
are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting
the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies
involve the most significant estimates and judgments used in the preparation of our financial statements:
Concentrations
of Credit Risk
The
Company maintains its cash account in several deposit accounts, the balances of which are periodically more than federally insured limits.
At September 30, 2023 and December 31, 2022, the Company had no amounts uninsured. At December 31, 2021, the uninsured amount approximated
$4,000,000.
Receivables
and Credit Policy
The
Company estimates an allowance for doubtful accounts based upon an evaluation of the status of receivables, historical experience, and
other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.
There were no open receivables at September 30, 2023, $15,670 at December 31, 2022, and approximately $5,000 at December 31, 2021. At
September 30, 2023, December 31, 2022 and December 31, 2021, the Company believes the accounts receivable are fully collectable and has
no reserve established.
Payment
Terms
Users
other than college coaches may only access the Company’s website and application on either a free-trial or paid basis. During 2022
and 2021, certain organizations and their coaches were also permitted to access the Company’s website and application under a separate
free use arrangement. This free use arrangement was discontinued as of December 31, 2022 other than with respect to college coaches.
Users that are not eligible or no longer eligible for a free use arrangement or free-trial access are required to have subscriptions
by making payment to the Company prior to access to the Company’s website and application, except that user organizations may have
subscriptions by agreeing to make payment on a monthly installment basis. If a required payment is not made, access to the Company’s
website and application is suspended until the required payment is received.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend
the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired
or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in
income.
Depreciation
is provided using the straight-line method, based on useful lives of the assets which range from three to five years.
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand,
competition, and other economic factors. Based on this assessment there was no impairment at September 30, 2023, December 31, 2022 and
December 31, 2021.
Internally
Developed Software
Software
consists of an internally developed information system for use by the Company in matching athletes with qualified coaches. The Company
has capitalized costs incurred with development and upgrades of the information systems in accordance with applicable accounting standards.
The Company amortizes these capitalized costs on a straight-line basis over the estimated useful life of the asset of five years. Costs
incurred up to and including the feasibility stage of development as well as maintenance costs are expensed as incurred.
In
accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 350-40, “Internal-Use
Software,” amortization of internal-use software should begin when the software is ready for its intended use. Software is ready
for its intended use after all substantial testing is completed. On January 1, 2023, all substantial testing of the Company’s platform
for purposes of football recruitment was completed. Amortization of the platform’s capitalized costs for purposes of football
recruitment therefore started on January 1, 2023, due to its ready-for-use status.
In
accordance with ASC Subtopic 350-40-25, during the application development stage, some costs are capitalized while other costs are
expensed as incurred. In general, costs that are directly attributable to the development of the software are capitalized. The Company’s
platform was in the application development stage during all periods presented with respect to support for football prior to January
1, 2023, and remained in the application development stage for soccer, baseball, and softball recruitment and additional feature
development and enhancements for purposes of football recruitment during the nine months ended September 30, 2023. Capitalized
costs associated with the platform during the nine months ended September 30, 2023 consisted of: Fees paid to third parties for services
provided to develop the software during the application development stage, costs incurred to obtain computer software from third parties,
and payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer
software project, to the extent of the time spent directly on the project. The following other costs during the nine months ended
September 30, 2023, were not capitalized: Training costs, data conversion costs except for costs to develop or obtain software
that allows for access or conversion of old data by new systems, and general and administrative costs and overhead costs. Capitalized
costs associated with the platform during the fiscal years ended December 31, 2022 and 2021 consisted of: Fees paid to third parties
for services provided to develop the software during the application development stage and costs incurred to obtain computer software
from third parties. Capitalized costs during the fiscal years ended December 31, 2022 and 2021 were fully impaired at the end of those
fiscal years, respectively, in accordance with ASC Subtopic 350-40-35 and as described below. During the fiscal years ended December
31, 2022 and 2021, the Company incurred the following as expenses, not capitalized costs: Training costs, data conversion costs except
for costs to develop or obtain software that allows for access or conversion of old data by new systems, general and administrative costs,
and overhead costs.
The
Company periodically performs reviews of the recoverability of capitalized technology costs. At the time a determination is made that
capitalized amounts are not recoverable based on estimated cash flows to be generated from technology; any remaining capitalized amounts
are written off. During the nine months ended September 30, 2023 and 2022, the Company did not have an impairment charge. During the
years ended December 31, 2022, and 2021, the Company wrote off net capitalized software development costs of $820,951 and $2,276,159
respectively. An impairment charge for this write-off is reflected in the operating expenses in the accompanying audited statement of
operations.
Intangible
Assets
Intangible
assets consist of development software, patented technology, customer lists, trademarks, software IP, and customer data in the form of
verifiable video uploads, player statistics, and academic records. Intangible assets are stated at cost less accumulated amortization.
For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives
of the related assets. For intangible assets with indefinite lives, the assets are tested periodically for impairment.
Fair
Value Measurements
The
Company uses the fair value framework that prioritizes the inputs to valuation techniques for recognizing financial assets and liabilities
measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered
to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement
date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable
in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input
that is significant to the fair value measurement in its entirety.
These
levels are:
Level
1 – This level consists of valuation techniques in which all significant inputs are unadjusted quoted prices from active markets
for assets or liabilities that are identical to the assets or liabilities being measured.
Level
2 – This level consists of valuation techniques in which significant inputs include quoted prices from active markets for assets
or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical
or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all
significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.
Level
3 – This level consists of valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Unobservable inputs are valuation technique inputs that reflect assumptions about inputs that market participants would use in pricing
an asset or liability.
The
Company’s financial instruments also include accounts and receivable, accounts payable, and accrued liabilities. Due to the short-term
nature of these instruments, their fair values approximate their carrying values on the balance sheet.
ASC
Topic 825-10, “Financial Instruments,” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless
a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date.
The
Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance
with ASC Topic 820.
Due
to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance
sheet dates.
Income
Taxes
Income
taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of internally developed software and net operating loss and research and development
tax credit carry forwards for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The
Company converted to a C corporation in August of 2021. As a limited liability company for the 2020 year and through the date of conversion
in 2021, the Company’s taxable loss was allocated to members in accordance with their respective percentage of ownership. Therefore,
no provision for income taxes has been included in the financial statements for the period prior to the Company’s conversion to
a C corporation.
The
Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual
is necessary for uncertain tax positions. As of September 30, 2023 and December 31, 2022, the unrecognized tax benefits accrual was zero.
The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.
As of December 31, 2022 and 2021, the unrecognized tax benefits accrual was zero. As of September 30, 2023, the 2020 through 2022 tax
years generally remain subject to examination by federal and state authorities.
Deferred
Revenue
Deferred
revenues are contract liabilities for collections on subscription agreements in excess of revenue recognized.
Revenue
Recognition
The
Company accounts for revenue under the guidance of ASC Topic 606, “Revenue from Contracts from Customers” (“ASC 606”).
ASC
606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue
to be recognized. Under the ASC 606 guidance, an entity is required to perform the following five steps:
(1)
identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity
satisfies a performance obligation.
Revenue
from performance obligations satisfied at a point in time consist of sales to individuals representing a one-month subscription and are
recognized at the end of the subscription.
Revenue
from performance obligations satisfied over time consists of the sale of subscription agreements to individual organizations or customers
that are more than one month in duration and are recognized on a monthly basis over the life of the subscription agreement.
In
accordance with ASC 606, contracts may be amended to account for changes in contract specifications and requirements. Contract modifications
exist when the amendment either creates new, or changes existing, enforceable rights and obligations. When contract modifications create
new performance obligations and the increase in consideration approximates the standalone selling price for goods and services related
to such new performance obligations as adjusted for specific facts and circumstances of the contract, the modification is considered
to be a separate contract and revenue is recognized prospectively. If a contract modification is not accounted for as a separate contract,
the Company accounts for the promised goods or services not yet transferred at the date of the contract modification (the remaining promised
goods or services) prospectively, as if it were a termination of the existing contract and the creation of a new contract, if the remaining
goods or services are distinct from the goods or services transferred on or before the date of the contract modification. The Company
accounts for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct
and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. In
such case the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward
complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction
of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).
The
Company had negative net revenues for the three months ended June 30, 2022 due to the issuance of refunds totaling $30,942 in June 2022
to certain high school sports program group accounts under the Company’s former promotional free use arrangement for these accounts.
These refunds exceeded total revenues in the second quarter of 2022 by $3,498, resulting in negative net revenues for the three months
ended June 30, 2022. The Company determined and accounted for the modification as if it were part of the original contracts. The Company
determined that the modification does not create a performance obligation because the remaining services to be provided under the modified
contract are not distinct. The Company updated its estimate of the transaction price to account for the effect of the modification. This
update resulted in a cumulative catch-up adjustment at the date of the contract modification. The cumulative catch-up adjustment at the
date of the contract modification resulted in negative net revenues under ASC 606 due to the decrease in revenue exceeding the revenue
in the second quarter of 2022.
Debt
Issuance Costs
Debt
issuance costs are amortized over the period the related obligation is outstanding using the straight-line method. The straight-line
method is a reasonable estimate of the effective interest method due to the relatively short maturities of the related debt. Debt issuance
costs are included within long-term debt on the balance sheet. Amortization of debt issuance costs is included in interest expense in
the accompanying financial statements. As of September 30, 2023, December 31, 2022, and December 31, 2021, unamortized debt issuance
costs are $315,143, $387,920, and $495,007, respectively.
Advertising
Costs
Advertising and marketing costs are expensed as incurred. Such costs
amounted to $75,565 and $312,295 for the three and nine months ended September 30, 2023, respectively, $131,075 and $818,029 for the three
and nine months ended September 30, 2022, respectively, and $1,842,666 and $1,104,939 for the years ended December 31, 2022 and 2021,
respectively. Advertising costs are included in advertising and marketing expenses in the statements of operations.
Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Contract
Costs
Incremental
costs of obtaining a contract are expensed as incurred as the amortization period of the asset that otherwise would have been recognized
is estimated to be one year or less.
Stock-Based
Compensation
The
Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation (“ASC
718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation
awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based
payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions
of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation
is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods
or services.
The
Company measures and recognize compensation expense for the cost of employee services received in exchange for an award of equity instruments
based on the grant date fair value of the award. The fair value of options on the grant date is estimated using the Black-Scholes option-pricing
model, which requires the use of certain subjective assumptions including expected term, volatility, risk-free interest rate and the
fair value of our common stock. These assumptions generally require significant judgment. The resulting costs are recognized over the
period during which an employee is required to provide service in exchange for the award, usually the vesting period. The Company amortizes
the fair value of stock-based compensation on a straight-line basis over the requisite service periods. The Company recognizes forfeitures
as they occur as a reduction to stock-based compensation expense and to additional paid-in-capital.
Risk
free rate. The risk free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected
term of the options for each option group.
Expected
term. Using the simplified method, the expected term is estimated as the midpoint of the expected time to vest and the contractual
term, as permitted by the SEC. For out of the money option grants, we estimate the expected lives based on the midpoint of the expected
time to a liquidity event and the contractual term.
Dividend
yield. The Company has never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable
future. Consequently, we use an expected dividend yield of zero.
Volatility.
The Company’s expected volatility is derived from the historical volatilities of several unrelated public companies in the digital
media and social platform industries because we have little information on the volatility of the price of our common stock because we
have no trading history. When making the selections of our industry peer companies to be used in the volatility calculation, we consider
operational area, size, business model, industry and the business of potential comparable companies. These historical volatilities are
weighted based on certain qualitative factors and combined to produce a single volatility factor.
The
following table summarizes the assumptions relating to our stock options for the nine-month period ended September 30, 2023 and the year
ended December 31, 2022.
| |
Nine months ended September 30, | | |
Year ended December 31, | |
| |
2023 | | |
2022 | |
Risk-free interest rate | |
| 3.52 | % | |
| 3.88 | % |
Expected term (in years) | |
| 5.42 | | |
| 5.42 | |
Expected volatility | |
| 50 | % | |
| 50 | % |
Expected dividend yield | |
$ | - | | |
$ | - | |
If
in the future the Company determines that another method is more reasonable, or if another method for calculating these input assumptions
is prescribed by authoritative guidance, and, therefore, should be used to estimate volatility or expected life, the fair value calculated
for our stock options could change significantly. Higher volatility and longer expected lives result in an increase to stock-based compensation
expense determined at the date of grant. Stock-based compensation expense affects our and selling, general and administrative expense.
Common
Stock Valuation
It
is also necessary to estimate the fair value of the common stock underlying our equity awards when computing the fair value calculation
of options under the Black-Scholes option-pricing model. The fair value of the common stock underlying our equity awards was assessed
on each grant date or a date considered by management to be sufficiently near to the respective grant date to be representative of such
grant date. Given the absence of an active market for our common stock prior to this offering, the estimated fair value of our common
stock was determined based on an analysis of a number of objective and subjective factors that we believe market participants would consider,
including the following:
| ● | the
results of operations, history of losses and other financial metrics; |
| | |
| ● | the
capital resources and financial condition; |
| | |
| ● | the
prices of the Company’s private placement offerings; |
| | |
| ● | the
hiring of key personnel; |
| | |
| ● | the
introduction of new products; |
| | |
| ● | the
fact that the option grants involve illiquid securities in a private company; |
| | |
| ● | the
risks inherent in the development and explanation of the Company’s product and services;
and |
| | |
| ● | the
likelihood of achieving a liquidity event, such as an initial public offering or sale of
our company given prevailing market conditions. |
The
following table summarizes, by grant date, the number of stock options granted from January 1, 2021 to November 13, 2023, the date of
the effectiveness of the IPO Registration Statement, and the associated per share exercise price:
| |
Common shares underlying
options granted | | |
Exercise price
per share | | |
Fair value per common share as
determined by the board of directors at grant date | | |
Fair value per common share
for financial reporting purposes at grant date | | |
Intrinsic value per underlying
common share | |
September 9, 2022 | |
| 110,000 | | |
$ | 3.10 | | |
$ | 3.10 | | |
$ | 1.74 | | |
$ | 0.00 | |
September 28, 2022 | |
| 152,000 | | |
| 3.10 | | |
| 3.10 | | |
| 1.74 | | |
| 0.00 | |
March 14, 2023 | |
| 53,800 | | |
| 3.10 | | |
| 3.10 | | |
| 1.74 | | |
| 0.00 | |
April 5, 2023 | |
| 100,000 | | |
| 2.50 | | |
| 2.50 | | |
| 2.22 | | |
| 0.00 | |
April 11, 2023 | |
| 3,000 | | |
| 2.50 | | |
| 2.50 | | |
| 2.22 | | |
| 0.00 | |
April 19, 2023 | |
| 16,000 | | |
| 2.50 | | |
| 2.50 | | |
| 2.22 | | |
| 0.00 | |
May 3, 2023 | |
| 100,000 | | |
| 2.50 | | |
| 2.50 | | |
| 2.22 | | |
| 0.00 | |
May 9, 2023 | |
| 24,000 | | |
| 2.50 | | |
| 2.50 | | |
| 2.22 | | |
| 0.00 | |
The
following table summarizes by grant date the number of restricted stock awards granted from January 1, 2021 to November 13, 2023, the
date of the effectiveness of the IPO Registration Statement:
| |
RSAs | | |
Fair value per common
share as determined by the
board of directors at grant date | | |
Fair value per common share
for financial reporting
purposes at grant date | |
March 14, 2023 | |
| 90,000 | | |
$ | 3.10 | | |
$ | 3.10 | |
Following
May 9, 2023 and through November 13, 2023, the date of the effectiveness of the IPO Registration Statement, we did not issue any stock
compensation or stock-based compensation.
The
following is a discussion of all options we granted from January 1, 2021 through November 13, 2023, the date of the effectiveness of
the IPO Registration Statement, and the significant factors contributing to our board of directors’ determination of the fair value:
On
September 9, 2022, 110,000 stock options were granted to employees and a newly-appointed independent director. On September 28,
2022, 152,000 stock options were granted to the Company’s directors and officers as stock-based compensation for work
performed and expected future services. The exercise price of the stock options and the valuation of the shares of common stock
underlying the stock options was modified to $3.10 per share pursuant to resolutions adopted by the Company’s board of
directors on October 18, 2022. The valuation was determined using the optional conversion price of the convertible note private
placement that was being conducted at the time of the stock option grants.
On March
14, 2023, 53,800 stock options and 90,000 restricted stock awards were granted to employees. The valuation of the shares of common stock
underlying the stock options was $3.10 per share. The Company elected to continue to use the same valuation from 2022 while a new convertible
note private placement was being prepared.
On
March 14, 2023, the Company’s board of directors approved a non-convertible note private placement with warrants having a $2.50
exercise price. The Company used the valuation of this private placement to value all new stock option grants from April 2023 to May
2023. From April 2023 to May 2023, 243,000 stock options were granted to employees and a newly-appointed independent director. The valuation
of the shares of common stock underlying the stock options was $2.50 per share pursuant to resolutions adopted by the Company’s
board of directors with respect to April 5, 2023, April 11, 2023, April 19, 2023, May 3, 2023, and May 9, 2023. The valuation was determined
using the private placement warrant exercise price of $2.50 per share.
Independent
Third-Party Valuation
On
July 24, 2023, the Company engaged a third-party independent valuation firm, Scalar, LLC, which concluded that as of August 31, 2022,
which the Company considered representative of the fair value of the underlying common stock of the options granted on September 9, 2022
and September 28, 2022 and modified on October 18, 2022 as described above, the fair value of the Company’s common stock was $1.74
per share. Their valuation report as of August 31, 2022 applied a Probability-Weighted Expected Return Method (“PWERM”) analysis
that reflected a 45% probability that the Company would complete an initial public offering, and a 55% probability that the Company would
continue to operate privately. The Company performed a retrospective analysis based on the July 24, 2023 valuation on the financial statements
previously issued and determined that any difference to stock compensation expense previously booked is not material to the financial
statements as a whole for the year ended December 31, 2022 and the three-month period ended March 31, 2023. The Company also engaged
Scalar, LLC to conduct a valuation analysis as of March 31, 2023, which the Company considered representative of the fair value of the
underlying common stock of the options granted on March 14, 2023, April 5, 2023, April 11, 2023, April 19, 2023, May 3, 2023 and May
9, 2023, and concluded that the fair value of the Company’s common stock was $2.22 per share. Their valuation report as of March
31, 2023 applied a PWERM analysis that reflected a 70% probability that the Company would complete an initial public offering and a 30%
probability that the Company would continue to operate privately.
Partial
Conversion of Convertible Notes and Reduction of Valuation of Common Stock
From
August 2022 to January 2023, the Company conducted a private placement of the Company’s 8% convertible unsecured promissory notes
and respective warrants under subscription agreements with a number of accredited investors. Pursuant to the agreements, we issued 15
convertible notes and respective warrants for aggregate loans of $1,465,000. The convertible notes bear interest at 8% annually, and
were initially due to mature on August 8, 2023 unless converted in accordance with their terms. On August 7, 2023, an agreement was signed
with the holders of the majority of the outstanding balance under these convertible notes (the “8% Convertible Note Amendment Agreement”).
The 8% Convertible Note Amendment Agreement amended the maturity date of all of these convertible notes to August 8, 2025. Pursuant to
the 8% Convertible Note Amendment Agreement, a provision in the convertible notes providing for an increase of the outstanding balance
under the convertible notes to 120% of the original principal amount upon non-repayment by the maturity date was accelerated, and the
outstanding balance under the convertible notes was increased in aggregate to $1,758,000. The 8% Convertible Note Amendment Agreement
also provided for the immediate conversion of the additional amount of the outstanding balance under the convertible notes into 146,500
shares of common stock at $2.00 per share instead of the applicable optional conversion price, approximately $3.29 per share at the time
of the conversion, not including any accrued but unpaid interest, which was waived with respect to the converted outstanding balance.
As a result, the 8% convertible unsecured promissory notes’ aggregate underlying principal was $1,465,000 both before and after
such increase of the outstanding balance and conversion of such increase. In connection with this transaction, the estimated fair value
of the underlying shares of common stock was reduced from $2.22 as of March 31, 2023 to $2.00 as of August 7, 2023, reflecting an assumed
65% probability that the Company would complete an initial public offering and an assumed 35% probability that the Company would continue
to operate privately.
Other
Equity-Related Transactions
Following
August 7, 2023 and until November 13, 2023, which was the effectiveness date of the IPO Registration Statement, we did not conduct any
equity-related transactions. On November 13, 2023, we issued a settlement notice to the holders of the 6% convertible unsecured promissory
notes undertaking to effect conversions of principal as if 110% of the principal being converted was being converted to address possible
claims with respect to the increase of the outstanding principal under the convertible notes to 110% of the outstanding principal amount,
and the former convertible note holders were issued a number of shares of common stock upon conversion of the convertible notes in the
amount that would be applicable as if the principal under the convertible notes had been increased to 110% of the outstanding principal.
On
the same date, we entered into the Underwriting Agreement with respect to the IPO Shares and that were sold pursuant thereto on November
16, 2023. See “—Liquidity and Capital Resources – Recent Developments – Initial Public Offering and Underwriting
Agreement” and “—Liquidity and Capital Resources – Contractual Obligations – Contractual Obligations
to Boustead Securities, LLC” for a description of its terms.
Basic
and Diluted Net Loss per Common Share
Basic
loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each
period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding
plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2023, December 31, 2022, and December
31, 2021, 386,650, 253,000 and zero stock options, respectively, were excluded from dilutive earnings per share as their effects were
anti-dilutive.
Leases
At
the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating
or finance lease at commencement. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset
for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease.
As
most of the Company’s leases do not provide an implicit interest rate, the lease liability is calculated at lease commencement
as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing
rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized
basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the
lease.
The
lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms
may include optional extension periods when it is reasonably certain that those options will be exercised.
Leases
with an initial expected term of 12 months or less are not recorded in the Company’s balance sheet and the related lease expense
is recognized on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not
separate fixed lease components from the fixed non-lease components.
Recent
Accounting Pronouncements
On
January 1, 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. This standard replaced the incurred loss methodology with an expected loss methodology that
is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the
remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts
and generally applies to financial assets measured at amortized cost, such as accounts receivable. At September 30, 2023, the Company
does not have financial assets measured at amortized cost and the allowance is currently zero.
The
Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not
expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
CORPORATE
HISTORY AND STRUCTURE
Our
Corporate History
SDS
LLC – AZ was formed on January 21, 2019. SDS LLC – AZ formed two wholly-owned subsidiaries, SDSF LLC, and SDSB LLC, on September
29, 2020 and November 25, 2020, respectively.
On
June 5, 2020, the Arizona-to-Delaware Conversion Process was initiated. On that date, a certificate of formation of SDS LLC – DE,
and a certificate of conversion of SDS LLC – AZ into SDS LLC – DE, were filed with the Delaware Secretary of State. On September
9, 2021, the Certificate of Incorporation of SDS Inc. – DE, and a certificate of conversion of SDS LLC – DE into SDS Inc.
– DE were filed with the Delaware Secretary of State. From September 9, 2021 to July 11, 2022, SDS Inc. – DE operated as
the successor entity to SDS LLC – AZ, and SDS LLC – AZ continued to be registered as an active entity with the Arizona Corporation
Commission while its conversion into SDS LLC – DE pended.
A
unanimous written consent of the board of directors of SDS Inc. – DE, dated as of March 25, 2022, approved the Merger Agreement
and related merger documents, the related merger transactions, the form of the Settlement, the form of the Shareholder Agreement (for
a description of the terms of the Shareholder Agreement, see “Corporate History and Structure – Shareholder Agreement”),
and a proposed capitalization table of SDS Inc. – DE, approved and ratified the Certificate of Incorporation and approved amended
and restated bylaws of SDS Inc. – DE, and approved and ratified related matters. In anticipation of the execution of the Merger
Agreement and its consummation, in April 2022 and May 2022, SDS LLC – AZ, SDS Inc. – DE, and each of the members or stockholders
of SDS LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc. – DE, entered into the Settlement Agreements, which provided, among other
things, for the mutual general release of all claims by the parties against and relating to SDS LLC – AZ, SDSF LLC, SDSB LLC, and
SDS Inc. – DE, and confirmed the owners and related amounts of all outstanding shares of common stock of SDS Inc. represented by
the capitalization table exhibit to the Settlement Agreements. The stockholders of SDS Inc. – DE and the members of SDS LLC –
AZ executed unanimous written consents, dated as of May 17, 2022 and July 6, 2022, respectively, approving the Merger Agreement and related
transactions, the form of the Settlement Agreements, the form of the Shareholder Agreement, an updated capitalization table of SDS Inc.,
and approved and ratified the Certificate of Incorporation, the Amended and Restated Bylaws, and the prior corporate actions that were
taken in connection with the Arizona-to-Delaware Conversion Process, and certain related matters.
On
July 11, 2022, the Merger Agreement was executed. On the same date, pursuant to the Merger Agreement, a certificate of merger was filed
with the Delaware Secretary of State and a statement of merger was filed with the Arizona Secretary of State effecting the merger of
SDS LLC – AZ, SDSF LLC, and SDSB LLC with and into SDS Inc. – DE, and SDS Inc. – DE succeeded to the rights, property,
obligations, and liabilities of each of SDS LLC – AZ, SDSF LLC, and SDSB LLC.
The
releases of claims under the Settlement Agreements with each of Dennis Gile, Dorsey LLC, Joshua A. Donaldson Revocable Trust, and Zone
Right are subject to certain specific exceptions for claims under certain separate agreements or instruments. For a further description
of the Settlement Agreements, including the rights subject to exceptions referenced in the Settlement Agreements, see “Certain
Relationships and Related Party Transactions – Transactions With Related Persons”.
Reverse
Stock Split
On
March 13, 2023, the Reverse Stock Split, in which each five shares of the outstanding common stock were automatically combined and converted
into one share of outstanding common stock, was approved by the board of directors, and was approved by stockholders holding a majority
of the voting power of our issued and outstanding voting capital stock as of April 4, 2023. On April 14, 2023, we filed a certificate
of amendment to the Certificate of Incorporation, which provided for the Reverse Stock Split, and the Reverse Stock Split became effective
on the same date.
Except
as otherwise indicated, all references to our common stock, share data, per share data and related information has been adjusted for
the Reverse Stock Split ratio of 1-for-5 as if it had occurred at the beginning of the earliest period presented. The Reverse Stock Split
combined each five shares of our outstanding common stock into one share of common stock, without any change in the number of authorized
shares of common stock or the par value per share of common stock. The Reverse Stock Split, correspondingly adjusted,
among other things, the exercise price of our warrants, conversion price of our convertible notes, and exercise price of our stock options
then outstanding. No fractional shares were issued in connection with the Reverse Stock Split, and any fractional shares
resulting from the Reverse Stock Split were rounded up to the nearest whole share.
Amended
and Restated Certificate of Incorporation and Second Amended and Restated Bylaws
On
May 5, 2023, the amendment and restatement of the Certificate of Incorporation was approved by stockholders holding a majority of the
voting power of our issued and outstanding voting capital stock, and on May 9, 2023, the Amended and Restated Certificate of Incorporation
was filed with the Delaware Secretary of State and became effective the same date. Effective the same date, the Second Amended and Restated
Bylaws were adopted by unanimous written consent of the board of directors, and on December 4, 2023, the board of directors unanimously
approved an amendment to the Second Amended and Restated Bylaws. The Amended and Restated Certificate of Incorporation and Second Amended
and Restated Bylaws contain certain provisions relating to limitations of liability and indemnification of directors and certain officers,
provide advance notice procedures for stockholder proposals at stockholder meetings, and other matters. See “Description of
Securities – Anti-Takeover Provisions” and “Management – Limitation on Liability and Indemnification of
Directors and Certain Officers”.
Shareholder
Agreement
On
May 17, 2022, the Shareholder Agreement was entered into by and among the Company and the stockholders of the Company. The Shareholder
Agreement provided certain restrictions, rights and obligations relating to the proposed sale, transfer or other disposition of the shares
of the Company. The Shareholder Agreement terminated in accordance with its terms upon the closing of the Company’s initial public
offering of its common stock on November 16, 2023 and listing on the NYSE American in connection with the closing. The following is a
summary of certain provisions of the Shareholder Agreement which were in force prior to its termination.
Rights
of First Refusal
If
a stockholder party proposed to sell their shares, or the ownership of the shares would change as a result of a marital divorce or separation,
death, bankruptcy or similar proceeding, or the stockholder party engages in fraud, a felony or bad-faith violation of the implied contractual
covenant of good faith and fair dealing, the Company had a right to repurchase the shares within a certain period. If the Company did
not repurchase any of the shares within the prescribed period, the other stockholder parties had a right to purchase the unpurchased
shares within a certain period. The purchase price would be the seller’s proposed price, or, in the event of a purchase pursuant
to a change in the ownership of the shares for one of the reasons stated above, at the Company or other stockholder party buyer’s
proposed price, and if not accepted by the disposing stockholder or their spouse, representative or successor, as applicable, then the
fair market value of the shares. The purchase price was required to be paid at the proposed price for proposed sales; in cash as to dispositions
pursuant to marital divorce or separation; and for the other events described above, was required to be paid in cash or with a 5-year
nonnegotiable promissory note bearing interest at the rate per annum equal to The Wall Street Journal prime rate of
interest as quoted in the Money Rates section of The Wall Street Journal, compounded annually on each anniversary of the
note. These purchase rights were subject to certain notice, timing and other provisions set forth in the Shareholder Agreement. The board
of directors of the Company could waive the application of the repurchase rights of the Company and the purchase rights of the other
stockholder parties described above. Dispositions subject to the tag-along right or drag-along rights described below are subject to
the requirements described below and are not subject to the purchase rights and repurchase rights described above.
Drag-Along
Right and Tag-Along Rights
If
the Company proposed a transaction or series of related transactions resulting in (i) the sale of all or substantially all of the assets
of the Company to a non-affiliated third party; (ii) a sale resulting in more than 50% of the voting power of the Company being held
by one or a non-affiliated third parties; or (iii) a merger, consolidation, recapitalization or reorganization of the Company with or
into a non-affiliate third party after which the stockholder parties would be unable to designate or elect a majority of the board of
directors or similar governing body (a “Change of Control”), the Company had the right to require the other stockholders
to transfer all of their shares to the proposed transferee for the same consideration and otherwise on the same terms and conditions
upon which the Company was arranging for the sale of shares. Likewise, in the event of such a proposed transaction or series of transactions,
subject to the Company’s repurchase rights described above, any stockholder party had the right to cause the Company to effect
a disposition of such stockholder’s shares in the transaction. The drag-along right and tag-along rights were subject to certain
notice, timing, payment, and other provisions set forth in the Shareholder Agreement.
Participation
Rights
Each
of the stockholder parties generally had the right to purchase up to their relative percentage ownership of the Company’s common
stock of any common stock or securities convertible into or exercisable to purchase common stock that the Company may from time to time
issue, including in an initial public offering, at the proposed price and other offering terms. These purchase rights were subject to
certain notice and timing provisions set forth in the Shareholder Agreement.
Other
Provisions
The
stockholder parties were subject to certain confidentiality requirements. The Shareholder Agreement terminated on the earliest of (i)
the written consent of the board of directors and vote of two-thirds of the holders of the outstanding common stock of the Company; (ii)
the Company’s dissolution, filing of a petition in bankruptcy under Chapter 7 of the United States Bankruptcy Code or insolvency
of the Company; (iii) upon the closing of the Company’s first underwritten public offering of its common stock on Nasdaq, the NYSE
or other exchange or marketplace approved by the board of directors; or (iv) at such time as only one stockholder party remains.
BUSINESS
Overview
We
are a technology company developing and operating platforms to give significantly more student-athletes the opportunity to go to college
and continue playing sports. Our platform, Signing Day Sports, is a digital ecosystem to help athletes get discovered and recruited by
coaches and recruiters across the country. We fully support football, baseball, softball, and men’s and women’s soccer, and
we plan to expand the Signing Day Sports platform to include additional sports. Each sport is led by former professional athletes and
coaches who know what it takes to get to the big leagues.
Signing
Day Sports launched in 2019, and as of September 2023, many high schools, sports clubs, and aspiring high school athletes have subscribed
to the Signing Day Sports platform. Colleges in the National Collegiate Athletic Association (NCAA) Division I, Division II, and Division
III, and the National Association of Intercollegiate Athletics (NCIA), have utilized our platform for recruitment purposes. Signing Day
Sports initially supported football athletes, and now also offers a platform for baseball, softball, and men’s and women’s
soccer, resulting in even more recruiter and athlete platform participants.
We
founded Signing Day Sports to reinvent the high school and college sports recruiting process for the digital era. When we started the
Company, recruiting was still being done largely as it had been done since before the mass availability of Internet-connected devices
and was still limited by that model. We identified the flaws in the recruiting process and the unique opportunity it presented for us
to become a solution provider in the industry. We developed and operated our platform with the objective of optimizing and enhancing
the sports recruitment process across all sizes of colleges and athletic departments.
Our
ability to leverage modern technologies to bring coaches and athletes together in a mutually beneficial ecosystem has shown significant
benefits for both sides of the student-athlete recruitment process. Parents and athletes can use the platform to understand and provide
what recruiters want to see, seek and gain offers of better athletic scholarships or other financial aid packages, and maximize the potential
of an athlete’s career. Recruiters now have a comprehensive recruitment application that shows video verification of key attribute
data and gives the recruiter the ability to narrow down their search with a highly optimized search engine and athlete screening process.
In
short, we offer a comprehensive solution that services the needs of all participants in the sports recruitment process. We are aware
of no other platform that offers what our platform does. Our goal is to change the way sports recruitment is done for the betterment
of everyone.
A Problem
Worth Solving
The
sports recruitment industry has a number of problems. Frequently, the best athletes in the world get overlooked because of a lack of
exposure, promotion, and experience. The dominance of the top athletic programs reduces opportunities for talented student-athletes.
Many student-athletes who do not know how to effectively promote themselves will get pushed down ranking sheets. Signing Day Sports has
built an application to bring equal opportunity to all student-athletes looking to be recruited at every level.
We
believe that our technology can help level the playing field for both student-athletes and recruiters. Any student-athlete can promote
and demonstrate their talent to all of the recruiters on our platform. On the other side, every recruiter who uses the platform can access
the same rich level of data that can be provided by our platform’s student-athletes.
We
believe our technology will help move sports recruitment toward a truly fair experience for all parties involved.
Our Solution
Signing
Day Sports is a platform in the form of an app available on Apple’s App Store and Google Play for student-athletes and desktops
for coaches and recruiters. We believe Signing Day Sports is the first comprehensive sports recruitment platform. The platform interface
is designed to be optimized for each participant in the sports recruitment process. The three-tiered technology platform serves student-athletes
and their parents, high school and sports club coaches, and college and professional recruiters and scouts.
Student-athletes
can upload key information and verified data that is critical in the recruitment process. The data fields in our player platform include
the following: Video-verified measurables (such as height, weight, 40-yard dash, wingspan, hand size), academic information (such as
official transcripts and SAT/ACT scores), and technical skill videos (such as drills and mechanics that exemplify player mechanics, coordination,
and development).
College
coaches, team managers and other recruiters can load in all athletes on their respective teams, sports clubs or programs. They can use
the platform to communicate directly with athletes, track their progress in the weight room and training field, and manage other aspects
of their athletes. Additionally, the platform serves as an important tool for recruitment and development. In particular, college coaches
can manage their entire recruitment process through our platform. Our platform provides college coaches an optimized organizational system,
communication tools, and verified data to make informed decisions and save program costs. Athletes and parents can use the platform to
communicate with their coaches and managers as well as track individual performance and key metrics that are valuable to recruiters.
The platform was built by athletes and recruiters for athletes and recruiters, and we believe it truly represents the future of sports
recruitment.
Market
for Recruiting Services
The
youth sports market was $28.7 billion in the U.S. in 2019 before it declined to $6.7 billion in the wake of the COVID-19 pandemic, and
it was projected that it would start to recover in 2021 (Wintergreen Research, Inc., “Global Youth Team, League, and Tournament
Sports Market Report 2021: The $28.7 Billion Market Declined to $6.7 Billion in 2020 in the Wake of the Pandemic with Recovery Expected
in 2021,” May 2021). Prior to the COVID-19 pandemic, it was reported that the youth sports market was projected to reach $77.6
billion by 2026 (Business Wire, “Youth Sports: Market Shares, Strategies and Forecasts, Worldwide, 2019-2026 - ResearchAndMarkets.com”,
December 26, 2019). In the United States alone, in the 13-17 age-range only, as of 2020, there were 1,845,000 youth baseball players,
1,437,000 youth tackle football players, 1,208,000 outdoor soccer players, and 353,000 youth fastpitch softball players (Sports &
Fitness Industry Association, 2020). Additionally, sports families spent an average of $693 per child, per sport annually (Project Play
– An Initiative of the Aspen Institute, “State of Play – 2019,” September 4, 2019).
Globally,
we believe that the number is likely in the hundreds of millions. This grouping includes school-affiliated athletic programs, sports
clubs, and recreational participants. In 2020, in the United States alone there were 8 million student-athletes competing in high school
sports (NCAA, “Probability of Competing Beyond High School”). In most sports, less than 10% of high school athletes compete
in college athletics, and the probability of NCAA athletes making it to the professional leagues ranges from about 2% to essentially
zero (NCAA, “2020 Probability of Competing Beyond High School Figures and Methodology”).
Parents
of recruitable student-athletes are also an important demographic. According to a survey conducted by The Harris Poll for TD
Ameritrade, sports parents say a third of their income goes toward covering children’s expenses, including sports (TD Ameritrade,
“Cost of Youth Sports Delaying Retirement for Parents,” May 15, 2019). According to the survey, the majority (62%) of sports
parents believe college scholarships will cover more than half of tuition. Yet from 2016 to 2019, according to the report, the number
of sports parents’ children who secured an athletic scholarship has declined by more than half (24% in 2016; 11% in 2019).
Historically,
only those parents with the necessary knowledge and resources could access the private coaches, training camps, and other services often
needed to ensure that their student-athletes would have the best opportunities in the traditional recruitment process. Long-distance
traveling, an essential part of the traditional recruitment process, has always presented unique difficulties for student-athletes, parents,
and coaches, both as a major expense and distraction from academic or job priorities. However, most student-athletes and their parents
do not have the necessary resources or know-how to overcome the challenges in the recruitment process, and may be at a severe disadvantage
as a result.
In
the past several years, online recruiting services have emerged to improve the reach and accessibility of the recruiting process for
coaches and athletes. The overall technology, familiarity and overall usage of online recruiting has developed, and the number of users
leveraging it appears to be growing. Additionally, the ongoing COVID-19 global pandemic has increased both the need for, and familiarity
with, remote interactions. As a result, we believe a significant business opportunity exists to provide these opportunities to existing
and new customers as alternatives to in-person recruiting events. Our proprietary and custom technology allows coaches and athletes to
bypass that process by providing a platform that allows coaches to effectively evaluate talent without having to see the athletes in
person.
Competitive
Strengths
We
believe our key competitive strengths include:
| ● | Massive
Low-Cost Access to Recruiters. Recruiting events, camps, games and showcases such
as those hosted by Next College Student Athlete, Gridiron Elite and Perfect Game strive to
match high-level high school athletes for in-person competition. Attendees sometimes travel
interstate to attend these events and typically pay an attendance fee as well. These events
are typically costly to recruits’ families and present a number of practical challenges
for recruits. Our app evens the playing field by allowing an athlete to get in front of numerous
recruiters without any travel or significant costs. |
| ● | More
Objective and Fair Player Evaluations. Our platform fills a niche in the current
competitive landscape by allowing recruits to put their best foot forward by submitting only
their best interviews, verified athletic/academic measurables, verified drill footage, and
actual game film. Recruiters can then better assess their prospects than in traditional in-person
recruitment events where chance events can throw off even the best athletes’ performances. |
| ● | Better
Athlete Comparison Tools. Other digital sports recruitment apps such as Hudl do not
allow coaches to evaluate prospects’ drill performances frame-by-frame, side-by-side.
Additionally, these platforms do not have verified statistics within individual recruiting
profiles. Our tool offers these and a number of other unique features that recruiters and
their prospects find exceptionally valuable. |
| ● | Designed
for Coaches and Recruiters. Through our verified measurables, “Film Room,”
“Big Board”, “Interview” and recruiter-athlete messaging features,
our app’s coach/recruiter platform allows college coaches and recruiters to drive the
recruitment process. At their desktops, recruiters can easily access and request verifiable
information from thousands of athletes across the nation. After players submit their video-verified
uploads, verified academics, and supplemental data like responses to interview questions,
coaches can make well-informed decisions. Our in-app messaging allows coaches to communicate
directly with prospective recruits. All of our app’s features are designed to produce
an efficient, comprehensive and intuitive process for accessing, comparing, ranking and recruiting
athletes by user coaches and recruiters. |
| ● | Designed
for Players and Parents. Our app’s player-facing mobile platform easily allows
players to submit video-verified information, verified academic information, responses to
interview questions, and other data, and be seen by hundreds of college coaches and recruiters.
In the comfort of their own home or a nearby field, players can upload all the information
coaches need to make a well-informed decision. |
| ● | Educational
Tools for Players and Parents. Signing Day Sports supports student-athletes and parents
through the entirety of the recruiting process in three ways. First, our former college coaches,
athletes, and player personnel directors are readily available through the Signing Day Sports
app, website, and personal social media accounts. They support and communicate regularly
with student-athletes to assist them throughout the recruiting process. The second way is
The Wire, Signing Day Sports’ official blog. We regularly post educational and
informative blog entries that consist of interviews, player features, in-depth dives into
specific recruiting processes and events, and other relevant subjects. Thousands of visitors
read The Wire’s entries every month to stay up to date regarding the most recent
recruiting news and updates. The third way is called “Signing Day Sports University”
or “SDS University”. SDS University is a Zendesk-based customer-facing knowledge
base and is composed of short, educational videos. Student-athletes, parents, and coaches
can learn about our app, the collegiate recruiting process from beginning to end, and more
through the SDS University video catalog. Topics range from name, image and likeness (NIL),
the transfer portal, and eligibility to more specific app tutorials like uploading videos
or sharing the student-athlete’s profile link. SDS University helps leverage our internal
knowledge to communicate more efficiently and with more people. |
|
● |
Senior Soccer Advisor. Our recent appointment
of Kevin Grogan as Senior Soccer Advisor, marks a significant event for Signing Day Sports in the realm of soccer recruitment. Mr.
Grogan’s distinguished background as a former professional soccer player, seasoned coach, and knowledgeable sports business
consultant adds considerable depth and expertise to our team. His combination of direct on-field experience and sharp business acumen,
coupled with his thorough understanding of soccer’s athletic and business dimensions, positions him to lead the enhancement
of our platform’s impact on the sport. We believe this represents a clear demonstration of our commitment to achieving excellence
in collegiate sports recruitment, and are confident that Mr. Grogan’s insights will bolster our ability to provide unparalleled
recruitment services and support to young athletes. This commitment aligns with our goal to capitalize on the global appeal of soccer,
creating new opportunities for emerging talent and establishing our position as a leader in the college recruitment sector. |
Growth
Strategies
The
key elements of our strategy to grow our business include:
| ● | Completion
and Development of Support for New Sports. Our app has offered full support for football
and baseball on our platform since before 2023. More recently, our official platform support
for softball launched in February 2023, and our men’s and women’s soccer platform
support launched in May 2023. We plan to continue to develop support and additional features
for all of the sports on our platform. |
| ● | Increase
Profitability through Multiple Revenue Streams. Our app has offered full support
for football and baseball since before 2023. Our app’s official support for softball
launched in February 2023, and our men’s and women’s soccer official support
launched in May 2023. We plan to continue to develop our platform with additional features
for all supported sports. Signing Day Sports expects increased profitability as we launch
support for additional sports. We expect that a growing subscriber base will allow us to
increase subscription margin, increase subscriber lifetime value, and increase monthly and
annual renewal profits. An increase in profitability from a greater subscription base and
support for multiple sports can in turn support our branding, marketing, and operational
spend. |
| ● | Investment
in our Platform. We will continue to invest in our technology and infrastructure
to improve our product and ability to present best-in-class technology in the recruitment
space, with planned features such as player recommendations for coaches based on their specific
requirements and preferences. We hired key employees and retained an onshore technology and
development agency, Midwestern, for product launches in baseball, softball, and soccer, in
addition to continually improving the features and performance of our platform. Additionally,
we are recruiting a high-quality offshore team to improve the efficiency and quality of our
platform. We have also prioritized internal hires of engineers and developers to launch new
features and sports platform support, while ensuring product stability and effectiveness. |
| ● | Launch
New Products and Expand Features. Over time, we will continue to launch new products
and features to meet market demand. We will prioritize both the needs of college coaches
and recruiters across the nation and the athletes seeking to be recruited in major sports
verticals. Some of the planned features include: |
| ● | Public
Player Profile. By allowing athletes and their parents to share a public version
of the athlete’s profile, we can ensure that the ultimate power of recruiting is in
the athlete’s hands. We expect that the public version may be shared with coaches,
other athletes and on social media and will contain all of the athlete’s data, including
videos. The profile will be available to anyone, including recruiters and others that
are not Signing Day Sports users. Additionally, our profile tracking is being designed to
allow players to see who has viewed their profile and may be interested in recruiting them. |
| ● | Social
Community of Student-Athletes. Signing Day Sports plans to introduce social features
on the platform. We expect these features will help athletes share and exchange videos, information,
and bragging rights, and enhance the users’ sense of community. With a robust integration
of LinkedIn and Facebook, athletes will be able to follow other athletes, see their profiles
and videos in a feed, favorite other athletes, and exchange workout tips on our platform
forums. Athletes will also be able to compete against one another for bragging rights
on the leaderboard, complete tasks for badges, and take part in Signing Day Sports community
challenges. These social features are expected to engage athletes with the Signing
Day Sports app more holistically through these social connections. |
| ● | Upcoming
AI features. The Company has implemented and, in some cases, expects to implement the
following artificial intelligence (AI) features over the next several months: |
| ● | Lead
scraping AI technology to enhance customer identification and acquisition through personalized
outreach based on metrics determined by experts; |
| ● | AI
matchmaking for student-athletes to find the right fit based on criteria set by an institution; |
| ● | Integration
of existing AI video-capturing hardware to streamline video upload and highlight tape creation; |
| ● | Use
of AI technology to confirm and enhance visual biometrics of uploaded videos that will expand
on data currently available through the platform; |
| ● | Standards
assessed by AI and creation of grades/evaluations of tasks being completed based on metrics
set by experts; and |
| ● | Integration
of AI chatbots that encourage student-athletes to spend more time on the app, including personalized
nutritional plans, fitness plans, general recruiting education, and more. |
| · | Retail Products and Services. We plan to extend the user experience of our platform through
the introduction of new products and services. This expansion is expected to include retail items, with planned upcoming launches of branded
apparel, nutritional supplements, and other related products and services. |
| ● | Release
of My Invites. With the first iterative release of our platform’s My Invites
feature, coaches can drive player subscriptions and engagement by uploading unlimited lists
of athletes and inviting them to our platform with as few as two mouse clicks. Our
system analyzes the submitted data and tracks whether an athlete deleted their email, opened
it or signed up for a subscription. With this functionality, coaches can play a key
role in the recruitment process by getting prospective athletes to not only join the platform
but encourage them to upload verified information like transcripts, drill videos, and height
and weight. This data upload from the coaches is simple, streamlined and provides them
with key information to make data-informed decisions, communicate with prospects and even
make offers and build their virtual team. |
| ● | Expand
Sports Club Support. Prominent youth sports organizations in the United States are
involved in many different sports including soccer, baseball, softball, lacrosse, basketball,
and track and field. Sports clubs are often more competitive than high school athletic programs,
and club players often demonstrate a commitment to continue playing sports at the next level.
As we expand our platform to other sports, we will prioritize support for youth club sports
organizations. Our support will be the expansion of a sales team to directly work with club
coaches and organizations. We expect that club teams and organizations will embed our platform
fees into their annual fees so that they can offer enhanced recruitment support for players
and their parents, while providing their coaches with a tool to streamline the recruitment
process. As described below, we have formed a strategic alliance and official sponsorship
with a major sports club organization with EDP based on this model. |
|
● |
Grow and Broaden Brand Awareness. Our brand awareness has developed primarily within our football vertical, particularly in the Southwestern United States and other areas where football is a dominant sport. With strategic collaborations with football associations and organizations, digital, social media, event marketing, and organizational alliances, we expect to grow our brand throughout the United States. Additionally, as we launch new sports verticals, we will have many opportunities to increase brand and product awareness through additional markets. We will broaden our reach through educating players, parents, and coaches through best-in-class technology and compelling value. |
| ● | Pursue
Strategic Geographies for Product Expansion. With youth sports being played across
the world, we will seek to expand our platform and technology to other countries across the
globe. Through disciplined research, we will seek to expand our product to areas with significant
children’s sport participation, technology adoption, and access to recruiters. We expect
to prioritize the North America markets first, then replicate and introduce products suited
to the local. For example, our app’s support for soccer could provide a significant
solution to inefficiencies in the student-athlete recruitment process in markets like Mexico
and Europe. |
| ● | Digital
Marketing Campaigns |
| ● | Business-to-consumer
(B2C) digital marketing. Through an expanded B2C digital marketing campaign, we will
promote and advertise our products and services to thousands of high-school-aged football
players and parents across the nation. With our planned combination of compelling content,
brand influencers, and a marketing website, we expect significant growth in individual subscriber
growth. In particular, we will prioritize parent-friendly social media platforms such as
Facebook, Twitter, and Instagram, and our campaigns will support and educate parents on the
recruitment process while providing our value proposition through our products, services
and technology. |
| ● | Business-to-business
(B2B) digital marketing. Through an expanded B2B digital marketing campaign, we will
promote and advertise our products and services to high school and sports club coaches, athletic
directors, sports club owners, and their business development teams. |
| ● | Digital
marketing techniques. Our digital marketing campaigns will utilize search engine
optimization, pay per click, digital ads, and other effective techniques to increase team
and organizational subscriptions. |
| ● | Strategic
Alliance, Marketing, Sponsorship, and Collaboration Agreements. Our focus on key
sponsorship and marketing agreements will serve to both increase overall player subscriptions
and marketing. |
| ● | Elite
Development Program Soccer: Under our strategic alliance with EDP, one of the largest
organizers of youth soccer leagues and tournaments in the U.S., EDP will offer its athletes
promotional one-year subscriptions to our platform, provide us with customer data, and promote
our recruiting platform as its “Exclusive Recruiting Platform Provider”. We will
promote EDP, give access to athlete data, and consult with EDP to implement and improve our
platform’s features for its athletes. Subscription revenues from EDP referrals will
be shared between us. See “—Sales and Marketing – Strategic Alliance,
Marketing, Sponsorship, and Collaboration Agreements” for further information regarding
the terms of this agreement. |
| ● | Louisville
Slugger Hitting Science Center: We and LSHSC, whose mission is to become the gold
standard in baseball and fastpitch softball education and instruction, will collaborate on
the joint marketing and promotion of each other’s products and services. LSHSC will
offer subscriptions to our platform and subscription revenues will be shared between us.
See “—Sales and Marketing – Strategic Alliance, Marketing, Sponsorship,
and Collaboration Agreements” for further information regarding the terms of this
agreement. |
| ● | The
U.S. Army Bowl: Over the course of our three-year agreement, we will continue to
be the official recruitment platform for the U.S. Army Bowl, or the Bowl, an annual national
all-star game for U.S. high school football, which was held under our co-supervision in December
2022 and December 2023 at Ford Center at The Star in Frisco, Texas. Aside from having priority
on-site access to many of the top players in the game, we can promote ourselves, advertise
to, and onboard more than an estimated 30,000 athletes each year as a sponsor through the
game’s advertising channels. U.S. Army Bowl national combines are again planned throughout
2024. Data collected and analyzed by our platform are part of the selection process for determining
whether athletes participating in the combines may advance to the Bowl and/or National Combine
events. Athletes participating in Bowl combines receive one month of access to the Signing
Day Sports app’s recruiting platform with registration, a Signing Day Sports recruiting
profile with personal guidance from recruiting experts, video highlights from their combine,
and tools to put their game highlights into their profiles on the Signing Day Sports app.
See “—Sales and Marketing – Strategic Alliance, Marketing, Sponsorship,
and Collaboration Agreements” for further information regarding the terms of this
agreement. |
| ● | State
Athletic and Coaches Associations: We have sponsored a number of state athletic associations
across the U.S., including the THSCA and the AZFCA. These associations have agreed to designate
us as their exclusive recruitment platform for all coaches in their respective states. In
addition, we have marketing rights to their coaches, athletes, and athletic events and combines
throughout the year. Please see the details of our marketing and sponsorship agreements with
these associations in “Business – Sales and Marketing – Strategic Alliance,
Marketing, Sponsorship, and Collaboration Agreements”. |
| ● | Potential
Accretive Acquisitions. We are currently evaluating potential acquisition targets
(although no such acquisition target has yet been identified) that could bolster subscriber
growth, branding awareness, and revenue shares. These potential acquisitions range from owners
of specific game events, athlete development programs, and technologies to boost subscriber
growth and revenue. |
| ● | Event
and Marketing. Through key collaborations, our events team will conduct on-site Signing
Day Sports app registration with high school-aged athletes and their parents. Specifically,
at these events, athletes will have the opportunity to purchase, download, and upload key
data and information on-site. These events will include football skills camps, soccer tournaments,
7v7 football tournaments, baseball showcases, and state-wide combines. In particular, our
hosted combine events are expected to continue to be an effective means for gaining exposure
to our brand and registering new users on our platform. We plan to increase the number of
our hosted combine events and utilize media to increase attendance and exposure at these
events. |
Our Platform’s
Features
Our
recruitment platform allows athletes to manage their recruitment profile, upload drills and evaluation metrics, interview, and communicate
directly with recruiters in our proprietary ecosystem. Among the features our platform provides are:
Manage
Athlete’s Profile
Athletes
can easily set up an account to start completing a profile by uploading their measurables, testing stats, academics, and demographic
information.
Upload
Key Drills and Statistics for Recruiters to Evaluate
Athletes
can easily upload key drills and valuable gameplay statistics that recruiters at all levels will need to review to make a decision on
proceeding with the recruitment process.
Keep
Track of Athlete Stats and Get Verified
Users
can upload their game logs after each game or each week to keep their season stats up to date. We verify this data to potentially increase
an athlete’s chances to get recruited. Recruiters will need to see and validate an athlete’s key attributes such as:
| ● | Academic
information; and |
| ● | Other
sport specific attributes. |
By
having this baseline information verified with digital transcripts (image, video, document), a recruiter can establish a baseline of
trust establishing a highly educated decision on how to proceed with a student-athlete. Without this kind of verification, a recruiter
must trust what was input on a spreadsheet by an athlete or a paid recruitment consultant. This reliance can lead to confusion, false
starts, wasted time, and loss of confidence in the information. This reliance can also cause, unfairly at times, the recruiter to lose
trust in the athlete that may have inappropriately mis-recorded key attributes.
Let
Recruiters Meet the Real Athlete
Through
our platform, athletes can introduce themselves to a recruiter before they have even stepped on a facility’s grounds. The platform’s
interview process gives recruiters a first look at the player behind the film. This function is important because recruiters want to
get a sense of an athlete’s personality before they take the next step in the recruitment process.
Actual
Game Film
The
platform also allows recruiters to view actual game film of athletes by integrating with verified game film distribution services.
Pricing
All
platform users can freely download the app. Individual student-athletes can use the app’s features for a seven-day free-trial period
without payment, and must subscribe to continue to use the features of the platform. Athletes participating in Bowl combines receive
one month of access to the Signing Day Sports app’s recruiting platform with registration, a Signing Day Sports recruiting profile
with personal guidance from recruiting experts, video highlights from their combine, and tools to put their game highlights into their
profiles on the Signing Day Sports app, and also must subscribe to continue to use the features of the platform. College coaches/recruiters
can generally access the app to evaluate and contact potential recruits without payment. Athletic departments or other group organizations
may be eligible for reduced pricing per athlete if the whole team participates. Subscriptions for individual athletes are currently $249.99
for an annual plan and $24.99 for a monthly plan. Under our strategic alliance agreement with EDP, we offer one-year subscriptions to
our platform for a discount of up to $124.99 from the regular rate for referrals who purchase an annual subscription, with the discounted
amount either passed through to the referral or their family or charged by the referring EDP club. EDP will remit $125 to us per referral
subscription, and we will pay EDP certain revenue share fees. See “—Sales and Marketing – Strategic Alliance, Marketing,
Sponsorship, and Collaboration Agreements – Strategic Alliance Agreement with Elite Development Program Soccer”. Under
our collaboration and revenue-sharing agreement with LSHSC, LSHSC will offer its referrals a one-year subscription to our platform for
a minimum of $30.00 per month. LSHSC will make a certain monthly revenue share payment to us per monthly fee paid per referral ranging
from $25.00 per referral per month to $17.50 per referral per month. See “—Sales and Marketing – Strategic Alliance,
Marketing, Sponsorship, and Collaboration Agreements – Collaboration and Revenue-Sharing Agreement with Louisville Slugger Hitting
Science Center LLC”. During 2021 and 2022, college coaches and high school and club coaches and their teams were generally
provided access to the platform free of charge to encourage participation. Since the first quarter of 2023, the Company has reduced free
access for all users other than college coaches and generally requires users to become subscribers by making payment after the initial
trial-period expires.
Technology
We
intend to invest in the development and expansion of our technology with the goal of continuously supporting our products and services.
Our current technology’s basic attributes are listed below, and may change as we continue to develop it.
Infrastructure
|
● |
Hosted on: Microsoft Azure cloud infrastructure |
|
|
|
|
● |
Primary OS: Nginx/Linux |
|
|
|
|
● |
Primary database: MySQL |
|
|
|
|
● |
Primary programming language: PHP |
CI/CD
- Continuous Integration, Continuous Deployment
|
● |
TDD with PHPUNIT tests |
|
|
|
|
● |
Bitbucket code repository |
|
|
|
|
● |
Pipelines for clean, downtime-less deployments using Envoyer |
Code
Stack
|
● |
NPM |
|
|
|
|
● |
Composer |
|
|
|
|
● |
Laravel |
|
|
|
|
● |
Vue |
|
|
|
|
● |
jQuery |
|
|
|
|
● |
Webpack |
|
|
|
|
● |
MIX |
|
|
|
|
● |
React Native |
Microservices
Model
|
● |
Passport |
|
|
|
|
● |
OAuth 2.0 |
|
|
|
|
● |
Postman |
Customers
As
of September 2023, many high schools, sports clubs, and aspiring high school athletes have subscribed to the Signing Day Sports platform.
Colleges in the NCAA Division I, Division II, and Division III, and the NAIA, have utilized our platform for recruitment purposes. Signing
Day Sports initially supported football athletes, and now also offers a platform for baseball, softball, and men’s and women’s
soccer, resulting in even more recruiter and athlete platform participants.
Our
customers are primarily medium and large-sized sports clubs ranging from 100 to 5,000 athletes, school districts, statewide/nationwide
sports organizations, and individual student-athletes. We solicit feedback from our customers and coaches on a regular basis, allowing
us to understand their evolving needs. We have used this feedback to develop new applications and we intend to continue to develop new
offerings based on customer feedback. Our business is not dependent on any particular end customer.
Our Intellectual
Property and License Agreements
We
believe that our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights,
trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements,
and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights. Though we rely in part
upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality
and frequent enhancements to our solutions are larger contributors to our success in the marketplace.
Signing
Day Sports currently has a pending utility patent application for its video analysis and review of a student-athlete tool. This tool
allows recruiters to analyze and compare performance of a drill by two athletes, side-by-side, frame-by-frame. We believe that no other
recruiting service can provide this level of athlete comparison tracking.
We
also use products, technologies, and intellectual property that we license from third parties for use in our business-to-business and
business-to-consumer offerings. Substantially all our offerings and services use intellectual property licensed from third parties. While
we intend to develop our own intellectual property, the future success of our business may depend, in part, on our ability to obtain,
retain, or expand licenses for popular technologies in a competitive market.
Research
and Development
Our
research and development team is responsible for the design, architecture, operation and quality of our platform. In addition to improving
on the platform’s features, functionality and scalability, the Company’s R&D team is tasked with coordinating with our
cloud operations staff to ensure that our platform is available, reliable, and stable.
Our
success will depend on our continuous drive for innovation. We plan to invest substantial resources in research and development to enhance
our platform and develop new features and functionality. We believe timely development and enhancement of products, services, and features
is essential to maintaining our competitive position. Our technical staff must monitor and regularly test our platform, and may on occasion
use third-party quality control software. We also maintain a regular release process to update and enhance our existing solutions. In
addition, we engage security consulting firms to perform periodic vulnerability analysis of our solutions.
Additional
Markets
We
currently operate primarily in the United States. We believe that there will be opportunities within the next 12-24 months to expand
our operations into other parts of the Americas and globally in order to address recruitment technology gaps in these other sports markets.
Expansion beyond our current market may require changes to effectively penetrate international markets, such as translations of our website
and apps into several additional languages, offer customer services and technical support in the local language of foreign key markets,
and implement data-privacy and other relevant compliance procedures of non-U.S. regulatory regimes.
Technology
and Human Resources Vendor Relationships
We
maintain key relationships with certain vendors to provide critical infrastructure and services to enable us to provide a full suite
of services for our customers and human resources. We also make every effort to ensure that risk is appropriately managed with each vendor.
For example, we may use redundant accounts or deployments for a given vendor’s services, or maintain a backup strategy in case
a vendor fails to provide the contracted services. These strategies enable us and our platform to continue to function without complete
service disruption for our users and staff if a vendor encounters any issues.
The
following are some of our key vendor relationships:
| ● | Under
a work for hire agreement with Midwestern, dated December 21, 2022, which replaced two previous
contracts with Midwestern dated August 17, 2022 and December 6, 2022, respectively, we engage
Midwestern to perform contract engineering-related projects to utilize agile development
and/or design processes, define two- or one-week sprints that consist of development and/or
design tasks and priorities set by the parties to move their project forward, continually
improve the Company’s platform, and add new features and sports. Midwestern will include
the full-time equivalent services of nine engineers, one security and DevOps engineer, one
designer and one-half project manager per month. We will pay Midwestern’s current rate
of $163,466 per month for specific development and/or design services provided to us pursuant
to the agreement, reasonable and pre-approved travel and/or other expenses related to the
project, and reasonable and pre-approved paid time off and vacation time to the same extent
offered to our full-time employees. These amounts will vary depending on our ability to pay
in full each month. We will own all works created or developed by Midwestern under the agreement.
Our rights with respect to such works may be freely assigned and licensed at our sole discretion.
The term under our former contracts with Midwestern began on September 1, 2022 and, under
our current contract, will continue indefinitely subject to 90-day notice of cancellation
by either party. We may also terminate the contract upon a material breach or default by
Midwestern upon thirty days’ written notice and opportunity to cure such breach or
default. The contract is subject to certain confidentiality, non-compete, and non-solicitation
provisions. See “—Legal Proceedings and Claims – Midwestern Settlement
and Release Agreement” for a description of a related matter. |
| ● | Under
a client service agreement with Tilson HR, Inc., or Tilson, dated June 18, 2020, Tilson agreed
to pay wages and benefits, withhold employment taxes, maintain workers’ compensation,
and provide certain other employment-related services to certain designated employees of
the Company and co-employed by Tilson. We agreed to provide certain information to Tilson
and meet certain employment conditions for any co-employed employees. We will generally remain
solely responsible for co-employed employees’ acts, errors or omissions with respect
to the business activities of the Company. Both parties will cooperate, develop, and implement
employment policies and practices relating to co-employed employees, administer paid time
off and report any claim, accident, injury, or complaint to the other in relation to co-employed
employees. Under the agreement, we paid Tilson an initial enrollment fee, gross payroll and
benefits for each co-employed employee each pay period, and a service fee of $500.00 per
month for groups of 6 or under, following which time the administrative fee will convert
to $1,075.00 per employee per year, which will increase 4% annually after the initial contract
term. We must maintain certain general liability insurance, comprehensive automobile liability
insurance, and certain professional liability insurance if applicable. The agreement also
has customary mutual employee non-solicitation provisions. The agreement also requires an
annual irrevocable letter of credit guarantee from our bank. The agreement has a two-year
term and automatically renews for additional two-year terms until terminated by either party
providing at least sixty days of written notice, by Tilson immediately without notice upon
certain material breaches by the Company, or by the Company immediately with payment of an
early termination penalty. |
| ● | Under
an order for services with Paycor Services, or Paycor, dated May 23, 2022, Paycor provides
employee payroll and benefit support services. We must pay an annualized fee of $11,786.
The agreement is subject to an early termination fee if terminated prior to the six-month
anniversary of the effective date. |
Sales
and Marketing
Our
sales and events and marketing teams work together closely to drive market awareness, build a strong sales pipeline and cultivate customer
relationships to drive revenue growth.
Marketing
Overview
Our
marketing organization is focused on building our brand reputation, increasing the awareness and reputation of our platform, and driving
customer demand. We also engage in paid media and web marketing, attend industry and trade conferences, and host events and jamborees
for athletes, coaches, parents, and other stakeholders. We employ a wide range of digital programs, including search engine marketing,
online and social media initiatives, and content syndication to increase traffic to our website and encourage new customers to sign up.
We also harness targeted radio advertising to drive down our cost of acquisition and increase awareness of the brand.
Additionally,
we plan to engage in more joint marketing activities with other organizations through our sports and technology alliances and collaborations
along with pursuing an affiliate marketing program focused on our core sports domains and individual social media influencers. As part
of our efforts to market our online recruiting services, we will attempt to enter into affiliate marketing agreements with individuals
and groups within the high school, sports club, and college sports community. We expect this affiliate marketing system will allow us
to spend fewer resources on direct advertising, provide enhanced direct or targeted marketing, and lead to increased traffic on our website.
Strategic
Alliance, Marketing, Sponsorship, and Collaboration Agreements
We
have strategic alliance, marketing, sponsorship, and collaboration agreements with or relating to EDP, LSHSC, The U.S. Army Bowl, THSCA,
and AZFCA. The following are summaries of our agreements with these organizations and our rights and obligations under the agreements.
Strategic
Alliance Agreement with Elite Development Program Soccer. EDP offers leagues, tournaments, and similar events to soccer clubs, teams,
athletes, and their parents. EDP currently services more than 1,050 clubs, more than 7,700 league teams, and more than 5,500 tournament
teams totaling more than 150,000 athletes. Under this agreement, dated as of October 20, 2023, we and EDP will collaborate on the joint
marketing and promotion of EDP events and the “SDS Platform,” i.e., the web- and app-based technology platform that
we offer to help athletes get discovered and recruited by coaches.
For
the term of the agreement, EDP will give us direct access to all data relating to potential Signing Day Sports sales or features such
as existing customer contact information. We will be recognized as EDP’s “Exclusive Recruiting Platform Provider” on
EDP’s website and at all EDP tournaments, events, clinics and activities. EDP may not promote or use any substantially similar
athlete recruitment technology for the term of the agreement. EDP will include advertisements for the SDS Platform and information on
how persons can subscribe to it in all emails and written materials related to EDP events that EDP sends to its customers and prospective
customers. EDP also agreed to permit our representatives to present information on the SDS Platform at EDP events. Under the agreement,
we and EDP agreed to issue a joint press release regarding our collaboration. As part of this collaboration, we and EDP are to jointly
create emails, digital ads, and social media posts in furtherance of our collaboration, which each party will issue through its regular
channels to its typical target audiences for its own products and services. We and EDP will also jointly create and maintain co-branded
educational content (to be supported by us), including content for athletes and their parents on training, development, and recruiting.
Under
this agreement, EDP will present a one-year subscription license to the SDS Platform to all of EDP’s clubs, teams, and coaches
to be directly offered and presented to their individual age-appropriate players or their families at a discounted rate of $125 per athlete.
Any athlete who enrolls with SDS under this process will become an EDP referral. Each EDP club that provides an EDP referral may charge
the EDP referral up to $124.99 above the discounted rate or pass it through to the EDP referral or their family. EDP will remit $125
to us for each EDP referral resulting from the sale of a subscription, and we will provide each EDP referral with a one-year subscription
license to the SDS Platform. If the agreement has not been previously terminated, on each of January 1, 2024, January 1, 2025, and January
1, 2026, we will pay $75,000 to EDP to ensure that EDP has sufficient dedicated staff and resources to perform its obligations under
the agreement. In addition, we will share a percentage of our revenue resulting from EDP referrals with EDP as follows: (i) For EDP referrals
resulting in total revenue to us of up to $1,000,000, we will pay EDP a 6% revenue share; (ii) for EDP referrals resulting in total revenue
to us from $1,000,001 to up to $2,000,000, we will pay EDP an 8% revenue share; (iii) for EDP referrals resulting in total revenue to
us from $2,000,001 to up to $4,000,000, we will pay EDP a 10% revenue share; (iv) for EDP referrals resulting in total revenue from $4,000,001
to up to $6,000,000, we will pay EDP a 12% revenue share; (v) for EDP referrals resulting in total revenue in excess of $6,000,000, we
will pay EDP a 15% revenue share; and (vi) at the time EDP referral revenue reaches $6,000,000, we will remit to EDP an additional bonus
of $200,000. For example, if EDP referrals total $7,000,000, we will pay a total referral fee of $930,000 calculated as follows: (i)
6% of $1,000,000 = $60,000; (ii) ($2,000,000 - $1,000,000 = $1,000,000) * 8% = $80,000; (iii) ($4,000,000 – $2,000,000 = $2,000,000)
* 10% = $200,000; (iv) ($6,000,000 - $4,000,000 = $2,000,000) * 12% = $240,000; (v) ($7,000,000 - $6,000,000 = $1,000,000) * 15% = $150,000;
and (vi) $6,000,000 revenue bonus met = $200,000, i.e., $60,000 + $80,000 + $200,000 + $240,000 + $150,000 + $200,000 = $930,000. We
will continue to make referral fee payments for revenue generated from EDP referrals for the life of the one-year subscription license
to the SDS Platform associated with such EDP referrals. We will send EDP all referral fees calculated as described above each month during
the term of the agreement no later than the 15th day following the end of such month. With our delivery of the monthly referral fee for
a month, we will include a statement of how we calculated the amount of such payment. The statement must include the number of EDP referrals
that we have enrolled. The agreement requires EDP to keep complete and accurate books and records according to U.S. GAAP for the EDP
referrals which it enrolls to the SDS Platform and the license subscription fees for the SDS Platform charged to and paid by the EDP
referrals, and we must keep complete and accurate books, accounts, and records according to U.S. GAAP of referral fees owed to EDP and
amounts paid to EDP. Both we and EDP may examine and audit those books and records. We will develop a tracking/auditing system for the
reconciliation of monthly payments from EDP to us for activated players on the SDS Platform and for referral fees from us back to EDP.
Under
the agreement, we will work directly with referred clubs, teams, and athletes after the referral process is completed to implement all
features of the SDS Platform. We will make reasonable feature modifications within the SDS Platform based upon input from EDP. Any such
modifications must be agreed upon by SDS prior to implementation. We must also provide direct access to athlete data, including college
coaching data to EDP. In addition, we must include EDP branding at all soccer events that we operate, including marketing materials,
and EDP branding on our website at a mutually-agreed-upon location.
The
term of the agreement is one year, with unlimited renewal periods of one year each subject to written notice of non-renewal at least
90 days before the end of the then-current term. Either party may terminate the agreement for a material breach of the agreement that
is not cured or cannot be cured within 30 days. Upon expiration or termination, EDP will offer us the opportunity to either renew or
extend the agreement or enter into a new similar agreement and negotiate in good faith for a minimum of 90 days giving us an opportunity
to match the terms of any third-party recruiting platform provider. The agreement also contains mutual limited trademark license grants,
non-disparagement, and confidentiality provisions. It also contains mutual indemnification provisions, including for misuse or unauthorized
practices regarding regulated data, and mutual agreements to comply with all applicable laws, including applicable privacy laws.
Collaboration
and Revenue-Sharing Agreement with Louisville Slugger Hitting Science Center LLC. LSHSC is in the business of putting on and offering
“LSHSC Events,” i.e., membership programs, classes, camps, clinics, and similar events to baseball and softball players
and their parents. Under this agreement, dated October 31, 2022, we and LSHSC will collaborate on the joint marketing and promotion of
LSHSC Events and the “SDS Platform,” i.e., the web- and app-based technology platform that we offer to help athletes
get discovered and recruited by coaches. Under the agreement, we and LSHSC agreed to issue a joint press release regarding our collaboration.
As part of this collaboration, we and LSHSC are to jointly create emails, digital ads, and social media posts in furtherance of our collaboration,
which each party will issue through its regular channels to its typical target audiences for its own products and services. We and LSHSC
will also jointly create and maintain co-branded educational content (to be supported by us), including content for athletes and their
parents on training, development, and recruiting.
Under
the agreement, we will be LSHSC’s exclusive provider of athlete recruitment technology substantially similar to the SDS Platform
for the term of the agreement. LSHSC will include an advertisement for the SDS Platform and information on how persons can subscribe
to it in all emails and written materials related to LSHSC Events that LSHSC sends to its customers and prospective customers. LSHSC
also agreed to permit our representatives to present information on the SDS Platform at LSHSC Events and to list us as “Our Partner”
on LSHSC’s websites for the term of the agreement.
As
part of this agreement, LSHSC will also offer individuals a one-year subscription license to the SDS Platform at a price to be set by
LSHSC not below $30.00 per month, and we will provide each person whom LSHSC enrolls for the SDS Platform (each an “LSHSC Referral”)
a one-year subscription license to the SDS Platform. LSHSC must pay us a “Revenue Share Payment” every month for each LSHSC
Referral that pays LSHSC in that month his/her monthly fee on his/her one-year subscription license for the SDS Platform, as follows:
| ● | For
the first 100,000 LSHSC Referrals, the Revenue Share Payment is $25.00 per LSHSC Referral; |
| ● | For
the next 149,999 LSHSC Referrals, the Revenue Share Payment is $20.00 per LSHSC Referral;
and |
| ● | For
the 250,000th LSHSC Referral and beyond, the Revenue Share Payment is $17.50 per LSHSC Referral. |
LSHSC
will pay Revenue Share Payments to us for each LSHSC Referral for the life of the one-year subscription license to the SDS Platform associated
with such LSHSC Referral. LSHSC must send Signing Day Sports all Revenue Share Payments due for a month within 15 days after the month
ends and include a statement on how it calculated that payment. The agreement requires LSHSC to keep complete and accurate books and
records according to U.S. GAAP for the LSHSC Referrals which it enrolls to the SDS Platform and the license subscription fees for the
SDS Platform charged to and paid by the LSHSC Referrals, and we may examine and audit those books and records.
Under
the agreement, LSHSC will collect and provide us with the first and last name, email address, and all “Player Profile” data
for each LSHSC Referral and obtain the written consent from each LSHSC Referral or his/her parent or guardian, in a form reasonably acceptable
to us, for LSHSC to share that information with SDS and for his/her Player Profile to be posted to the SDS Platform. Under the agreement,
a “Player Profile” is the collection of athletic-related data for a particular LSHSC Referral, such as the LSHSC Referral’s
first and last names and athletic statistics. We will upload onto the SDS Platform the Player Profile for each LSHSC Referral and host
the data in that Player Profile on the SDS Platform. We must include an LSHSC leaderboard in the SDS Platform or specified Player Profiles
in Signing Day Sports influencer promotions.
The
term of the agreement is one year, with three renewal periods of one year each, subject to written notice of non-renewal at least 90
days before the end of the then-current term. Either party may terminate the agreement for cause, defined as a material breach of the
agreement that is not cured or cannot be cured within 30 days, or without cause if 30 days’ advance written notice is provided
to the other party. The agreement also contains mutual limited trademark license grants, confidentiality and indemnification provisions,
and mutual agreements to comply with all applicable laws.
Sponsorship
Agreement for The U.S. Army Bowl. Over the course of our three-year sponsorship agreement with GOAT Farm Sports, the owner of the
Bowl, dated as of September 9, 2022, we are the exclusive national recruiting partner for the Bowl in 2022, 2023 and 2024, an annual
national all-star game for U.S. high school football along with a branded football combine, fiesta event, all-star youth championship,
7v7 and flag championship, and National Signing Day event, which is traditionally the first day that a high school senior can sign a
binding National Letter of Intent committing to attend a year at a NCAA member school in exchange for athletics financial aid. The first
Bowl held during the term of the sponsorship agreement was held in December 2022 at Ford Center at The Star in Frisco, Texas. Aside from
having priority on-site access to many of the top players in the game, we are able to promote ourselves, advertise to, and onboard more
than an estimated 30,000 athletes as a sponsor through the game’s advertising channels.
Each
year, the U.S. Army Bowl National Combine Series features a series of drills and assessments to measure participating athletes’
athleticism and football skills. Under our sponsorship agreement, data collected and analyzed by our platform from these drills and assessments
are part of the selection process for determining whether athletes participating in the combines may advance to the Bowl and/or National
Combine events in December. Each athlete is reviewed based on physical ability, skills, game film, combine numbers, and, most importantly,
their character, values and leadership. Athletes participating in Bowl combines receive one month of access to the Signing Day Sports
app’s recruiting platform with registration, a Signing Day Sports recruiting profile with personal guidance from recruiting experts,
video highlights from their combine, and tools to put their game highlights into their profiles on the Signing Day Sports app. We also
play a pivotal role in the U.S. Army Bowl game itself each December. Our announcement booth is featured prominently as participating
senior athletes and their families announce their college commitments in front of a national audience. The Company announces and interviews
athletes invited to participate in next year's U.S. Army Bowl game.
Under
our sponsorship agreement, we have onsite marketing rights at every Bowl event and football event during the week of Bowl events in the
Frisco region at all such events operated by GOAT Farm Sports, as well as onsite marketing nationally or internationally, wherever GOAT
Farm Sports produces and owns such football events, which can include showcases/training camp, combine, 7v7, College Football All-America
Team honors selection and other events, rankings shows, and reality show series dedicated to high school football athletes that GOAT
Farm Sports owns and produces. We also have a national presence at The Ladies Ball, a girls’ basketball tournament owned by GOAT
Farm Sports, for 2023 and 2024 with branding rights, access to athlete data and on-site education.
Under
our agreement, we have unlimited rights to reuse all Bowl-related media in social media and other media, including on-air content packages,
pre-game promos and other footage taken at the Bowl featuring the Company’s apparel or recruiting services. Our branding benefits
include Bowl-provided Company signage at the Bowl including eight sideline banners at Bowl events; having our logo, tagline and “National
Recruiting Partner” status featured on all official Bowl-related materials including tickets and lanyards; and Bowl-provided Company-branded
non-game day apparel for athletes and coaches. We may provide other promotional materials to all athletes, coaches and media members
at each regional and national event. The Bowl’s website must feature our logo, tagline, and key messaging; we are required to be
featured in Bowl social and digital media in the months leading up to Bowl events, every day in the week prior to an event and at least
twice on the date of an event. During a Bowl event, we are recognized as “National Partner” with a script provided by us
on the Bowl’s schedule. We may construct and place a booth at or near Bowl registration and at all Bowl events to promote the Company
and hand out materials to attendees. We may have a sales representative at the booth to sell services or products at Bowl events and
meet coaches, players and spectators. We may also have breakout functions for speaking opportunities with coaches, athletes and parents
at Bowl events. We must receive a complete database after each Bowl event with all athlete and parent information. In addition, we must
receive 500 game tickets to use for any purpose and 25 VIP tickets. The television broadcasting rights must include featuring our national
sponsorship status with the official Bowl logo on all U.S. television packages and certain international broadcasts, six Company TV spots,
opening, middle and closing billboards, and a detailed $100,000 media plan promoting us at the Bowl and all events where Bally Sports
Network is producing media.
In
addition, both parties must work towards creating event sales packages with baked-in services by the Company as well as incentives for
additional revenue opportunities for The U.S. Army Bowl from our sales, and revenue sharing opportunities for both parties from clients
or partners who can access or leverage our ability, technology, services or expertise (including The U.S. Army).
We
agreed to make sponsorship payments consisting of a total of $325,000 for 2022 Bowl events, and equity grants. We agreed to make an initial
contribution of $100,000 to GOAT Farm Sports; provide valuable product or service donations to athletes and participants at our breakout
speaking functions with coaches, athletes and parents; pay $25,000 to Noel Mazzone by December 15, 2022 for partnership activation purposes;
and pay an additional $200,000 to GOAT Farm Sports by December 15, 2022. In addition, we agreed that we will grant Richard McGinness
Company stock with a value of $175,000 for a role to be determined, and that Mr. McGuinness will provide Noel Mazzone with $50,000 of
Company stock with rights to purchase an additional $25,000 of Company stock through Bowl activities, pursuant to a separate agreement
outlining such terms. We will also pay for all expenses relating to our sponsorship except as otherwise provided. Upon the Company’s
request, Bowl will secure commercial insurance and add the Company as an additional insured for Bowl events. The agreement will terminate
on December 31, 2024. At the end of the contract term, we will have a first right of negotiation for future years. The agreement may
be terminated immediately in the event of notice of breach by either party and the other party’s failure to cure within 20 business
days of such notice.
Marketing
Agreement with Texas High School Coaches Association. The THSCA is the principal advocate and leadership organization for more than
20,000 coaches across all high school sports in Texas. As their official recruitment platform, and in our three-year agreement, we are
therefore the official recruitment platform for more than 20,000 coaches across all high school sports in Texas. Our agreement with the
THSCA, dated June 22, 2021, began July 1, 2021 and ends June 30, 2024 with an option to renew annually. Under the agreement, we will
become a Cornerstone Sponsor of the THSCA. We will receive first-choice-priority convention booth space, recognition as a sponsor on
the THSCA’s website and related rights, advertising rights in the THSCA’s Texas Coach magazine, digital ad rights
on the THSCA’s website, rights to send quarterly email blasts to the THSCA members with the THSCA’s prior approval of content,
up to four social media posts per month, and other sponsorship rights. We may receive payments for platform services from schools only
and not directly from individual students or their families in Texas under the agreement. The THSCA will assist with setting up eight
locations at the National Football League’s Super Regional Combines in late May or early June during each contract year. Sign up
for the combines may be done only by athletes at participating schools. We will make sponsorship payments to the THSCA totaling $100,000
per contract year.
Marketing
Agreement with Arizona Football Coaches Association. The AZFCA focuses on advancing Arizona high school athletic and academic competitions
through governance, coaching, officiating and community advocacy. Under our marketing agreement, dated May 23, 2022, we agreed to be
the official and exclusive recruiting platform sponsor of the AZFCA beginning June 1, 2022 for a term of three years, expiring on June
1, 2025, with an option to renew annually. As the title sponsor, for the AZFCA coaches clinic/showcase series except in cases where participation
would be considered out of compliance with the NCAA. In addition to AZFCA’s commitment to endorse us as the official recruiting
platform for the AZFCA, we will receive booth space for AZFCA coaches clinics, ad space in AZFCA digital newsletters, monthly email promotions
about us for high school coaches, website promotions on all AZFCA-related websites, and access to AZFCA’s email and cell phone
contact list for head coaches. AZFCA will also coordinate with us to identify locations in Arizona for potential combines to take place
each year. We will make an annual sponsorship payment to the AZFCA of $2,500. In addition, we agreed to provide introductory premium
subscriptions to our app for Arizona high school teams at no charge from June 1, 2022 to December 31, 2022 for up to 30 participating
schools. After that time, ongoing premium subscriptions to our app for Arizona high school teams would be $49.99 per player per year
for 5-30 players per team, and $29.99 per player for 31 or more players per team, not to exceed $3,000 per team. Participating teams
on either our basic or premium subscription plans will be required to provide their full team roster and current player prospect list
as part of account activation.
Marketing
Communications
As
we continue to educate players, parents, coaches, and recruiters about our product and value propositions, we are confident that we will
see a rise in profitability and brand awareness.
The
following statements are examples of how we may communicate the attributes of our app to student-athletes:
| ● | Take
control of your recruiting journey: Get discovered and recruited by coaches across the country.
Set up a profile with the information college coaches need to evaluate you all in one place. |
| ● | Share
your recruiting information: After completing your profile, set it to Public, share it on
social media and send it directly to college coaches! |
| ● | Prove
yourself to college coaches: Upload your video-verified measurables to confirm your data.
This is what college coaches need to see to evaluate you accurately. |
| ● | Showcase
your talent: Once you have chosen your primary and secondary positions, you can upload a
variety of position-specific drills that college coaches want to see. |
| ● | Show
college coaches who you are: The Signing Day Sports’ interview process was designed
by college coaches to get to know you better. |
The
following statements are examples of how we may communicate the attributes of our app to high school coaches:
| ● | Give
your program an edge: Signing Day Sports supports athletes in football, baseball, softball,
and soccer. Coaches have the capability to maximize each athlete’s recruiting journey
all in one place. |
| ● | Share
your athletes’ profiles with colleges: You can create a digital prospect list at the
click of a button. Share this list easily with college coaches. |
| ● | Manage
your roster: Upload and manage your roster all in one place within the Signing Day Sports
platform and track your teams’ profile completion. |
| ● | Maximize
your teams’ visibility: Your players can complete their Signing Day Sports’ profiles
– including uploading video-verified data, position-specific drills and interview questions. |
| ● | Get
your athletes seen by college coaches: Your athletes can set their completed profiles to
Public, and you can share their public link with college coaches. |
The
following statements are examples of how we may communicate the attributes of our app to college coaches and recruiters:
| ● | View
verifiable information: Using the “My Invites” feature, you can request accurate
data on prospects all in one place. |
| ● | Find
the perfect fit: Use advanced search tools to find prospects that fit your program’s
criteria. |
| ● | Manage
your prospects: Build multiple comprehensive prospect lists that you can customize and track
throughout the season. |
| ● | Skip
the trip: Save yourself time and travel by using our side-by-side technology to compare prospects’
drills and video-verified data simultaneously. |
| ● | Communicate
easily, all in one place: Send messages directly within the Signing Day Sports’ platform
to coaches and prospects. |
Sales
We
primarily sell subscriptions to our recruiting platform through our direct sales and events team, which is comprised of area sales managers
who are segmented by sport and geography. Our sales and events team also leverages our network of schools, sports associations and clubs,
consultants, and other organizations with which we may collaborate. By segmenting our sales and events team, we can deploy a low-touch
sales model that efficiently identifies prospective customers.
Data Security
Procedures
Under
our user agreements and certain sponsorship agreements, we collect certain information about student-athletes that have been submitted
by the student-athletes and, if applicable, their coaches, recruiters, or other teaching professionals or institutions. This data includes
or may include age, date of birth, name, email address, athletic statistics and educational data including student transcripts and SAT
and other test scores, and payment information. We intend to use such data for purposes of providing platform services to the submitting
student-athletes and, if applicable, their coaches, recruiters, and other teaching professionals and institutions. In order to provide
such services, we may need to share certain data with certain third-party services providers. We do not intend to share such data for
any other purposes. The collection, use and sharing of user data is subject to disclosures of our data collection, use and sharing practices
and opt-out, access, correction, deletion, portability, and security provisions in our website and app’s user terms of service
and privacy policy. All such data collection, use, and sharing is subject to our prior receipt of electronically- or physically-signed
written consents or acceptance of terms of use and terms and conditions of our platform app software by student-athletes and, if applicable,
their coaches, recruiters, or other teaching professionals or institutions, granting us rights to share such information for posting
on our platform. Such consents or acceptances of terms and use and terms and conditions of our app software explicitly includes the student-athlete’s
and, if applicable, their coach, recruiter, or other teaching professional or institution’s grant of a license to each coach, recruiter,
or other teaching professional or institution on our platform to view, compare, analyze and store platform player data. Each coach, recruiter,
or other teaching professional or institution on our platform is in turn required to agree to such terms and use and terms of conditions
to access and use such player data only as permitted under all applicable international, national, state, and local law, including laws
applicable to the use of data of minors. Regardless of these agreements and consents, however, we are subject to a number of data protection
requirements relating to the management and safeguarding of information of users, including minors, including those described in “Risk
Factors – Risks Related to the Company’s Business, Operations and Industry – We are subject to complex and growing
user data privacy use and other governmental laws and regulations, and any failure to comply with these laws and regulations may have
a material negative effect on our business and results of operations.”
We
adhere to internal data governance procedures. Because our users include minors, we comply with heightened disclosure requirements and
best practices for how we can use and protect their information. We give guidance to our users and their guardians on their rights to
delete and be forgotten from our application.
Every
year we will engage in penetration testing of our applications to ensure that we maintain a very high degree of protection from bad actors
looking to steal information. We also employ secure coding standards and annual training to our engineering team and product managers.
We encrypt all data that we transmit, and any data that we receive and that is legally or generally considered sensitive, such as personally
identifiable information and academic records. We regularly rotate private encryption keys used to sign and secure data.
We
closely monitor relationships with third-party vendors that we rely on for critical services, such as Microsoft and Salesforce. We also
use a set of observability tools and monitoring software with the aim of identifying problems as they occur. We believe that our compliance
programs include adequate business processes, procedures, including annual audits, and reliance on experts to ensure substantial compliance
with applicable privacy law.
Business
continuity and disaster recovery are ongoing projects for our operations and engineering teams. Ensuring outages and other catastrophic
failures of service are mitigated effectively is among our highest priorities. We use Structured Query Language, or SQL, a specialized
programming language designed for interacting with a database, and maintain seven days of trailing SQL data retention. As of the end
of 2022, we had increased our SQL data’s backup retention to 35 days. Our file/content storage system has geo-replicated data,
and we plan to enable the system’s file/content backup data retention function to 30 days. Data retention allows data to be restored
without any data loss as of a specified point in time within the trailing retention period.
At
this time, we are not aware of any significant failures to maintain submitted personal data in compliance with applicable law, including
laws governing the collection and use of the data of minors. However, there are significant regulatory and legal consequences for such
failures and related risks to our business. For further discussion, see “Risk Factors – Risks Related to the Company’s
Business, Operations and Industry – We are subject to complex and growing user data privacy use and other governmental laws and
regulations, and any failure to comply with these laws and regulations may have a material negative effect on our business and results
of operations.”
Employees
As of January 16, 2024, we have 14 employees, all of whom are full-time.
We also engage consultants as needed to support our operations.
We
do not believe any of our employees are represented by labor unions, and we believe that we have an excellent relationship with our employees.
Legal
Proceedings and Claims
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm our business. Other than as described below, we are not aware of any such legal proceedings or claims against us.
Betterdays
Media, Inc. v. Signing Day Sports, LLC, Case No. 2:21-cv-07442-DMG-JDE (United States District Court for the Central District of
California, September 17, 2021)
The
plaintiff, Betterdays Media, Inc. commenced this case in the Superior Court of California for Los Angeles County. Thereafter, the defendant,
SDS LLC – AZ, removed the case to U.S. District Court for the Central District of California on September 17, 2021. The plaintiff’s
complaint in the case alleges that it entered into a contract with the defendant pursuant to which the plaintiff was to perform film
production work on a sports documentary for the defendant and that the defendant breached that contract by failing to pay the full amount
owed under the contract to the plaintiff. The plaintiff claimed damages in the amount of $138,062.97 plus interest. In its answer to
the complaint, SDS LLC – AZ denied the plaintiff’s allegations. On February 1, 2022, the parties filed a joint notice stating
that they had agreed to settle the case, were preparing a written settlement agreement and stipulation of dismissal, and that by February
28, 2022 they would file such stipulated dismissal or a report why such stipulated dismissal was not filed. On February 4, 2022, the
court entered an order providing that, by March 1, 2022, the parties were to file either (1) a stipulation and proposed order for dismissal
of the action or judgment, or (2) a motion to reopen if settlement has not been consummated and that upon the failure to timely comply
with this order, the action would be deemed to be dismissed as of March 2, 2022. That was the last docket entry in the case. Therefore,
pursuant to that order, the case was deemed dismissed as neither a stipulation and proposed order of dismissal nor a motion to reopen
was filed by March 1, 2022.
Claim
of John Dorsey
On
or about November 29, 2022, John Dorsey, a former Chief Executive Officer and director of the Company, through his counsel, sent the
Company a letter demanding full payment on the Alleged Loan in connection with the Loan Dispute. Under the January 2023 Dorsey Settlement
Agreement, Mr. Dorsey agreed to a discharge of the Alleged Loan and waiver and release of claims relating to the Alleged Loan and Loan
Dispute and covenant not to sue on the basis of such claims or otherwise commence any action or proceeding that would be inconsistent
with the release of such claims. The Company agreed to pay Mr. Dorsey $10,000 and issue a promissory note to Mr. Dorsey in the principal
amount of $40,000 payable on the earlier of ten business days following the successful closing of an initial public offering of the Company’s
common stock that generates at least $1 million in net proceeds to the Company or July 1, 2023. Mr. Dorsey orally waived enforcement
of the repayment obligation until the tenth day following the consummation of the Company’s initial public offering. The net balance
of this promissory note was $40,000 as of September 30, 2023. On November 16, 2023, in connection with the closing of the Company’s
initial public offering, the balance of $40,000 became due and payable within ten days. The balance was fully repaid as of November 22,
2023.
Midwestern
Settlement and Release Agreement
Under
the Midwestern Release Agreement, the Company and Midwestern agreed to a mutual release of all claims that could have been asserted as
of the Midwestern Release Date. The Company further agreed to pay Midwestern the Midwestern Release Amount by making a payment of $300,000.00
within three business days of the Midwestern Release Date and a payment of $300,000.00 on or before April 12, 2024. In addition, the
Company agreed to execute a confession of judgment and affidavit of confession of judgment in favor of Midwestern as to the obligations
to pay the Midwestern Release Amount plus interest accruing on the Midwestern Release Amount at the rate of 9% per annum from April 12,
2024 plus any costs or expenses, including, but not limited to, attorney’s fees and costs expended to pursue the matter to judgment,
and to enforce and collect the judgment, if necessary.
The
Company and Midwestern entered into the Midwestern Release Agreement to resolve a dispute between them involving allegations, on the
one hand, by Midwestern that it performed work on behalf of the Company for which Midwestern had not been paid pursuant to a Work for
Hire – Acknowledgement and Assignment, dated December 21, 2022 and, on the other hand, by the Company that Midwestern did not perform
as required by the work for
hire agreement.
Properties
Our
corporate offices are located in Scottsdale, Arizona. We leased our former corporate offices consisting of approximately 7,800 square
feet in October 2021 for a term of five years beginning January 1, 2022 and ending December 31, 2026 for a monthly rent of $20,800 plus
tax, with an increase of 3% at the beginning of every calendar year following the first year of the term of the lease agreement through
January 2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411. On August 31, 2022, we entered into a Lease
Termination Agreement to terminate this lease.
On
September 1, 2022, our corporate offices temporarily moved to offices owned by Daniel D. Nelson, our Chief Executive Officer, Chairman
and director. We did not have a lease agreement for this facility.
We
currently lease our corporate offices consisting of approximately 3,154 square feet under a lease agreement dated November 1, 2022, as
amended by an addendum dated November 2, 2022, and as further amended under a first amendment to lease dated April 1, 2023. As amended,
the lease’s initial term from November 1, 2022 to April 30, 2023 was extended for a 39-month term beginning on May 4, 2023 and
ending on August 3, 2026. Under the amended lease agreement, rent for the first month was $6,741.90 and was $7,491.00 for each subsequent
month through April 2023, plus applicable rental taxes, sales taxes, and operating expenses. Monthly rent will be $7,359 from May 4,
2023 to May 3, 2024, abated for the first three months of this period; $7,580 from May 4, 2024 to May 3, 2025; $7,808 from May 4, 2025
to May 3, 2026; and $8,042 from May 4, 2026 to August 3, 2026, plus applicable rental taxes. Parking fees were $290.50 for the first
month and will be $325.00 for each subsequent month. We also paid an initial security deposit of $8,000.00 in November 2022 and a second
security deposit of $16,000 in May 2023. The initial security deposit will be refunded and credited toward monthly rent for the months
beginning May 4, 2024 and May 4, 2025 if we have performed all obligations under the amended lease agreement including making all rent
payments when due. We may exercise a one-time option to extend the amended lease agreement for an additional three-year term upon 9-12
months’ notice for the fair market rent at the time of the extension, as determined in accordance with the amended lease agreement
and which will not be less than 103% of the final rent amount under the current term. Under the amended lease agreement, we must pay
for any tenant improvements above the allowance provided for such improvements of $37,848 or that are not in compliance with the terms
of the amended lease agreement.
The
Company previously also leased office space containing 4,025 square feet at another location in Scottsdale, Arizona under a lease which
began on February 1, 2021 and ended on May 31, 2023. Monthly rent was $12,075 and included annual escalations. The lease also provided
for additional rent based on our proportionate share of certain increases in building operating expenses and taxes. A $25,491.67 security
deposit was required. The lease provided for the abatement of rent during the first four months. In December 2021, the Company entered
into an agreement to sublease its office space. The sublease ended on May 31, 2023 and included fixed rent of $9,894.
Charity
We
have a history of providing pro bono service and giving back to our local community through sports and sports related activities. We
would expect to continue and grow these efforts moving forward in many of the markets that we serve.
Competition
The
market for our services is intensely competitive and characterized by rapid changes in technology, customer requirements, and industry
standards, and by frequent new product and service offerings and improvements. We compete with an array of established and emerging recruiting
solution providers. Conditions in our market could change rapidly and significantly as a result of technological advancements, partnerships,
or acquisitions by our competitors or continuing market consolidation. With the introduction of new technologies and market entrants,
we expect the competitive environment to remain intense.
Laws and
Regulations
We
are subject to domestic and foreign laws and regulations that pertain to our business practices. In order to grow and maintain our business,
we will continue to adhere to the laws, regulations, association rules, and licenses that we need to maintain our business.
College
Athlete Recruiting Regulations
We
are required to adhere to applicable rules and regulations of the recruitment of high school and college-level athletes. In particular,
we must comply with Article 13 of each of the NCAA Division I Manual and NCAA Division II Manual, and related NCAA rules, regulations,
and bylaws, which govern the locations, periods, manner, persons, and other matters involved in student-athlete recruitment of NCAA member
institutions and their recruitment prospects. We must also comply with applicable sections of the National Association of Intercollegiate
Athletics Official Handbook & Policy Handbook.
Data
Protection and Information Security Regulations
We
are subject to several laws and regulations that affect companies conducting business on the Internet and in the athletic recruitment
industry, many of which are still evolving and could be interpreted in ways that could harm our business. The way existing laws and regulations
will be applied to the Internet and athletes in general and how they will relate to our business, are often unclear. For example, we
often cannot be certain how existing laws will apply in the e-commerce and online context, including with respect to such topics as data
privacy, defamation, pricing, credit card fraud, advertising, taxation, promotions, content regulation, financial aid, scholarships,
student matriculation and student-athlete recruitment, quality of products and services, and intellectual property ownership and infringement.
In addition, we may be subject to state oversight for the recruiting, admissions, and marketing activities associated with the business.
Numerous laws and regulatory schemes have been adopted at the national and state level in the United States, and in some cases internationally,
that have a direct impact on our business and operations. For example:
| ● | The
CAN-SPAM Act, and similar laws adopted by several states, regulate unsolicited commercial
emails, create criminal penalties for emails containing fraudulent headers, and control other
abusive online marketing practices. The law also restricts data collection and use in connection
with its opt-out process requirements for senders of commercial emails. Similarly, the U.S.
Federal Trade Commission (“FTC”) has guidelines that impose responsibilities
on us with respect to communications with consumers and impose fines and liability for failure
to comply with rules with respect to advertising or marketing practices it may deem misleading
or deceptive. |
| ● | The
federal Telephone Consumer Protection Act of 1991 (“TCPA”) restricts telemarketing
and the use of automated telephone equipment. The TCPA limits the use of automatic dialing
systems, artificial or prerecorded voice messages, SMS text messages, and fax machines. It
also applies to unsolicited text messages advertising the commercial availability of goods
or services. Additionally, several states have enacted statutes that address telemarketing.
For example, some states, such as California, Illinois, and New York, have created do-not-call
lists. Other states, such as Oregon and Washington, have enacted “no rebuttal statutes”
that require the telemarketer to end the call when the consumer indicates that such person
is not interested in the product being sold. Restrictions on telephone marketing, including
calls and text messages, are enforced by the FTC, the Federal Communications Commission,
states, and through the availability of statutory damages and class action lawsuits for violations
of the TCPA. |
| ● | The
federal Credit Card Accountability Responsibility and Disclosure Act of 2009 and similar
laws and regulations adopted by several states regulate credit card and gift certificate
use fairness, including expiration dates and fees. Our business also requires that we comply
with payment card industry data security and other standards. We are subject to payment card
association operating rules, certification requirements, and rules governing electronic funds
transfers, which could change or be reinterpreted to make it difficult or impossible for
us to comply. If we fail to comply with these rules or requirements, or if our data security
systems are breached or compromised, we may be liable for card issuing banks’ costs,
subject to fines and higher transaction fees, and lose our ability to accept credit and debit
card payments from our customers, process electronic funds transfers, or facilitate other
types of online payments, and our business and results of operations could be adversely affected. |
| ● | Regulations
related to the Program Participation Agreement of the U.S. Department of Education and other
similar laws that regulate the recruitment of students to colleges and other institutions
of higher learning. |
| ● | The
federal Digital Millennium Copyright Act provides relief for claims of circumvention of copyright
protected technologies and includes a safe harbor intended to reduce the liability of online
service providers for hosting, listing, or linking to third-party content that infringes
copyrights of others. |
| ● | The
federal Communications Decency Act provides that online service providers will not be considered
the publisher or speaker of content provided by others, such as individuals who post content
on an online service provider’s website. |
| ● | The
federal FERPA regulates the use and disclosure of student education records held by certain
educational institutions. |
| ● | The
CCPA, which went into effect on January 1, 2020, provides California consumers the right
to know what personal data companies collect, how it is used, and the right to access, delete,
and opt out of the sale of their personal information to third parties. It also expands the
definition of personal information and gives consumers increased privacy rights and protections
for that information. The CCPA also includes special requirements for California consumers
under the age of 16. Effective January 1, 2023, we also became subject to the CPRA, which
expands upon the consumer data use restrictions, penalties and enforcement provisions under
the CCPA. |
| ● | The
VCDPA establishes rights for Virginia consumers to control how companies use individuals’
personal data. The VCDPA dictates how companies must protect personal data in their possession
and respond to consumers exercising their rights, as prescribed by the law, regarding such
personal data. The VCDPA went into effect on January 1, 2023. |
| ● | The
CPA and the CDPA, effective as of July 1, 2023, are similar comprehensive consumer privacy
laws in Colorado and Connecticut, respectively. |
| ● | Effective
as of December 31, 2023 and January 1, 2025, the UCPA and the ICPA will also regulate business
handling of consumers’ personal data in Utah and Iowa, respectively. |
| ● | The
EU’s GDPR imposes stringent requirements for controllers and processors of personal
data of persons in the EU, including, for example, more robust disclosures to individuals
and a strengthened individual data rights regime, shortened timelines for data breach notifications,
limitations on retention of information, increased requirements pertaining to special categories
of data, and additional obligations when we contract with third-party processors in connection
with the processing of the personal data. The GDPR also imposes strict rules on the transfer
of personal data out of the EU to the United States and other third countries. In addition,
the GDPR provides that EU member states may make their own further laws and regulations limiting
the processing of personal data. |
The
GDPR applies extraterritorially, and we may be subject to the GDPR because of our data processing activities that involve the personal
data of individuals located in the EU, such as in connection with our EU-based students. Failure to comply with the requirements of the
GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20,000,000 or up to
4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. GDPR
regulations may impose additional responsibility and liability in relation to the personal data that we process, and we may be required
to put in place additional mechanisms to ensure compliance with the new data protection rules.
Following
the withdrawal of the United Kingdom from the EU and the expiry of the transition period, from January 1, 2021, the United Kingdom Data
Protection Act 2018 (“UK GDPR”) retains in large part the GDPR in United Kingdom national law. The UK GDPR mirrors the fines
under the GDPR, e.g., we could be fined up to the greater of €20 million/£17.5 million or 4% of global turnover under each
regime.
| ● | The
federal COPPA, the GDPR, and the UK GDPR impose additional restrictions on the ability of
online services to collect information from minors. In addition, certain states, including
Utah and Massachusetts, have laws that impose criminal penalties on the production and distribution
of content that is “harmful to a minor.” |
MANAGEMENT
Directors
and Executive Officers
Set forth
below is information regarding our directors and executive officers as of the date of this prospectus.
Name |
|
Age |
|
Position |
Daniel D. Nelson |
|
61 |
|
Chief
Executive Officer, Chairman and Director |
Damon Rich |
|
54 |
|
Interim
Chief Financial Officer |
David O’Hara |
|
43 |
|
Chief
Operating Officer and Secretary |
Richard Symington |
|
44 |
|
President,
Chief Technology Officer and Director |
Glen Kim |
|
41 |
|
Director |
Roger Mason Jr. |
|
43 |
|
Director |
Greg Economou |
|
58 |
|
Director |
Daniel
D. Nelson. Mr. Nelson has been a member of our board of directors since July 2022, was our President from August 2022 to November
2022, has been our Chief Executive Officer since November 2022, and has been our Chairman since March 2023. Mr. Nelson began working
in the financial services industry in 1986. In 1997, Mr. Nelson formed, and has since served as chief executive officer of, Nelson Financial
Services Inc., which focuses on the employee benefits market. For more than 30 years, Mr. Nelson has acquired extensive knowledge and
experience in the financial services arena. Mr. Nelson also formed Nelson Financial Services to provide financial guidance for all individuals.
We believe that Mr. Nelson is qualified to serve on our board of directors due to his experience in finance, particularly with respect
to the sports management division of Nelson Financial Services.
Damon
Rich. Damon Rich has served as our Interim Chief Financial Officer since April 2023. Since February 2019, Mr. Rich has also been
Chief Financial Officer of Nelson Financial Services Inc. From July 2011 to February 2019, Mr. Rich was Accounting Manager – General
Ledger/Financial Reporting at Safeway, Inc. From July 2005 to July 2011, Mr. Rich was Accounting Manger – Warehouse Payables, at
Safeway, Inc. From May 2001 to July 2005, Mr. Rich was an accountant for Safeway, Inc. From February 1999 to May 2001, Mr. Rich
was the Controller of North Phoenix Baptist Church in Phoenix, Arizona. Mr. Rich holds a Bachelor of Accountancy and a Bachelor of Business
Administration from New Mexico State University, and earned his CPA designation in 1999.
David
O’Hara. Mr. O’Hara has served as our Chief Operating Officer since July 2022 and has served as our Secretary since
March 2023. Mr. O’Hara also served as our interim Chief Executive Officer and Chief Financial Officer in July 2022, and as our
Chief Administrative Officer from September 2021 to July 2022. Mr. O’Hara joined Signing Day Sports as General Manager in April
2021. Prior to joining the Company, from March 2019 to March 2021, Mr. O’Hara served as Chief of Education and Operations at Harlem
Village Academies, a network of charter schools in Harlem, New York, where he oversaw operations, academics, recruitment, hiring, and
talent development. From July 2017 to February 2019, Mr. O’Hara supported nonprofit organizations via his work as Senior Director
of District Leadership with the Buck Institute for Education, a nonprofit organization, where Mr. O’Hara also supported charter
management organizations, school districts in leadership development, operations, organizational leadership, and strategic planning.
From September 2011 to July 2017, Mr. O’Hara additionally served as the school principal of Leaders High School in Brooklyn, NY.
Mr. O’Hara was also a member of the cohort of New Leaders, a national leadership program. Mr. O’Hara is a former collegiate
athlete having been an All-Arizona wide receiver recruited to play at a Division I school. Mr. O’Hara is a graduate of Arizona
State University, has a MSEd in Science Education from Lehman College, a MSEd in Organizational Leadership from Baruch College, and is
a graduate of the Cahn Fellows Program at Columbia University.
Richard
Symington. Mr. Symington has served as our President and Chief Technology Officer since November 2023 and as our director since
December 2023. Mr. Symington previously served as the Company’s President and Chief Marketing Officer and a director from April
2023 to May 2023. From May 2015 to February 2020, Mr. Symington was the Manager of Blacklight Technologies LLC. From January 2015 to
September 2019, Mr. Symington was also the founder, Chief Executive Officer, and Manager of Island Marketing Consultants LLC (formerly
A20 Media LLC). From 2002 to 2014, Mr. Symington founded or managed a number of other businesses. Mr. Symington obtained a B.A. in International
Relations from the University of San Diego in 2002 and a Diploma in Culinary Arts/Restaurant Management from Arizona Culinary Institute
in 2003.
Glen
Kim. Mr. Kim has served as a member of our board of directors since July 2022. Mr. Kim has over 15 years of experience in digital
media, software, software-as-a-service, or SaaS, and various technology industries where he has led corporate financial planning and
analysis efforts, built business operating models, and led many corporate development activities, including M&A and post-acquisition
integration. Since October 2020, Mr. Kim has been the chief financial officer at Longevity Nutrition Inc., a plant-based food company,
and since September 2019, Mr. Kim has been the chief financial officer at Performa Labs Inc., a government technology company. Since
September 2021, Mr. Kim has also been the chief financial officer at Apollo Education Systems Inc., an education software company. Since
November 2016, Mr. Kim has also served as Vice President of Finance, Accounting Analytics of Cie Digital Labs, a Technology Development
& Venture Studio. From September 2017 to November 2020, Mr. Kim was the chief financial officer of Titan School Solutions Inc., a
school nutrition software company, wholly acquired by EMS LINQ. From June 2010 to November 2016, Mr. Kim served as the Director of Finance
of Internet Brands, Inc., a former public SaaS and Internet media portfolio company. Mr. Kim graduated from Claremont McKenna College
with a Bachelor of Arts in 2004 and majored in Economics. Mr. Kim is a former collegiate athlete in football and track and field, and
served as captain of his college football team. We believe that Mr. Kim is qualified to serve on our board of directors due to his extensive
experience in digital media and SaaS-based companies, his background in mergers and acquisitions, private equity and venture capital-based
financing, in addition to firsthand experience in coaching, recruiting, and playing sports at the NCAA level.
Roger
Mason Jr. Mr. Mason has been a member of our board of directors since September 2022. Mr. Mason is a former professional
basketball player for the National Basketball Association, or NBA. Mr. Mason was selected with the 31st overall pick by the Chicago Bulls
in the 2002 NBA draft and continued his NBA player career with various NBA teams through January 2014. Mr. Mason also played professional
basketball internationally for Olympiacos of Greece during the 2004–05 season and Hapoel Jerusalem in Israel during the 2005–06
season. From August 2013 to September 2014, Mr. Mason served as First Vice President of the National Basketball Players Association,
or NBPA, and from November 2014 to December 2016, was the NBPA’s Deputy Executive Director. In March 2018, Mr. Mason co-founded
and has since served as the Chief Executive Officer of Vaunt. Vaunt, based in New York City, creates in-person, once-in-a-lifetime destination
programming and alternative competitions with pro athletes and entertainers. Mr. Mason earned a Bachelor of Science in Architecture/Business
from the University of Virginia in 2002, a Bachelor of Science in Business/Management from Union Institute & University, and an MBA
from Columbia Business School in 2017. We believe that Mr. Mason is qualified to serve on our board of directors due to his business
acumen and success in numerous organizations. Additionally, with Mr. Mason’s knowledge and skills as a former NBA player and Deputy
Executive Director of the NBPA, Mr. Mason will be able to provide insights, leadership, and expertise as it pertains to our technology,
recruitment, and marketplace.
Greg
Economou. Mr. Economou has been a member of our board of directors since May 2023. Since March 2023, Mr. Economou has been Managing
Director of Greg Economou Consulting. From July 2019 to March 2023, Mr. Economou was co-founder
and Chief Executive Officer of game1, LLC. From April 2017 to June 2019, Mr. Economou was Chief Commercial Officer and Head of Sports
of Live Nation Entertainment, Inc. Mr. Economou earned a BA in History and Communications. We believe that Mr. Economou is qualified
to serve on our board of directors due to Mr. Economou’s executive-level experience with sports-related businesses.
Our
directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and
qualify, subject to their prior death, resignation or removal. Officers serve at the discretion of the board of directors. There is no
arrangement or understanding between any director or executive officer and any other person pursuant to which he was or is to be selected
as a director, nominee or officer.
Family
Relationships
There
are no family relationships among any of our executive officers or directors.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, none of our directors or executive officers has, during the past ten years:
| ● | been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offences); |
| ● | had
any bankruptcy petition filed by or against the business or property of the person, or of
any partnership, corporation or business association of which he was a general partner or
executive officer, either at the time of the bankruptcy filing or within two years prior
to that time; |
| ● | been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily
enjoining, barring, suspending or otherwise limiting, such director or executive officer’s
involvement in any type of business, securities, futures, commodities, investment, banking,
savings and loan, or insurance activities, or to be associated with persons engaged in any
such activity; |
| ● | been
found by a court of competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| ● | been
the subject of, or a party to, any federal or state judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement
of a civil proceeding among private litigants), relating to an alleged violation of any federal
or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or |
| ● | been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity
or organization that has disciplinary authority over its members or persons associated with
a member. |
Independent
Directors
The
NYSE American’s rules generally require that a majority of an issuer’s board of directors consist of independent directors.
Our board of directors currently consists of five directors, three of whom, Roger Mason Jr., Glen Kim, and Greg Economou, have each been
determined by our board of directors to be an “independent director” within the meaning of the NYSE American’s rules,
and two of whom, Daniel D. Nelson and Richard Symington, have not been determined by our board of directors to be an “independent
director” within the meaning of the NYSE American’s rules. We have entered into an independent director agreement with each
of Mr. Mason, Mr. Kim, and Mr. Economou. We also entered into an independent director agreement with Mr. Lanphere, a former director,
however, the board of directors subsequently determined Mr. Lanphere was not an “independent director” within the meaning
of the NYSE American’s rules. For discussion of compensation and indemnification arrangements with our independent directors for
services performed as members of our board of directors, see “Executive Compensation – Director Compensation”,
which is incorporated by reference herein.
Committees
of the Board of Directors
Our board of directors has established the Audit Committee, the Compensation
Committee, the Nominating and Corporate Governance Committee, and the Disclosure Controls and Procedures Committee, each with its own
charter approved by the board. The committee charters have been filed as exhibits to the registration statement of which this prospectus
forms a part. Each committee’s charter is also available on our website at https://www.signingdaysports.com/.
In
addition, our board of directors may, from time to time, designate one or more additional committees, which shall have the duties and
powers granted to it by our board of directors.
Audit
Committee
Glen
Kim, Roger Mason Jr., and Greg Economou, each of whom has been determined by our board of directors to meet the “independence”
requirements of Rule 10A-3 under the Exchange Act and the definition of an “independent director” under the NYSE American’s
rules, serve on the Audit Committee, with Mr. Kim serving as the chairman. Our board has determined that Mr. Kim qualifies as an “audit
committee financial expert” as defined by Item 407(d)(5) of Regulation S-K. The Audit Committee oversees our accounting and financial
reporting processes and the audits of the financial statements of our company.
Compensation
Committee
Glen
Kim, Roger Mason Jr., and Greg Economou, each of whom has been determined by our board of directors to meet the “independence”
requirements of Rule 10C-1 under the Exchange Act and the definition of an “independent director” under the NYSE American’s
rules, serve on the Compensation Committee, with Mr. Mason serving as the chairman. The members of the Compensation Committee are also
“non-employee directors” within the meaning of Section 16 of the Exchange Act. The Compensation Committee assists the board
in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers.
Nominating
and Corporate Governance Committee
Glen
Kim, Roger Mason Jr., and Greg Economou, each of whom has been determined by our board of directors to meet the definition of an “independent
director” under the NYSE American’s rules, serve on the Nominating and Corporate Governance Committee, with Mr. Economou
serving as the chairman. The Nominating and Corporate Governance Committee assists the board of directors in selecting individuals qualified
to become our directors and in determining the composition of the board and its committees.
Disclosure Controls and Procedures Committee
The members of the Disclosure Controls and Procedures Committee are
the officers and directors of the Company. The Chief Operating Officer of the Company acts as the chair of the committee. The Disclosure
Controls and Procedures Committee assist the Company’s officers and directors in fulfilling the Company’s and their responsibilities
regarding (i) the identification and disclosure of material information about the Company and (ii) the accuracy, completeness and timeliness
of the Company’s financial reports under the Exchange Act and the rules of the NYSE American.
Code
of Ethics and Business Conduct
We
have adopted a Code of Ethics and Business Conduct that applies to all of our directors, officers and employees, including our principal
executive officer, principal financial officer and principal accounting officer. Such Code of Ethics and Business Conduct addresses,
among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure
requirements under the federal securities laws, and reporting of violations of the code.
A
copy of the Code of Ethics and Business Conduct has been filed as an exhibit to the registration statement of which this prospectus forms
a part. We are required to disclose any amendment to, or waiver from, a provision of the Code of Ethics and Business Conduct applicable
to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar
functions. We use our website as a method of disseminating this disclosure as well as by SEC filings, as permitted or required by applicable
SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such amendment to,
or waiver from, a provision of the Code of Ethics and Business Conduct.
Insider Trading Policy
Effective
November 2, 2023, we adopted a new insider trading policy that applies to all our executive officers, directors and
key employees. The insider trading policy codifies the legal and ethical principles that govern trading in our securities
by persons associated with the Company that may possess material nonpublic information relating to the Company. A copy of the insider trading policy has
been filed as an exhibit to the registration statement of which this prospectus forms a part.
Limitation
on Liability and Indemnification of Directors and Certain Officers
Limitation
on Liability of Directors and Certain Officers
Section
102(b)(7) of the DGCL authorizes a corporation to limit or eliminate the personal liability of directors and
certain officers to the corporation and its stockholders for monetary damages for breaches of directors’ and officers’
fiduciary duties, subject to certain limitations. However, directors and officers remain liable for breaches of duties of loyalty, failing
to act in good faith, engaging in intentional misconduct, knowingly violating a law, or obtaining an improper personal benefit. Directors
also remain liable for paying a dividend or approving a stock repurchase which was illegal under DGCL Section 174, and officers remain
liable for any action by or in the right of the corporation. Liability may be limited under Section 102(b)(7) for an officer only if
the officer meet the requirements of Section 3114 of the DGCL, including that such officer is or was the president, chief executive officer,
chief operating officer, chief financial officer, chief legal officer, controller, treasurer or chief accounting officer of the corporation
at any time during the course of conduct alleged in the action or proceeding to be wrongful; is or was identified in a reporting company’s
SEC filings as one of the corporation’s most highly compensated executives at any time during the allegedly wrongful conduct; or
has agreed in writing with the corporation to be identified as an officer for these purposes. In addition, equitable remedies for breach
of fiduciary duty of care, such as injunction or recession, are available. The Amended and Restated Certificate of Incorporation
eliminates the personal liability of the Company’s directors and officers to the fullest extent permitted by the DGCL.
Indemnification
of Directors and Executive Officers
Section
145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation, or
a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in
related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party
to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding,
had no reasonable cause to believe such person’s conduct was unlawful, except that, in the case of actions brought by or in the
right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines
that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Our
Amended and Restated Certificate of Incorporation authorizes the Company to indemnify, and advance expenses to, to the fullest extent
permitted by law, any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
The
Second Amended and Restated Bylaws require that we indemnify our directors and executive officers to the fullest extent permitted by
law, provided that we may modify the extent of such indemnification by individual contracts with directors and executive officers, and
also provided that we are not required to indemnify any director or executive officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by our board of directors, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to
the powers vested in the Company under the DGCL or any other applicable law, or (iv) such indemnification is required to be made under
the indemnification rights enforcement provision of the Second Amended and Restated Bylaws. Our obligation, if any, to indemnify any
person pursuant to our Second Amended and Restated Bylaws who was or is serving at its request as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, enterprise, or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise, or nonprofit entity.
Our
Second Amended and Restated Bylaws also provide for advancement of expenses to any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that the person is or was a director or executive officer of the Company, or is or was serving at the request of
the Company as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor, all expenses actually and reasonably incurred by any director
or executive officer in defending such proceeding, upon receipt of an undertaking by or on behalf of such person to repay all amounts
advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such person
is not entitled to be indemnified for such expenses. Notwithstanding the foregoing, generally no advance shall be made by the Company
to an executive officer of the Company (except by reason of the fact that such executive officer is or was a director of the Company)
in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly
made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or
(ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there
are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making
party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the Company’s interest. The Company’s obligation, if any, to
indemnify any person pursuant to the Second Amended and Restated Bylaws who was or is serving at its request as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or nonprofit entity shall be reduced by any
amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise, or nonprofit
entity. Our Second Amended and Restated Bylaws also permit the Company to indemnity its other officers, employees and other agents as
set forth in the DGCL. The board of directors has the power to delegate the determination of whether indemnification shall be given to
any such person except executive officers to such officers or other persons as the board of directors shall determine.
We
have also separately entered into an indemnification agreement with each of our directors and executive officers. Each indemnification
agreement provides for indemnification to the fullest extent permitted by law, including: (i) all expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by a director or executive officer, or on their behalf, in connection
with any proceeding other than proceedings by or in the right of the Company or any claim, issue or matter therein, if the director or
executive officer acted in good faith and in a manner the director or executive officer reasonably believed to be in or not opposed to
the best interests of the Company, and with respect to any criminal proceeding, had no reasonable cause to believe the director or executive
officer’s conduct was unlawful; (ii) all expenses actually and reasonably incurred by a director or executive officer, or on their
behalf, in connection with a proceeding by or in the right of the Company if the director or executive officer acted in good faith and
in a manner the director or executive officer reasonably believed to be in or not opposed to the best interests of the Company, provided
that if applicable law so provides, no indemnification against such expenses shall be made in respect of any claim, issue or matter in
such proceeding as to which the director or executive officer shall have been adjudged to be liable to the Company unless and to the
extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made; (iii) to the extent
that a director or executive officer is, by reason of the director or executive officer’s director or executive officer status,
a party to and is successful, on the merits or otherwise, in any proceeding, including by dismissal of such proceeding with or without
prejudice, then the director or executive officer shall be indemnified to the maximum extent permitted by law, as such may be amended
from time to time, against all expenses actually and reasonably incurred by the director or executive officer or on the director or executive
officer’s behalf in connection therewith; and (iv) all expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by a director or executive officer or on a director or executive officer’s behalf if, by reason of the
director or executive officer’s status as a director or executive officer, the director or executive officer is, or is threatened
to be made, a party to or participant in any proceeding (including a proceeding by or in the right of the Company), including, without
limitation, all liability arising out of the negligence or active or passive wrongdoing of the director or executive officer, except
where the payment is finally determined (under the procedures, and subject to the presumptions, set forth in the indemnification agreements)
to be unlawful. The Company shall also advance all such expenses incurred by or on behalf of each director or executive officer in connection
with any of the above proceedings by reason of the director or executive officer’s director or executive officer status within
30 days after the receipt by the Company of a statement or statements from the director or executive officer requesting such advance
or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the director or executive officer and shall include or be preceded or accompanied by a written undertaking
by or on behalf of the director or executive officer to repay any expenses advanced if it shall ultimately be determined that the director
or executive officer is not entitled to be indemnified against such expenses. Any advances and undertakings to repay shall be unsecured
and interest free. The indemnification agreements also provide for payments by the Company for the entire amount of any judgment or settlement
of any action, suit or proceeding in which it is liable or would be liable if joined in such action, subject to the other terms and provisions
of the indemnification agreements, and certain other indemnification and payment obligations. The indemnification agreements also provide
that if we maintain a directors’ and officers’ liability insurance policy, that each director and executive officer will
be covered by the policy to the maximum extent of the coverage available for any of the Company’s directors or executive officers.
We
have obtained standard directors and officers liability insurance under which coverage is provided (a) to our directors and officers
against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to us with respect to payments which
we may make to such officers and directors pursuant to the indemnification agreements described above or otherwise as a matter of law.
The
underwriting agreement, filed as Exhibit 1.1 to the registration statement of which this prospectus forms a part, provides
for indemnification, under certain circumstances, by the underwriter of us and our officers and directors for certain liabilities arising
under the Securities Act or otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us
under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
EXECUTIVE COMPENSATION
Summary
Compensation Table - Years Ended December 31, 2023 and 2022
The
following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons
for services rendered in all capacities during the noted periods. No other executive officers received total compensation in excess
of $100,000 during the fiscal year ended December 31, 2023.
Name and Principal Position | |
Year | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
All Other
Compensation
($) | | |
Total
($) | |
Daniel D. Nelson, Chief Executive Officer | |
2023 | |
| 23,038 | | |
| - | | |
| - | | |
| 114,000 | (1) | |
| - | | |
| 137,038 | |
| |
2022 | |
| - | | |
| - | | |
| - | | |
| 20,195 | (2) | |
| - | | |
| 20,195 | |
David O’Hara, Chief Operating Officer | |
2023 | |
| 192,779 | | |
| 100,000 | | |
| 154,800 | (3) | |
| 114,000 | (4) | |
| - | | |
| 561,579 | |
| |
2022 | |
| 194,993 | | |
| - | | |
| - | | |
| 34,640 | (5) | |
| - | | |
| 229,633 | |
Richard Symington, President, Chief Technology Officer, and former Chief Marketing Officer(6) | |
2023 | |
| 67,893 | | |
| - | | |
| - | | |
| 240,000 | (7) | |
| - | | |
| 307,893 | |
(1) | Daniel
D. Nelson was granted an option to purchase 100,000 shares of common stock on November 22, 2023. A portion of the option is subject to
certain vesting conditions. The aggregate grant date fair value was computed in accordance with ASC Topic 718 based on the assumptions
described in footnotes 1 and 10 to the Company’s audited financial statements accompanying this prospectus. |
(2) | Daniel
D. Nelson was granted options to purchase an aggregate of 35,000 shares of common stock on September 28, 2022. The aggregate grant date
fair value was computed in accordance with ASC Topic 718 based on the assumptions described in footnotes 1 and 10 to the Company’s
audited financial statements accompanying this prospectus. |
(3) | David
O’Hara was granted 90,000 shares of common stock on March 14, 2023. A portion of the shares are subject to certain vesting conditions.
The aggregate grant date fair value was computed in accordance with ASC Topic 718 based on the assumptions described in footnotes 1 and
10 to the Company’s audited financial statements accompanying this prospectus. |
(4) | David
O’Hara was granted an option to purchase 100,000 shares of common stock on November 22, 2023. A portion of the option is subject
to certain vesting conditions. The aggregate grant date fair value was computed in accordance with ASC Topic 718 based on the assumptions
described in footnotes 1 and 10 to the Company’s audited financial statements accompanying this prospectus. |
(5) | David
O’Hara was granted an option to purchase 30,000 shares of common stock on each of September 9, 2022 and September 28, 2022. A portion
of the options is subject to certain vesting conditions. The aggregate grant date fair value was computed in accordance with ASC Topic
718 based on the assumptions described in footnotes 1 and 10 to the Company’s audited financial statements accompanying this prospectus. |
(6) | Richard
Symington was President and Chief Marketing Officer of the Company from April 2023 to May 2023 and has been President and Chief Technology
Officer of the Company since November 2023. Mr. Symington was not a named executive officer in 2022. |
(7) | Richard
Symington was granted an option to purchase 100,000 shares of common stock on April 5, 2023 and an option to purchase 50,000 shares of
common stock on November 22, 2023. The options are subject to certain vesting conditions. The aggregate grant date fair value was computed
in accordance with ASC Topic 718 based on the assumptions described in footnotes 1 and 10 to the Company’s audited financial statements
accompanying this prospectus. |
Management
Employment and Consulting Agreements
Employment
Agreement with Daniel Nelson
On
November 22, 2023, the Compensation Committee approved an Executive Employment Agreement with Daniel Nelson, the Company’s Chief
Executive Officer, Chairman, and a director, which was dated and entered into by the Company and Mr. Nelson on the same date (the “CEO
Employment Agreement”). Under the CEO Employment Agreement, Mr. Nelson will be employed in his current capacity as the Company’s
Chief Executive Officer. The following is a summary of the terms of the CEO Employment Agreement.
Mr.
Nelson’s annual base salary will be $425,000, subject to modification upon execution of an amendment or addendum to the CEO Employment
Agreement. The Company will pay or reimburse Mr. Nelson for all reasonable and necessary expenses actually incurred or paid by Mr. Nelson
during his employment in the performance of his duties under the CEO Employment Agreement.
Mr.
Nelson will be eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance
options, and will be entitled to paid time off and holiday pay in accordance with the Company’s policies in effect from time to
time.
Pursuant
to the CEO Employment Agreement, on November 22, 2023, Mr. Nelson was granted a stock option pursuant to the Plan and execution of a
Stock Option Agreement. The stock option provides Mr. Nelson the right to purchase 100,000 shares of common stock of the Company at an
exercise price of $2.25 per share, which was the closing price of the common stock on the NYSE American on November 22, 2023. The option
vests and becomes exercisable as to half the shares immediately upon the date of grant and as to the remaining half in six equal monthly
portions after the grant date subject to continuous service.
Mr.
Nelson’s employment is at-will. If the Company terminates Mr. Nelson without cause, Mr. Nelson will be entitled to the following
severance payments: (i) cash in the amount of base salary in effect on the date of such termination payable in 12 monthly installments;
and (ii) all previously earned, accrued, and unpaid benefits from the Company and its employee benefit plans. The payment of severance
may be conditioned on receiving a release of any and all claims that Mr. Nelson may have against the Company.
Mr.
Nelson was required to sign an Employee Confidential Information and Inventions Assignment Agreement, dated as of November 22, 2023,
which prohibits unauthorized use or disclosure of the Company’s proprietary information, contains a general assignment of rights
to inventions and intellectual property rights, non-competition provisions that apply during the term of employment, non-solicitation
provisions that apply during the term of employment and for one year after the term of employment, and non-disparagement provisions that
apply during and after the term of employment.
Current
and Former Employment Agreements with David O’Hara
Under
an employment contract with David O’Hara, our Chief Operating Officer and former General Manager, dated March 30, 2021 (the “Original
O’Hara Employment Contract”), Mr. O’Hara was employed as General Manager on an at-will basis beginning April 5, 2021.
Mr. O’Hara’s salary was $200,000 per year. Mr. O’Hara was entitled to available standard employee benefits, which are
subject to change without compensation. Mr. O’Hara was also entitled to a $25,000 bonus dependent upon performance review once
every 90 days. The agreement contained non-competition, non-solicitation, and confidentiality provisions.
Under
an amended and restated employment offer letter agreement with Mr. O’Hara, dated March 14, 2022 (the “Amended O’Hara
Agreement”), Mr. O’Hara agreed to continue to be responsible for duties customary for a Chief Operating Officer. Effective
March 14, 2023, Mr. O’Hara’s salary was changed to $170,000 per year. Under the Amended O’Hara Agreement, upon the
consummation of the Company’s initial public offering, Mr. O’Hara’s salary would be $185,000 per year. Mr. O’Hara
would also receive an initial cash bonus of $35,000. Under the agreement, on March 14, 2023, Mr. O’Hara was granted 90,000 shares
of restricted stock, which vested as to 45,000 shares on March 29, 2023, and will vest as to 11,250 shares on March 29, 2024, 937 shares
at the end of each of the following 35 calendar months, and 955 shares of common stock at the end of the 36th calendar month following
the anniversary of the grant date, provided that he remains in continuous service with the Company. Mr. O’Hara would be eligible
to participate in standard employee benefits plans. The Amended O’Hara Agreement contains customary confidentiality requirements.
Mr. O’Hara was also required to sign an Employee Confidential Information and Inventions Assignment Agreement, which prohibits
unauthorized use or disclosure of the Company’s proprietary information, contains a general assignment of rights to inventions
and intellectual property rights, non-competition provisions that apply during the term of employment, non-solicitation provisions that
apply during the term of employment and for one year after the term of employment, and non-disparagement provisions that apply during
and after the term of employment, and which was fully executed and dated as of April 3, 2023. The Amended O’Hara Agreement superseded
the Original O’Hara Employment Contract.
On November 22, 2023,
the Compensation Committee approved an Executive Employment Agreement with Mr. O’Hara, which was dated and entered into by the Company
and Mr. O’Hara on the same date (the “COO Employment Agreement”). The COO Employment Agreement amended, restated and
superseded the Amended O’Hara Agreement. Under the COO Employment Agreement, Mr. O’Hara will be employed in his current capacity
as the Company’s Chief Operating Officer and Secretary. The following is a summary of the terms of the COO Employment Agreement.
Mr. O’Hara’s
annual base salary will be $275,000, subject to modification upon execution of an amendment or addendum to the COO Employment Agreement.
Mr. O’Hara was also entitled to a one-time cash bonus payment of $100,000 on the date of the COO Employment Agreement. The Company
will pay or reimburse Mr. O’Hara for all reasonable and necessary expenses actually incurred or paid by Mr. O’Hara during
his employment in the performance of his duties under the COO Employment Agreement.
Pursuant to the COO Employment
Agreement, on November 22, 2023, Mr. O’Hara was granted a stock option pursuant to the Plan and execution of a Stock Option Agreement.
The stock option provides Mr. O’Hara the right to purchase 100,000 shares of common stock of the Company at an exercise price of
$2.25 per share, which was the closing price of the common stock on the NYSE American on November 22, 2023. The option vests and becomes
exercisable as to half the shares immediately upon the date of grant and as to the remaining half in six equal monthly portions after
the grant date subject to continuous service.
Mr. O’Hara will
be eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options. The Company
will cover 100% of the health insurance premium costs for Mr. O’Hara’s spouse and dependent children. Mr. O’Hara will
also be entitled to paid time off and holiday pay in accordance with the Company’s policies in effect from time to time.
Mr. O’Hara’s
employment is at-will. If the Company terminates Mr. O’Hara without cause, Mr. O’Hara will be entitled to the following severance
payments: (i) cash in the amount of base salary in effect on the date of such termination payable in 12 monthly installments; (ii) benefits
under group health and life insurance plans in which Mr. O’Hara participated prior to termination for 12 months following the date
of termination; and (iii) all previously earned, accrued, and unpaid benefits from the Company and its employee benefit plans, including
any accrued but unused paid time off. There will be no waiting period for the commencement of these payments. The payment of severance
may be conditioned on receiving a release of any and all claims that Mr. O’Hara may have against the Company.
Current and Former
Employment Agreements and Former Consulting Agreements with Richard Symington
Under an Executive Employment Agreement with Richard
Symington, dated as of April 5, 2023 (the “CMO Employment Agreement”), the Company agreed to employ Mr. Symington as its President
and Chief Marketing Officer. Mr. Symington was also appointed as a director as of April 5, 2023. Mr. Symington’s base salary was
$200,000 per year. The CMO Employment Agreement provided that Mr. Symington may receive any comprehensive benefits plans offered by the
Company, including medical, dental and life insurance options. In addition, pursuant to the CMO Employment Agreement, Mr. Symington was
granted a stock option to purchase 100,000 shares of common stock of the Company pursuant to the Plan and execution of a Stock Option
Agreement. One-third (1/3) of the option will vest on each of the six-month anniversary, the 18-month anniversary, and the 30-month anniversary
of the date of the consummation of the Company’s initial public offering (November 16, 2023), provided that Mr. Symington remains
in continuous service with the Company, and will have an exercise price of $2.50 per share. The CMO Employment Agreement provided that
Mr. Symington’s employment is on an at-will basis, and may be terminated by the board of directors of the Company at any time for
any or no reason, upon written notice to Mr. Symington. On May 26, 2023, Mr. Symington resigned from his positions as President and Chief
Marketing Officer and a director, and terminated the CMO Employment Agreement. Accrued and unpaid compensation to Mr. Symington as of
the date of termination was $5,000.
Under a Consulting Agreement, dated as of June
7, 2023, Mr. Symington was engaged to provide certain services on a consulting basis beginning 14
days after the closing of the Company’s initial public offering. The engagement letter was terminable at any time before
or after that point in time upon five days’ notice. On November 22, 2023, the Company gave notice of termination of the engagement
letter effective November 27, 2023, prior to the beginning of the service term under the engagement letter, which, under its terms, would
have been November 30, 2023. No compensation was owed under the engagement letter upon termination.
On November 22, 2023,
the Compensation Committee approved an Executive Employment Agreement with Mr. Symington, which was dated and entered into by the Company
and Mr. Symington on the same date (the “CTO Employment Agreement”). Under the CTO Employment Agreement, Mr. Symington will
be employed in his current capacity as the Company’s President and Chief Technology Officer. Mr. Symington was also appointed as
a director as of December 19, 2023. The following is a summary of the terms of the CTO Employment Agreement.
Mr. Symington’s
annual base salary will be $375,000, subject to modification upon execution of an amendment or addendum to the CTO Employment Agreement.
The Company will pay or reimburse Mr. Symington for all reasonable and necessary expenses actually incurred or paid by Mr. Symington during
his employment in the performance of his duties under the CTO Employment Agreement.
Mr. Symington will
be eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options, and will
be entitled to paid time off and holiday pay in accordance with the Company’s policies in effect from time to time.
Pursuant to the CTO Employment
Agreement, on November 22, 2023, Mr. Symington was granted a stock option pursuant to the Plan and execution of a Stock Option Agreement.
The stock option provides Mr. Symington the right to purchase 50,000 shares of common stock of the Company at an exercise price of $2.25
per share, which was the closing price of the common stock on the NYSE American on November 22, 2023. One-third of the option will vest
and become exercisable on each of the six-month anniversary, the 18-month anniversary, and the 30-month anniversary of November 16, 2023,
the date of the consummation of the Company’s initial public offering (November 16, 2023), provided that Mr. Symington remains in
continuous service with the Company.
Mr. Symington’s
employment is at-will. If the Company terminates Mr. Symington without cause after one year of employment from November 22, 2023,
Mr. Symington will be entitled to the following severance payments: (i) cash in the amount of base salary in effect on the date of such
termination payable in 12 monthly installments; and (ii) all previously earned, accrued, and unpaid benefits from the Company and its
employee benefit plans. The payment of severance may be conditioned on receiving a release of any and all claims that Mr. Symington may
have against the Company.
Mr. Symington was
required to sign an Employee Confidential Information and Inventions Assignment Agreement, dated as of November 27, 2023, which prohibits
unauthorized use or disclosure of the Company’s proprietary information, contains a general assignment of rights to inventions and
intellectual property rights, non-competition provisions that apply during the term of employment, non-solicitation provisions that apply
during the term of employment and for one year after the term of employment, and non-disparagement provisions that apply during and after
the term of employment.
Other Former Management Agreements
Under our employment letter agreement with John
Dorsey, a former Chief Executive Officer of the Company, dated January 13, 2022, Mr. Dorsey was employed on an at-will basis until his
resignation on June 28, 2022. Under the agreement, Mr. Dorsey’s base salary was $240,000 per year paid according to the Company’s
normal payroll cycle. The agreement provided for a grant of a non-statutory stock option to purchase shares of common stock equal to 1%
of the Company’s equity on a fully-diluted basis as of the date of grant within three months of the date of the agreement, at an
exercise price equal to the fair market value of a share of common stock determined consistent with Section 409A of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”), and subject to vesting and other terms and conditions. Mr. Dorsey was eligible
for an annual cash incentive between 50% and 200% of base salary, based on the achievement of certain written performance goals established
by the Company’s board of directors, and subject to the board’s certification of achievement of such goals. Mr. Dorsey was
eligible for standard benefit and vacation plans. The agreement contained standard provisions for non-solicitation of customers or employees,
non-competition, confidentiality, and non-disparagement.
Under an employment letter agreement with George
Weathers, a former Chief Financial Officer of the Company, dated October 8, 2021, Mr. Weathers’ salary was $175,000 per year. Mr.
Weathers was also provided health care coverage, flexible paid time off, and eligibility to participate in the Company’s employee
stock option plan for up to 60,000 shares. Mr. Weathers resigned on July 7, 2022.
Management Indemnification Agreements and
Insurance
We have separately entered into an
indemnification agreement with each of our directors and executive officers. Each indemnification agreement provides for
indemnification to the fullest extent permitted by law, including: (i) all expenses, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by an executive officer, or on their behalf, in connection with any proceeding other
than proceedings by or in the right of the Company or any claim, issue or matter therein, if the executive officer acted in good
faith and in a manner the executive officer reasonably believed to be in or not opposed to the best interests of the Company, and
with respect to any criminal proceeding, had no reasonable cause to believe the executive officer’s conduct was unlawful; (ii)
all expenses actually and reasonably incurred by an executive officer, or on their behalf, in connection with a proceedings by or in
the right of the Company if the executive officer acted in good faith and in a manner the executive officer reasonably believed to
be in or not opposed to the best interests of the Company, provided that if applicable law so provides, no indemnification against
such expenses shall be made in respect of any claim, issue or matter in such proceeding as to which the executive officer shall have
been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall
determine that such indemnification may be made; (iii) to the extent that a executive officer is, by reason of the executive
officer’s executive officer status, a party to and is successful, on the merits or otherwise, in any proceeding, including by
dismissal of such proceeding with or without prejudice, then the executive officer shall be indemnified to the maximum extent
permitted by law, as such may be amended from time to time, against all expenses actually and reasonably incurred by the executive
officer or on the executive officer’s behalf in connection therewith; and (iv) all expenses, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by an executive officer or on an executive officer’s behalf if, by
reason of the executive officer’s status as an executive officer, the executive officer is, or is threatened to be made, a
party to or participant in any proceeding (including a proceeding by or in the right of the Company), including, without limitation,
all liability arising out of the negligence or active or passive wrongdoing of the executive officer, except where the payment is
finally determined (under the procedures, and subject to the presumptions, set forth in the indemnification agreements) to be
unlawful. The Company shall also advance all such expenses incurred by or on behalf of each executive officer in connection with any
of the above proceedings by reason of the executive officer’s executive officer status within 30 days after the receipt by the
Company of a statement or statements from the executive officer requesting such advance or advances from time to time, whether prior
to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the expenses incurred by
the executive officer and shall include or be preceded or accompanied by a written undertaking by or on behalf of the executive
officer to repay any expenses advanced if it shall ultimately be determined that the executive officer is not entitled to be
indemnified against such expenses. Any advances and undertakings to repay shall be unsecured and interest free. The indemnification
agreements also provide for payments by the Company for the entire amount of any judgment or settlement of any action, suit or
proceeding in which it is liable or would be liable if joined in such action, subject to the other terms and provisions of the
indemnification agreements, and certain other indemnification and payment obligations. The indemnification agreements also provide
that if we maintain a directors’ and officers’ liability insurance policy, that each director and executive officer will
be covered by the policy to the maximum extent of the coverage available for any of the Company’s directors or executive
officers.
We have obtained standard directors and officers
liability insurance under which coverage is provided (a) to our directors and officers against loss rising from claims made by reason
of breach of duty or other wrongful act, and (b) to us with respect to payments which we may make to such officers and directors
pursuant to the indemnification agreements described above or otherwise as a matter of law.
Outstanding Equity Awards at Fiscal Year-End
The executive officers named above had the following
unexercised options, stock that has not vested or equity incentive plan awards outstanding as of December 31, 2023.
| |
Option Awards | | |
Stock Awards | |
Name | |
Number of
securities
underlying
unexercised options
(#) exercisable | | |
Number of
securities
underlying
unexercised
options
(#)
unexercisable | | |
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#) | | |
Option
exercise
price
($) | | |
Option
expiration date | | |
Number
of shares
or units
of stock
that have
not
vested
(#) | | |
Market
value
of
shares
of units
of
stock
that
have
not
vested
($) | | |
Equity
incentive
plan
awards:
Number
of
unearned
shares,
units or
other
rights
that have
not
vested
(#) | | |
Equity
incentive
plan
awards:
Market
or
payout
value of
unearned
shares,
units or
other
rights
that have
not
vested
($) | |
Daniel D. Nelson, Chief Executive Officer | |
| 58,333 | | |
| 41,667 | (1) | |
| - | | |
$ | 2.25 | | |
| November 21,
2033 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Daniel D. Nelson, Chief Executive Officer | |
| 35,000 | | |
| - | | |
| - | | |
$ | 3.10 | | |
| September 28,
2032 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David O’Hara, Chief Operating Officer | |
| 58,333 | | |
| 41,667 | (2) | |
| - | | |
$ | 2.25 | | |
| November 21,
2033 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David O’Hara, Chief Operating Officer | |
| 14,531 | | |
| 15,469 | (3) | |
| - | | |
$ | 3.10 | | |
| September 9,
2032 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David O’Hara, Chief Operating Officer | |
| 14,531 | | |
| 15,469 | (4) | |
| - | | |
$ | 3.10 | | |
| September 28,
2032 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David O’Hara, Chief Operating Officer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 45,000 | (5) | |
| 50,850 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Richard Symington, President, Chief Technology Officer, and former Chief Marketing Officer | |
| - | | |
| 100,000 | (6) | |
| - | | |
$ | 2.50 | | |
| April 5,
2033 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Richard Symington, President, Chief Technology Officer, and former Chief Marketing Officer | |
| - | | |
| 50,000 | (7) | |
| - | | |
$ | 2.25 | | |
| November 21,
2033 | | |
| - | | |
| - | | |
| - | | |
| - | |
(1) | As of December 31, 2023, the unvested shares under the option
will vest in five equal monthly installments subject to Mr. Nelson’s continuous service. |
(2) | As of December 31, 2023, the unvested shares under the option
will vest in five equal monthly installments subject to Mr. O’Hara’s continuous service. |
(3) | As of December 31, 2023, the unvested shares under the option
will vest in 33 equal monthly installments subject to Mr. O’Hara’s continuous service. |
(4) | As of December 31, 2023, the unvested shares under the option
will vest in 33 equal monthly installments subject to Mr. O’Hara’s continuous service. |
(5) | As of December 31, 2023, the unvested shares will vest as
to 11,250 shares on March 14, 2024, as to 937 shares at the end of each of the following 35 calendar months following March 14, 2024,
and as to 955 shares at the end of the 36th calendar month following March 14, 2024, subject to Mr. O’Hara’s continuous
service. |
(6) | Richard Symington, while serving as our President and Chief
Marketing Officer and a director of the Company, was granted an option to purchase 100,000 shares of common stock on April 5, 2023. The
option will vest as to 33,333 shares of common stock on May 16, 2024, 33,333 shares of common stock on May 16, 2025, and 33,334 shares
of common stock on May 16, 2025, subject to continuous service. Mr. Symington resigned from each of his positions with the Company on
May 26, 2023. Under a consulting agreement with Mr. Symington in which Mr. Symington agreed to provide certain services to the Company
starting 14 days following the Company’s initial public offering, the Company agreed not to terminate the option pending the beginning
of such services, subject to termination of the consulting agreement at any time. On November 22, 2023, the Company appointed Mr. Symington
President and Chief Technology Officer and terminated the consulting agreement prior to services provided for. Mr. Symington was appointed
as a director of the Company as of December 19, 2023. The Company considers the stock option to be outstanding and exercisable subject
to its vesting conditions. |
(7) | The option will vest as to 16,667 shares of common stock
on May 16, 2024, 16,667 shares of common stock on May 16, 2025, and 16,666 shares of common stock on May 16, 2025, subject to continuous
service. |
Additional Narrative to Named Executive Officer Compensation
Retirement Benefits
We have not maintained, and do not currently maintain,
a defined benefit pension plan, nonqualified deferred compensation plan or other retirement benefits other than plans do not discriminate
in scope, terms or operation, in favor of executive officers of the registrant and that are available generally to all salaried employees.
Potential Payments Upon Termination or Change
in Control
None of our named executive officers was entitled
to severance compensation during the fiscal year ended December 31, 2023, except as described in “—Management Employment
and Consulting Agreements”.
Director Compensation
The directors of the Company were compensated
for services as directors during the fiscal year ended December 31, 2023 as follows:
Name | |
Fees
Earned or
Paid in
Cash | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive
Plan
Compensation | | |
Nonqualified
Deferred
Compensation
Earnings | | |
All Other
Compensation | | |
Total | |
Clayton Adams(1) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Glen Kim | |
$ | - | | |
$ | - | | |
$ | - | (2) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Martin Lanphere(3) | |
$ | - | | |
$ | - | | |
$ | 5,520 | (4) | |
$ | - | | |
$ | - | | |
$ | 25,176 | (5) | |
$ | 30,696 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Roger Mason Jr. | |
$ | - | | |
$ | - | | |
$ | - | (6) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Noah (Jed) Smith(7) | |
$ | - | | |
$ | - | | |
$ | - | (8) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Richard Symington(9) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 5,000 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Greg Economou(10) | |
$ | - | | |
$ | - | | |
$ | 24,480 | (11) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 24,480 | |
(1) | Clayton Adams was a director of the Company from July 2022
to April 2023. |
(2) | Glen Kim was granted an option to purchase 5,000 shares of
common stock on September 28, 2022 with an exercise price of $3.10 per share. The option was outstanding as of December 31, 2023. |
(3) | Martin Lanphere was a director of the Company from September
2022 to December 2023. |
(4) | Martin Lanphere was granted an option to purchase 3,000 shares
of common stock on April 11, 2023 with an exercise price of $2.50 per share. The aggregate grant date fair value of this option as set
forth in this table was computed in accordance with ASC Topic 718 based on the assumptions described in footnotes 1 and 10 to the Company’s
audited financial statements accompanying this prospectus. Mr. Lanphere was also granted an option to purchase 27,000 shares of common
stock on September 28, 2022 with an exercise price of $3.10 per share. The options were outstanding as of December 31, 2023. |
(5) | Consisted of reimbursement of expenses for service on the
board of directors. |
(6) | Roger Mason Jr. was granted an option to purchase 24,000
shares of common stock on September 9, 2022 with an exercise price of $3.10 per share. The option remained subject to vesting as to 14,000
shares as of December 31, 2023, which vest in 2,000-share increments over three years on each subsequent 9th of March, June, September,
and December. No other options, shares of stock or equity incentive plan awards subject to vesting were held by Mr. Mason on December
31, 2022. |
(7) | Noah (Jed) Smith was a director of the Company from July
2022 to April 2023. |
(8) | Noah (Jed) Smith was granted an option to purchase 5,000
shares of common stock on September 28, 2022 with an exercise price of $3.10 per share. The option had expired unexercised as of December
31, 2023. |
(9) | Richard Symington was a director of the Company from April
2023 to May 2023, and has been a director of the Company since December 2023. |
(10) | Greg Economou has been a director of the Company since May
2023. |
(11) | Greg Economou was granted an option to purchase 24,000 shares
of common stock on May 9, 2023 with an exercise price of $2.50 per share. The aggregate grant date fair value of these options was computed
in accordance with ASC Topic 718 based on the assumptions described in footnotes 1 and 10 to the Company’s audited financial statements
accompanying this report. The option remained subject to vesting as to 20,000 shares as of December 31, 2023, which vest in 2,000-share
increments on each subsequent 9th of August, November, February, or May which most closely follows from the vesting start date of May
9, 2023. |
Additional Narrative to Director Compensation
Each of the Company’s independent directors,
Roger Mason Jr., Glen Kim, and Greg Economou, has entered into an independent director agreement. We also entered into an independent
director agreement with Martin Lanphere, and although the board of directors subsequently determined that Mr. Lanphere is not an “independent
director” within the meaning of the NYSE American’s rules, have elected to perform any duties that we may continue to perform
under the independent director agreement with Mr. Lanphere in consideration of Mr. Lanphere’s continued services as a director and
compliance with its requirements as applicable to a non-independent director and with the general fiduciary duties of a director of the
Company. In accordance with their independent director agreements, we have granted equity awards to each independent director and Mr.
Lanphere. Mr. Lanphere resigned from the board of directors in December 2023.
During 2023, an option to purchase 3,000 shares
of common stock was awarded to Mr. Lanphere with an exercise price of $2.50 per share; an option to purchase 100,000 shares of common
stock was awarded to Richard Symington, a director who was serving as President and Chief Marketing Officer at the time of such grant,
with an exercise price of $2.50 per share; an option to purchase 24,000 shares of common stock was awarded to Mr. Economou with an exercise
price of $2.50 per share; and an option to purchase 50,000 shares of common stock was awarded to Mr. Symington, who was also a director
and serving as President and Chief Marketing Officer at the time of such grant, with an exercise price of $2.25 per share. The options
awarded to Mr. Symington and Mr. Economou are subject to vesting conditions.
We will also reimburse each independent director
for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the independent director’s
duties for us.
In accordance with our independent director agreements,
we separately entered into an indemnification agreement with each of our current independent directors and Mr. Smith, Mr. Clayton, Mr.
Lanphere, and Mr. Symington. Each indemnification agreement provides for indemnification to the fullest extent permitted by law, including:
(i) all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by a director, or on their
behalf, in connection with any proceeding other than proceedings by or in the right of the Company or any claim, issue or matter therein,
if the director acted in good faith and in a manner the director reasonably believed to be in or not opposed to the best interests of
the Company, and with respect to any criminal proceeding, had no reasonable cause to believe the director’s conduct was unlawful;
(ii) all expenses actually and reasonably incurred by a director, or on their behalf, in connection with a proceedings by or in the right
of the Company if the director acted in good faith and in a manner the director reasonably believed to be in or not opposed to the best
interests of the Company, provided that if applicable law so provides, no indemnification against such expenses shall be made in respect
of any claim, issue or matter in such proceeding as to which the director shall have been adjudged to be liable to the Company unless
and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made; (iii) to
the extent that a director is, by reason of the director’s director status, a party to and is successful, on the merits or otherwise,
in any proceeding, including by dismissal of such proceeding with or without prejudice, then the director shall be indemnified to the
maximum extent permitted by law, as such may be amended from time to time, against all expenses actually and reasonably incurred by the
director or on the director’s behalf in connection therewith; and (iv) all expenses, judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by a director or on a director’s behalf if, by reason of the director’s status
as a director, the director is, or is threatened to be made, a party to or participant in any proceeding (including a proceeding by or
in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing
of the director, except where the payment is finally determined (under the procedures, and subject to the presumptions, set forth in the
indemnification agreements) to be unlawful. The Company shall also advance all such expenses incurred by or on behalf of each director
in connection with any of the above proceedings by reason of the director’s director status within 30 days after the receipt by
the Company of a statement or statements from the director requesting such advance or advances from time to time, whether prior to or
after final disposition of such proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the director
and shall include or be preceded or accompanied by a written undertaking by or on behalf of the director to repay any expenses advanced
if it shall ultimately be determined that the director is not entitled to be indemnified against such expenses. Any advances and undertakings
to repay shall be unsecured and interest free. The indemnification agreements also provide for payments by the Company for the entire
amount of any judgment or settlement of any action, suit or proceeding in which it is liable or would be liable if joined in such action,
subject to the other terms and provisions of the indemnification agreements, and certain other indemnification and payment obligations.
The indemnification agreements also provide that if we maintain a directors’ and officers’ liability insurance policy, that
each director and executive officer will be covered by the policy to the maximum extent of the coverage available for any of the Company’s
directors or executive officers.
Directors and Officers Liability Insurance
We have obtained standard directors and officers
liability insurance under which coverage is provided (a) to our directors and officers against loss rising from claims made by reason
of breach of duty or other wrongful act, and (b) to us with respect to payments which we may make to such officers and directors
pursuant to the indemnification agreements described above or otherwise as a matter of law.
2022 Equity Incentive Plan
On August 31, 2022, we established the Signing Day Sports, Inc. 2022
Equity Incentive Plan. The Plan was established to advance our interests and the interests of our stockholders by providing an incentive
to attract, retain and reward persons performing services for us and by motivating such persons to contribute to our growth and profitability.
Under the Plan, we may grant restricted stock, stock options and other forms of incentive compensation to our officers, employees, directors
and consultants. The maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan is 750,000
shares. Cancelled and forfeited stock options and stock awards may again become available for grant under the Plan. As of the date of
this prospectus, 9,000 shares remain available for issuance under the Plan. The Plan and all awards granted under the Plan are intended
to comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan and
all awards agreements shall be interpreted and administered to be in compliance therewith.
The following summary briefly describes the principal
features of the Plan and is qualified in its entirety by reference to the full text of the Plan.
Awards that may be granted include: (a) Incentive
Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance
Share Awards, and (f) Performance Compensation Awards. These awards offer our officers, employees, consultants and directors the
possibility of future value, depending on the long-term price appreciation of our common stock and the award holder’s continuing
service with our company.
Stock options give the option holder the right
to acquire from us a designated number of shares of common stock at a purchase price that is fixed upon the grant of the option. The exercise
price generally will not be less than the market price of the common stock on the date of grant. Stock options granted may be either incentive stock
options or non-statutory stock options.
Stock appreciation rights, or SARs, may be granted
alone or in tandem with options, and have an economic value similar to that of options. When a SAR for a particular number of shares is
exercised, the holder receives a payment equal to the difference between the fair market value of the shares on the date of exercise and
the exercise price of the shares under the SAR. The exercise price for SARs is normally the market price of the shares on the date the
SAR is granted. Under the Plan, holders of SARs may receive this payment — the appreciation value — either in cash
or shares of common stock valued at the fair market value on the date of exercise. The form of payment will be determined by the administrator.
Restricted awards are awards of shares of common
stock or rights to shares of common stock to participants at no cost. Restricted stock awards represent issued and outstanding shares
of common stock which may be subject to vesting criteria under the terms of the award within the discretion of the administrator. Restricted
stock units represent the right to receive shares of common stock which may be subject to satisfaction of vesting criteria under the terms
of the award within the discretion of the administrator. Restricted stock and the rights under restricted stock units are forfeitable
and non-transferable until they vest. The vesting date or dates and other conditions for vesting are established when the shares
are awarded.
The Plan also provides for performance compensation
awards, representing the right to receive a payment, which may be in the form of cash, shares of common stock, or a combination, based
on the attainment of pre-established goals.
All of the permissible types of awards under the
Plan are described in more detail as follows:
Purposes of Plan: The
purposes of the Plan are (a) to enable the Company and any affiliate company to attract and retain the types of employees, consultants
and directors who will contribute to the Company’s long-term success; (b) provide incentives that align the interests of employees,
consultants and directors with those of the stockholders of the Company; and (c) promote the success of the Company’s business.
Administration of the Plan: The
Plan is administered by the Compensation Committee. In this summary, we refer to the Compensation Committee as the administrator. Among
other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number
of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions and other provisions of
awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan.
Eligible Recipients: Persons
eligible to receive awards under the Plan are employees (including officers or directors who are also treated as employees); consultants,
i.e., persons engaged to provide consulting or advisory services to the Company; and directors.
Shares Available Under the
Plan: The maximum number of shares of our common stock that may be delivered to participants under the Plan is 750,000,
subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the
Plan which is canceled, forfeited or expires again become available for grants under the Plan.
Stock Options:
General. Subject to the provisions
of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the
number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the
manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and
(vi) any other terms and conditions as the administrator may determine.
Option Price. The exercise price for stock
options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date
of grant. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value
of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must
have an exercise price of not less than 110% of the fair market value on the grant date.
Exercise of Options. An option may be exercised
only in accordance with the terms and conditions of the option agreement as established by the administrator at the time of the grant.
The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option
of the administrator, by actual or constructive delivery of shares of common stock based upon the fair market value of the shares on the
date of exercise.
Expiration or Termination. Options, if
not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive
stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term
cannot exceed five years. Options will terminate before their expiration date if the holder’s service with the Company or an affiliate
company terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment,
including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised
to be established by the administrator and reflected in the grant evidencing the award.
Incentive and Non-Statutory Options. As
described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the
Code for more favorable tax treatment than applies to non-statutory stock options. Only employees may be granted incentive stock
options. Any option that does not qualify as an incentive stock option will be a non-statutory stock option. Under the Code, certain
restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair
market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option
may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime
only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that
option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate
to shares having an aggregate market value in excess of $100,000, measured at the grant date.
Stock Appreciation Rights: Awards of SARs may be granted alone or in tandem with stock options. SARs provide
the holder with the right, upon exercise, to receive a payment, in cash or shares of stock, having a value equal to the excess of the
fair market value on the exercise date of the shares covered by the award over the exercise price of those shares. Essentially, a holder
of a SAR benefits when the market price of the common stock increases, to the same extent that the holder of an option does, but, unlike
an option holder, the SAR holder need not pay an exercise price upon exercise of the award.
Restricted Stock Awards. A restricted
stock award is a grant of shares of common stock. These awards may be subject to such vesting conditions, restrictions and contingencies
as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement
of specified performance goals. Restricted stock is forfeitable and generally non-transferable until it vests. The vesting date or
dates and other conditions for vesting are established when the shares are awarded. The administrator may remove any vesting or other
restrictions from restricted stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances
arising after the date of grant, such action is appropriate. Holders of restricted stock otherwise generally have the rights of stockholders
of the Company, including voting and dividend rights, to the same extent as other stockholders of the Company.
Restricted Stock Units. A restricted
stock unit is a right to receive stock on a future date, at which time the restricted stock unit will be settled and the stock to which
it granted rights will be issued to the restricted stock unit holder. These awards may be subject to such vesting conditions, restrictions
and contingencies as the administrator shall determine at the date of grant. Restricted stock units are forfeitable and generally non-transferable until
they vest. The administrator may remove any vesting or other restrictions from a restricted stock unit whenever it may determine that,
by reason of changes in applicable laws or other changes in circumstances arising after the date of grant, such action is appropriate.
A restricted stock unit holder has no rights as a stockholder. The administrator may exercise discretion to credit a restricted stock
unit with cash and stock dividends, with or without interest, and distribute such credited amounts upon settlement of a restricted stock
unit, and if the restricted stock unit is forfeited, such dividend equivalents will also be forfeited.
Performance Share Awards and Performance
Compensation Awards: The administrator may grant performance share awards and performance compensation
awards. A performance share means the grant of a right to receive a number of actual shares of common stock or share units based upon
the performance of the Company during a performance period, as determined by the administrator. The administrator may determine the number
of shares subject to the performance share award, the performance period, the conditions to be satisfied to warn an award, and the other
terms, conditions and restrictions of the award. No payout of a performance share award will be made except upon written certification
by the administrator that the minimum threshold performance goal(s) have been achieved.
The administrator may also designate any of the
other awards described above as a performance compensation award (other than stock options and SARs granted with an exercise price equal
to or greater than the fair market value per share of common stock on the grant date). In addition, the administrator shall have the authority
to make an award of a cash bonus to any participant and designate such award as a performance compensation award. The participant must
be employed by the Company on the last day of the performance period to be eligible for payment in respect of a performance compensation
award unless otherwise provided in the applicable award agreement. A performance compensation award will be paid only to the extent that
the administrator certifies in writing whether and the extent to which the applicable performance goals for the performance period have
been achieved and the applicable performance formula determines that the performance compensation award has been earned. A performance
formula means, for a performance period, the one or more objective formulas applied against the relevant performance goal to determine,
with regard to the performance compensation award of a particular participant, whether all, some portion but less than all, or none of
the performance compensation award has been earned for the performance period. The administrator will not have the discretion to grant
or provide payment in respect of a performance compensation award for a performance period if the performance goals for such performance
period have not been attained.
The administrator will establish performance goals
for each performance compensation award based upon the performance criteria that it has selected. The performance criteria shall be based
on the attainment of specific levels of performance of the Company and may include the following: (a) net earnings or net income (before
or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue;
(e) gross profit or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital,
equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital);
(i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements in capital
structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added measurements; (o)
share price (including, but not limited to, growth measures and total stockholder return); (p) expense targets; (q) margins; (r) operating
efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) completion of acquisitions or business expansion;
(w) achieving research and development goals and milestones; (x) achieving product commercialization goals; and (y) other criteria as
may be set by the administrator from time to time.
The administrator will also determine the performance
period for the achievement of the performance goals under a performance compensation award. At any time during the first 90 days of a
performance period (or such longer or shorter time period as the administrator shall determine) or at any time thereafter, in its sole
and absolute discretion, to adjust or modify the calculation of a performance goal for such performance period in order to prevent the
dilution or enlargement of the rights of participants based on the following events: (a) asset write-downs; (b) litigation or claim judgments
or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results;
(d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion
No. 30 (or any successor or pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results
of operations appearing in the Company’s annual report to stockholders for the applicable year; (f) acquisitions or divestitures;
(g) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (h) foreign exchange gains and losses;
and (i) a change in the Company’s fiscal year.
Any one or more of the performance criteria may
be used on an absolute or relative basis to measure the performance of our company, as the administrator may deem appropriate, or as compared
to the performance of a group of comparable companies, or published or special index that the administrator deems appropriate.
In determining the actual size of an individual
performance compensation award, the administrator may reduce or eliminate the amount of the award through the use of negative discretion
if, in its sole judgment, such reduction or elimination is appropriate. The administrator shall not have the discretion to (i) grant
or provide payment in respect of performance compensation awards if the performance goals have not been attained or (ii) increase
a performance compensation award above the maximum amount payable under the Plan.
Other Material Provisions: Awards will be evidenced by a written agreement, in such form as may be approved
by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and
similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding
awards or to the exercise price of such awards. The administrator generally has the power to accelerate the exercise or vesting period
of an award. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the
award in the event of a change of control of our company, including acceleration of vesting or payment of the value of the award in cash
or stock. Except as otherwise determined by the administrator at the date of grant, awards will generally not be transferable, other than
by will or the laws of descent and distribution. Prior to any award distribution, to the extent provided by the terms of an award agreement
and subject to the discretion of the administrator, a participant may satisfy any employee withholding tax requirements relating to the
exercise or acquisition of common stock under an award by tendering a cash payment authorizing the Company to withhold shares of common
stock otherwise issuable to the participant as a result of the exercise or acquisition of common stock under the award (in addition to
the Company’s right to withhold from any compensation paid to the participant by the Company). Our board of directors has the authority,
at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award
or may terminate the Plan as to further grants, provided that no amendment to the Plan will be made, without the approval of our stockholders,
to the extent that such approval is required by law or the rules of an applicable securities exchange, or such alteration or amendment
would change the number of shares available under the Plan or change the persons eligible for awards under the Plan. No amendment to an
outstanding award made under the Plan that would adversely affect the award may be made without the consent of the holder of such award.
Clawback Policy
On November 2, 2023, our board of directors adopted
a Clawback Policy in accordance with applicable NYSE American rules (the “Clawback Policy”). The Clawback Policy provides
that we will recover reasonably promptly the amount of erroneously awarded incentive-based compensation to any current or former executive
officers in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company
with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error
in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period. A copy of the Clawback Policy
has been filed as an exhibit to the registration statement of which this prospectus forms a part.
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
Transactions with Related Persons
The following includes a summary of transactions
since the beginning of our fiscal year ended December 31, 2021, or any currently proposed transaction, in which we were or are to be a
participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end
for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other
than compensation described under “Executive Compensation” above). We believe the terms obtained or consideration that
we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts
that would be paid or received, as applicable, in arm’s-length transactions.
| ● | Certain of our current or former officers, directors, and
stockholders who held or beneficially owned more than 5% of the common stock of the Company at the time of the transaction purchased
shares in our initial public offering on November 16, 2023, at the initial public offering price of $5.00 per share. Virginia Byrd Revocable
Trust, of which Virginia Byrd, a beneficial owner of more than 5% of the common stock of the company, purchased 50,000 shares of common
stock for a purchase price of $250,000; Noah (Jed) Smith, a former director and former holder of more than 5% of the common stock of
the Company, purchased 50,000 shares of common stock for a purchase price of $250,000; Clayton Adams, a former director and former holder
of more than 5% of the common stock of the Company, purchased 50,000 shares of common stock for a purchase price of $250,000; the Nelson
Trust, one of whose co-trustees is Daniel D. Nelson, our Chief Executive Officer, Chairman, and a director of the Company, purchased
20,000 shares of common stock for a purchase price of $100,000; John Dorsey, the second-largest beneficial owner of the common stock
of the Company and a former Chief Executive Officer and director of the Company, purchased 20,000 shares of common stock for a purchase
price of $100,000; Zone Right, a beneficial owner of more than 5% of the shares of common stock of the Company, and the managing member
of which, Glen Kim, is a director of the Company, purchased 20,000 shares of common stock for a purchase price of $100,000. |
| ● | On both August 18, 2023 and September 11, 2023, Clayton Adams,
a former director and a former beneficial owner of more than 5% of the common stock of the Company, was issued a 15% OID promissory note
with principal of $58,824 for gross proceeds of $50,000 each. The principal under the 15% OID promissory notes accrues 5% interest annually,
and principal and interest under the notes must be repaid by December 31, 2023. The notes could be prepaid without a premium or penalty.
On November 20, 2023, the Company repaid the aggregate balance of $117,648 under the two 15% OID promissory notes. |
| ● | On July 23, 2023, the Company issued a promissory note in
the amount of $130,000 to Daniel Nelson. Mr. Nelson is the Chief Executive Officer, Chairman and director of the Company. The promissory
note provided for 6% interest and maturity date of July 23, 2024 subject to acceleration upon the Company’s first equity financing,
or issuance of any debt convertible into equity, following the date of the promissory note. The amount could be prepaid at any time.
As of November 22, 2023, the balance of $130,000 was repaid. Mr. Nelson waived all interest owed under the promissory note. |
| ● | Under a Secondary Stock Purchase Agreement, dated June 28,
2023, between Clayton Adams, a former director and a former beneficial owner of more than 5% of the common stock of the Company, and
Matthew Atkinson, a former director and a former beneficial owner of more than 5% of the issued and outstanding shares of the Company,
Mr. Adams agreed to purchase 333,000 shares of common stock from Mr. Atkinson for $250,000. The Company consented to the sale and waived
the application of the Company’s rights of first refusal under the Shareholder Agreement, to which Mr. Adams and Mr. Atkinson were
parties. |
| ● | Under a Securities Purchase Agreement, dated June 19, 2023,
between Clayton Adams, a former director and a former beneficial owner of more than 5% of the common stock of the Company, and Kimsey
Ventures LLC (“Kimsey Ventures”), Mr. Adams agreed to sell 100,000 shares of common stock to Kimsey Ventures for $250,000.
The Company consented to the sale and waived the application of the Company’s rights of first refusal under the Shareholder Agreement,
to which Mr. Adams was a party. Pursuant to the requirements of the Shareholder Agreement, Kimsey Ventures also agreed to become a party
to the Shareholder Agreement. |
| ● | On April 10, 2023, the Company issued Richard Symington,
our President, Chief Technology Officer and a director, an 8% unsecured promissory note in the amount of $250,000 and a warrant to purchase
100,000 shares of common stock at an exercise price of $2.50 per share in a private placement. The promissory note incurred interest
at 8% annually and was to mature on the earlier to occur of March 17, 2025 or a Liquidity Event (defined in the same manner as “Alternative
Liquidity Event,” except such term also applies to an initial public offering and national stock exchange listing of the common
stock). If a Liquidity Event occurred before March 17, 2025, the warrant would be automatically exercised as to the unexercised portion
of the warrant, the outstanding balance due under the 8% unsecured promissory note would be deemed repaid in the amount of the unexercised
portion of the warrant from the automatic exercise of the unexercised portion of the warrant, and any remaining balance outstanding under
the promissory note must be repaid in cash. If a Liquidity Event had not occurred before March 17, 2025, then both principal and interest
outstanding under the note would be required to be repaid in cash. The warrant was voluntarily exercisable for cash prior to the maturity
date of the promissory note or, as indicated above, would be automatically exercised for shares of common stock upon the consummation
of a Liquidity Event. The warrant had a five-year term. Mr. Symington also entered into a subscription agreement which provided certain
registration rights with respect to the shares underlying the warrant. On November 16, 2023, in connection with the closing of the Company’s
initial public offering and listing of the common stock on the NYSE American, Mr. Symington’s warrant was automatically exercised
to purchase a total of 100,000 shares of common stock for $2.50 per share, and the principal balance
under the promissory notes became immediately due and was deemed repaid in the amount of the aggregate exercise price for the automatic
exercise of the unexercised portion of the warrant. The shares of common stock issued upon automatic exercise of the warrants were registered
for resale upon issuance pursuant to the IPO Registration Statement, and may be resold by means of the Final Resale Prospectus. A total
of $11,836 in accrued unpaid interest was due and payable on the promissory note as of November
16, 2023. |
| ● | Under the terms of the Repurchase Agreement, on March 31,
2023, we paid an aggregate purchase price of $800,000 for 600,000 shares of common stock formerly held by Dennis Gile, our largest stockholder
and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, at approximately $1.33 per share.
Pursuant to the Repurchase Agreement, the Dorsey/Gile Settlement Payment was made to John Dorsey, the second-largest beneficial owner
of our common stock and a former Chief Executive Officer and director of the Company, as part of the settlement of the Dorsey/Gile Lawsuit
under the Dorsey/Gile Settlement Agreement. Pursuant to the Repurchase Agreement, the balance of the aggregate purchase price was paid
to the attorneys for Mr. Gile. Pursuant to the Repurchase Agreement, Mr. Gile agreed to resign his position as Chairman and every other
director and officer position he held with the Company effective as of March 21, 2023. Prior to such date, on March 20, 2023, Mr. Gile
delivered notice of resignation from such positions, which stated that it was effective March 19, 2023. Pursuant to the Repurchase Agreement,
Mr. Gile will not receive any severance payments in connection with any other agreement with the Company as a result of his resignation.
The Repurchase was also conditioned on the Company’s prior review of and consent to the Dorsey/Gile Settlement Agreement prior
to its execution, and receipt of the CFO Certificate. Under the Repurchase Agreement, the Dorsey/Gile Settlement Agreement was required
to fully resolve, settle and dismiss the Dorsey/Gile Lawsuit and contain a general release of claims by all the plaintiffs in the Dorsey/Gile
Lawsuit in favor of Mr. Gile, the Company, the Company’s affiliates, stockholders, and certain other Company releasees. Under the
Repurchase Agreement, Mr. Gile agreed to indemnify the Company for claims arising out of or based upon the Repurchase Agreement. Pursuant
to the Repurchase Agreement, a copy of the Dorsey/Gile Settlement Agreement was reviewed and consented to by the Company and entered
into as of March 20, 2023. Under the Dorsey/Gile Settlement Agreement, between Mr. Gile, Mr. Dorsey, and Dorsey LLC, Mr. Gile agreed
to pay the Dorsey/Gile Settlement Payment, transfer 40,000 shares of the Company to Mr. Dorsey. The Company consented to the transfer
and waived the application of the Company’s rights of first refusal under the Shareholder Agreement, to which Mr. Gile was a party.
Pursuant to the requirements of the Shareholder Agreement, Mr. Dorsey also agreed to become a party to the Shareholder Agreement. Mr.
Gile, Mr. Dorsey and Dorsey LLC agreed to mutual releases of all claims relating to the Dorsey/Gile Lawsuit and to dismiss the Dorsey/Gile
Lawsuit. Although the Dorsey/Gile Settlement Agreement did not contain a release of the Company and did not contain releases by the plaintiffs
of Mr. Gile other than with respect to the Dorsey/Gile Lawsuit, the Company waived any related requirements under the Repurchase Agreement
in light of the expected execution of the Mutual Release Agreement. The CFO Certificate was received as of March 21, 2023. The repurchased
shares were cancelled as of March 31, 2023. The transfer of 40,000 shares by Mr. Gile to Mr. Dorsey occurred on April 4, 2023, after
waiver of the board of directors of the repurchase rights and purchase rights provided for under the Shareholder Agreement by resolutions
adopted on March 24, 2023. |
| ● | Under the Mutual Release Agreement, as of March 29, 2023,
Mr. Dorsey agreed to a general release of claims against and covenant not to sue the Company, the Company’s affiliates, stockholders,
and certain other Company releasees, and the Company agreed to a general release of claims against and covenant not to sue Mr. Dorsey,
Mr. Dorsey’s affiliates, and certain other releasees, subject to payment of the Dorsey/Gile Settlement Payment, which, as indicated
above, was made on March 31, 2023. The releases of claims and covenants not to sue under the Mutual Release Agreement do not apply to
breach of the Dorsey/Gile Settlement Agreement or to the January 2023 Dorsey Settlement Agreement. |
| ● | On March 17, 2023, the Company issued a promissory note in
the amount of $10,000 to Daniel Nelson. Daniel Nelson is the Chief Executive Officer, Chairman and director of the Company. The promissory
note provided for 6% interest and maturity date of March 17, 2024 subject to acceleration upon the Company’s first equity financing,
or issuance of any debt convertible into equity, following the date of the promissory note. The amount was permitted to be prepaid at
any time. The approximate dollar value of Mr. Nelson’s interest in this transaction was approximately $10,000, plus accrued interest.
On November 16, 2023, in connection with the closing of the Company’s initial public offering, the promissory note matured and
became due. As of November 16, 2023, the balance due under the Nelson Note was $10,263 and was
fully repaid as of November 22, 2023. |
| ● | On March 8, 2023, the Company issued a promissory note in
the amount of $95,000 to Nelson Financial Services Inc. Daniel Nelson is the Chief Executive Officer and sole owner of Nelson Financial
Services Inc. and the Chief Executive Officer, Chairman and director of the Company. The promissory note provided for 6% interest and
maturity date of March 1, 2024 subject to acceleration upon the Company’s first equity financing, or issuance of any debt convertible
into equity, following the date of the promissory note. The amount was permitted to be prepaid at any time. As Chief Executive Officer
and sole owner of Nelson Financial Services Inc., the approximate dollar value of Mr. Nelson’s interest in this transaction was
approximately $95,000, plus accrued interest. On October 10, 2023, the balance of $97,670 was fully repaid. |
| ● | On March 1, 2023, the Company issued a promissory note in
the amount of $75,000 to Nelson Financial Services Inc. Daniel Nelson is the Chief Executive Officer and sole owner of Nelson Financial
Services Inc. and the Chief Executive Officer, Chairman and director of the Company. The promissory note provided for 6% interest and
maturity date of March 1, 2024 subject to acceleration upon the Company’s first equity financing, or issuance of any debt convertible
into equity, following the date of the promissory note. At maturity, the balance due under the note must be repaid within ten days. The
amount may be prepaid at any time. As Chief Executive Officer and sole owner of Nelson Financial Services Inc., the approximate dollar
value of Mr. Nelson’s interest in this transaction was approximately $75,000, plus accrued interest. The promissory note was fully
repaid on May 18, 2023. |
| ● | On July 11, 2022, the Company issued a promissory note in
the amount of $35,000 to Dennis Gile. Mr. Gile is our largest stockholder and a former Chief Executive Officer, President, Secretary,
Chairman, and director of the Company. The promissory note provides for 6% interest and maturity date of July 11, 2023 subject to acceleration
upon the Company’s first equity financing, or issuance of any debt convertible into equity, following the date of the promissory
note. At maturity, the balance due under the note must be repaid within ten days. The amount may be prepaid at any time. Due to a subsequent
issuance of debt convertible into equity on August 8, 2022, the maturity date of the promissory note was accelerated to August 8, 2022.
Repayment was not made within ten days of that date. The promissory note provides that default interest under the promissory note accrues
at the lesser of 12% or the maximum permitted by law until the default is cured. The promissory note was repaid on April 6, 2023 with
accrued interest not including default interest. Mr. Gile did not demand repayment or exercise any remedies under the promissory note
prior to such repayment and has not indicated any intent to do so. The approximate dollar value of Mr. Gile’s interest in this
transaction was approximately $35,000, plus accrued interest. |
| ● | On July 11, 2022, the Company issued a promissory note in
the amount of $35,000 to Daniel Nelson. Mr. Nelson is Chief Executive Officer, Chairman and director of the Company. The promissory note
provided for 6% interest and maturity date of July 11, 2023 subject to acceleration upon the Company’s first equity financing,
or issuance of any debt convertible into equity, following the date of the promissory note. At maturity, the balance due under the note
was required to be repaid within ten days. The amount was permitted to be prepaid at any time. Due to a subsequent issuance of debt convertible
into equity on August 8, 2022, the maturity date of the promissory note was accelerated to August 8, 2022. Repayment was not made within
ten days of that date. The promissory note provided that default interest under the promissory note accrues at the lesser of 12% or the
maximum permitted by law until the default is cured. Mr. Nelson agreed to extend the maturity date to the closing of the initial public
offering and waive payment of any default interest. The approximate dollar value of Mr. Nelson’s interest in this transaction was
approximately $35,000, plus accrued interest. On October 10, 2023, the balance of $37,635 was fully repaid. |
| ● | Under our Settlement Agreement with Dennis Gile, our largest
stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, dated as of May 12, 2022,
the parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain
other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims
relating to Mr. Gile’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Mr. Gile’s
direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable,
provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or Mr. Gile may have under
the terms of the Severance Agreement, including the releases of any and all claims against the Company and certain related parties as
contained therein, Mr. Gile’s agreement to be terminated effective on January 1, 2022 and receive a severance payment of $53,500
pursuant to Section 1 of the Severance Agreement, paid in March 2022, all of which terms were to remain in force notwithstanding the
provisions of the Settlement Agreement. Further, Mr. Gile irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that Mr. Gile believed should have been
paid or were owed to Mr. Gile by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also
agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to
ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future,
or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization
table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Gile owned 2,816,377 shares of common
stock pursuant to the Settlement Agreement. Mr. Gile also irrevocably covenanted that he would not sue the Company or the other released
parties in respect of any of the matters released and discharged. Notwithstanding the Severance Agreement referenced above, Mr. Gile
has not had a written employment agreement with the Company, has not been terminated, and has not received a salary since 2021, but has
continued to receive standard employee benefits on a monthly basis. |
| ● | Under our Settlement Agreement with Dorsey LLC, John Dorsey,
in his individual capacity, formerly Chief Executive Officer and a director of the Company, and his spouse, Elena Dorsey, to the extent
of such spouse’s community property interest, if any (together, “Dorsey”), dated as of April 25, 2022, the parties
agreed, among other things, (1) that Dorsey had held 959,940 shares of SDS Inc. – DE’s common stock at that time, (2) that
prior to the anticipated redomestication of SDS LLC – AZ to Delaware as a Delaware limited liability company and conversion to
a Delaware corporation, Dorsey was a member of SDS LLC – AZ and was a party to SDS LLC – AZ’s Fourth Amended Limited
Liability Company Operating Agreement dated July 16, 2021 (the “SDS LLC – AZ Operating Agreement”), (3) that the SDS
LLC – AZ Operating Agreement provided Dorsey, among other things, certain anti-dilution protections whereby SDS LLC – AZ
would have been required to issue additional equity to Dorsey if SDS LLC – AZ were to have issued additional equity which would
have the effect of reducing Dorsey’s ownership below 11% of SDS LLC – AZ’s outstanding equity (the “Dorsey Anti-Dilution
Provision”), (4) that on April 25, 2022, Dorsey LLC would receive a total of 350,000 shares of common stock of SDS Inc. –
DE in exchange for Dorsey’s cancellation, waiver, and release of all of Dorsey’s rights under the Dorsey Anti-Dilution Provision
in the SDS LLC – AZ Operating Agreement, (5) to a general release and discharge of claims against us, our officers and directors,
certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation,
claims relating to the Dorsey Anti-Dilution Provision, Dorsey’s direct or indirect ownership of shares of SDS Inc. – DE’s
capital stock, or Dorsey’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that
any party or Dorsey may have under the terms of that certain Offer of Employment between John Dorsey and SDS LLC – AZ, dated January
13, 2022, or that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus,
the Company has no agreements with Dorsey otherwise relating to, and has not issued to Dorsey, any simple agreement for future equity
or convertible note. Further, Dorsey irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released
and waived their rights to any claim, distributions, payments, or other amounts that Dorsey believed should have been paid or were owed
to Dorsey by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to
make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests
in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent,
and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Dorsey LLC owned 1,309,940 shares of common stock pursuant
to the Settlement Agreement. Dorsey also irrevocably covenanted that they would not sue us or the other released parties in respect of
any of the matters released and discharged. Mr. Dorsey is deemed to beneficially own the shares of common stock owned by Dorsey LLC and
has sole voting and dispositive power over its shares. |
| ● | On or about November 29, 2022, John Dorsey, a former Chief
Executive Officer and director of the Company, through his counsel, sent the Company a letter demanding full payment on the Alleged Loan
in connection with the Loan Dispute. Under the January 2023 Dorsey Settlement Agreement, Mr. Dorsey agreed to a discharge of the Alleged
Loan and waiver and release of claims relating to the Alleged Loan and Loan Dispute and covenant not to sue on the basis of such claims
or otherwise commence any action or proceeding that would be inconsistent with the release of such claims. The Company agreed to pay
Mr. Dorsey $10,000 and issue a promissory note to Mr. Dorsey in the principal amount of $40,000 payable on the earlier of ten business
days following the successful closing of an initial public offering of the Company’s common stock that generates at least $1 million
in net proceeds to the Company or July 1, 2023. Mr. Dorsey orally waived enforcement of the repayment obligation until the tenth day
following the consummation of the Company’s initial public offering. The net balance of this promissory note was $40,000 as of
September 30, 2023. On November 16, 2023, in connection with the closing of the Company’s initial public offering, the balance
of $40,000 became due and payable within ten days. The balance was fully repaid as of November 22, 2023. |
| ● | Under our Settlement Agreement with Noah (Jed) Smith, a former
director and a former beneficial owner of more than 5% of the outstanding common stock of the Company, and his spouse, Glory Smith, to
the extent of such spouse’s community property interest, if any (together, “Smith”), dated as of May 13, 2022, the
parties agreed, among other things, (1) that Dennis Gile, the founder of SDS LLC – AZ, our largest stockholder, and a former Chief
Executive Officer, President, Secretary, and Chairman of the Company, agreed and contracted to fulfill certain obligations to Smith,
including, but not limited to, granting a profits interest that was intended to be a membership interest in SDS LLC – AZ as well
as a percentage of future profits from the operations or sale of SDS LLC – AZ, pursuant to that certain Contribution and Profit-Sharing
Agreement between Mr. Gile and Smith, dated April 5, 2019, as amended by that certain First Amendment to Contribution and Profit-Sharing
Agreement dated December 9, 2019, and that certain Second Amendment to Contribution and Profit-Sharing Agreement dated August 21, 2020,
all attached as an exhibit to the Settlement Agreement (collectively, the “Smith Contribution and Profit-Sharing Agreement”),
(2) that Mr. Smith held 300,000 shares of common stock in SDS Inc. – DE in exchange for Smith’s previous contributions to
SDS LLC – AZ, (3) that on May 13, 2022, Mr. Smith would receive an additional 100,000 shares of common stock of SDS Inc. –
DE in exchange for the termination of Smith’s rights under the Smith Contribution and Profit-Sharing Agreement, (4) that following
such receipt of such additional shares, Mr. Smith would have a total of 400,000 shares of common stock, and (5) to a general release
and discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as
listed on an exhibit to the agreement, including without limitation, claims relating to the Smith Contribution and Profit-Sharing Agreement,
Smith’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Smith’s direct or indirect
ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however,
that nothing in the Settlement Agreement was intended to release any rights that any party or Smith may have under that certain Simple
Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, the Company has no agreements
with Smith otherwise relating to, and has not issued to Smith, any simple agreement for future equity or convertible note. Further, Smith
irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived their rights to any
claim, distributions, payments, or other amounts that Smith believed should have been paid or were owed to Smith by SDS LLC – AZ,
SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding
regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
to forever release and waive any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC –
DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not
own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement.
The parties therefore agreed that Mr. Smith owned 400,000 shares of common stock pursuant to the Settlement Agreement. Smith also irrevocably
covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged. |
| ● | Under our Settlement Agreement with Virginia Byrd, an individual,
and Byrd Enterprises of Arizona, Inc., an Arizona corporation (“Byrd Enterprises”), dated as of May 13, 2022 (together, “Byrd”),
the parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain
other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims
relating to Byrd’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Byrd’s direct
or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Byrd may have under that certain
Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, the Company has no agreements
with Byrd otherwise relating to, and has not issued to Byrd, any simple agreement for future equity or convertible note. Further, Byrd
irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived their rights to any
claim, distributions, payments, or other amounts that Byrd believed should have been paid or were owed to Byrd by SDS LLC – AZ,
SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding
regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
to forever release and waive any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC –
DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not
own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement.
The parties therefore agreed that Byrd Enterprises owned 767,785 shares of common stock pursuant to the Settlement Agreement. Byrd also
irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged. |
| ● | On November 15, 2021, the Company issued a 6% convertible
unsecured promissory note in the amount of $565,000 to Zone Right, a beneficial owner of more than 5% of the shares of common stock of
the Company, in a private placement. Glen Kim, a director of the Company and the managing member of Zone Right, is deemed to beneficially
own the shares of common stock owned by Zone Right and has sole voting and dispositive power over its shares. The convertible note incurred
interest at 6% annually and was to mature on November 15, 2024. The convertible note contained provisions for optional and mandatory
conversion and conversion price adjustments. Upon conversion, any interest accrued under the convertible note was to be waived. On November
13, 2023, the Company issued a settlement notice to the holders of the 6% convertible unsecured promissory notes undertaking to effect
conversions as if 110% of the principal being converted was being converted. Zone Right also entered into a subscription agreement and
investor rights and lockup agreement which provided information and inspection rights, registration rights, lock-up provisions, participation
rights in subsequent securities offerings and private placements, and typical “drag along” and “tag along” rights.
See “Description of Securities – 6% Convertible Unsecured Promissory Notes” for a further description of the
terms of the convertible note and related agreements. On November 16, 2023, the closing of the
Company’s initial public offering and the listing of its common stock on the NYSE American constituted a Liquidity Event with respect
to the convertible note. As a result, on November 16, 2023, the principal of $565,000 outstanding
under the convertible note automatically converted into a total of 248,600 shares of common stock, based on the conversion price of 50%
of the initial public offering price of $5.00 per share, in accordance with the settlement notice described above,
and the interest under the convertible note was waived in accordance with its terms. |
| ● | Under our Settlement Agreement with Zone Right, Mr. Kim,
a director of the Company, and his spouse, Jessica Lee, to the extent of such spouse’s community property interest, if any, dated
as of April 26, 2022 (the “Zone Right Parties”), the parties agreed, among other things, to a general release and discharge
of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed on an
exhibit to the agreement, including without limitation, claims relating to the Zone Right Parties’ direct or indirect ownership
of shares of SDS Inc. – DE’s capital stock, or the Zone Right Parties’ direct or indirect ownership of membership interests
of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement
was intended to release any rights that any party or the Zone Right Parties may have under that certain Simple Agreement for Future Equity
and/or Convertible Note, as applicable. As of the date of this prospectus, other than as otherwise disclosed above, the Company has no
agreements with the Zone Right Parties otherwise relating to, and has not issued to the Zone Right Parties, any Simple Agreement for
Future Equity or convertible note. Further, the Zone Right Parties irrevocably, unconditionally, voluntarily, knowingly, fully, finally,
and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that the Zone Right Parties
believed should have been paid or were owed to the Zone Right Parties by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of
SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Zone Right owned 483,833 shares of common stock pursuant to the Settlement Agreement. The Zone Right Parties also irrevocably
covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged. Glen Kim
is deemed to beneficially own the shares of common stock owned by Zone Right and has sole voting and dispositive power over its shares. |
| ● | Under a lease agreement dated as of October 7, 2021 and an
addendum dated the same date, we leased our former corporate offices consisting of approximately 7,800 square feet for a term of five
years beginning January 1, 2022 and ending December 31, 2026 for a monthly rent of $20,800 plus tax and certain operating expenses, with
an increase of 3% at the beginning of every calendar year following the first year of the term of the lease agreement through January
2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411. The office space was owned by John Dorsey, a former
chief executive officer and director of the Company. On August 31, 2022, we entered into a Lease Termination Agreement in which both
parties agreed to terminate the lease and release each other from all future obligations. The total approximate dollar value of this
transaction was $420,992 plus tax and certain operating expenses. The approximate dollar value
of the interest of Mr. Dorsey in this transaction was $420,992. |
| ● | On August 7, 2021, SDS LLC – AZ agreed to issue Clayton
Adams, a former director and a former beneficial owner of more than 5% of the common stock of the Company, 4.3% of its membership interests
in a private placement for total proceeds of $250,000 under a membership interest purchase agreement. The agreement stated that SDS LLC
– AZ intended to convert into a corporation in connection with a going public transaction by way of an initial public offering
or reverse merger (“Going Public Transaction”), and that the membership interest would be converted into or exchanged for
shares of common stock in connection with the Going Public Transaction. The agreement indicates that the number of shares of common stock
that Mr. Adams would hold upon an initial public offering would be 363,274 shares of common stock. Under the agreement, SDS LLC –
AZ reserved the right to reduce Mr. Adams’ membership interest from the pre-Going Public Transaction valuation of our most recent
SAFE round of $42,000,000. The parties also agreed that, notwithstanding the foregoing, the membership interest would not be adjusted
based on the final capital structure following a Going Public Transaction. |
| ● | Under our Settlement Agreement with Clayton Adams, a former
director and a former beneficial owner of more than 5% of the common stock of the Company, dated as of May 3, 2022, the parties agreed,
among other things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates and
related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to Mr.
Adams’ direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Mr. Adams’ direct or indirect
ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however,
that nothing in the Settlement Agreement was intended to release any rights that any party or Mr. Adams may have under that certain Simple
Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, the Company has no agreements
with Mr. Adams otherwise relating to, and has not issued to Mr. Adams, any simple agreement for future equity or convertible note. Further,
Mr. Adams irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived their rights
to any claim, distributions, payments, or other amounts that Mr. Adams believed should have been paid or were owed to Mr. Adams by SDS
LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was
a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully,
finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed
that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an
exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Adams owned 363,274 shares of common stock pursuant to the
Settlement Agreement. Mr. Adams also irrevocably covenanted that they would not sue us or the other released parties in respect of any
of the matters released and discharged. |
| ● | On July 21, 2022, the date that Clayton Adams, a former director
and a former beneficial owner of more than 5% of the common stock of the Company, was appointed as a member of our board of directors,
Mr. Adams agreed to provide $100,000 in financing to the Company. As noted above, on both August 18, 2023 and September 11, 2023, Mr.
Adams was issued a 15% OID promissory note with principal of $58,824 for gross proceeds of $50,000 each. The principal under the 15%
OID promissory notes accrues 5% interest annually, and principal and interest under the notes must be repaid by December 31, 2023. The
notes may be prepaid without a premium or penalty. Mr. Adams resigned from his position on the board of directors effective April 27,
2023. |
| ● | On August 9, 2021, SDS LLC – AZ agreed to issue Matthew
Atkinson, a former director and a former beneficial owner of more than 5% of the issued and outstanding shares of the Company, 4.3% of
its membership interests in a private placement for total proceeds of $250,000 under a membership interest purchase agreement. The agreement
stated that SDS LLC – AZ intended to convert into a corporation in connection with a Going Public Transaction, and that the membership
interest would be converted into or exchanged for shares of common stock in connection with the Going Public Transaction. The agreement
indicates that the number of shares of common stock that Mr. Atkinson would hold upon an initial public offering would 363,274 shares
of common stock. Under the agreement, SDS LLC – AZ reserved the right to reduce Mr. Atkinson’s membership interest from the
pre-Going Public Transaction valuation of the Company’s most recent SAFE round of $42,000,000. The parties also agreed that, notwithstanding
the foregoing, the membership interest would not be adjusted based on the final capital structure following a Going Public Transaction. |
| ● | Under our Settlement Agreement with Mr. Atkinson and his
spouse, Penny Atkinson, to the extent of such spouse’s community property interest, if any (together, “Atkinson”),
dated as of May 13, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers
and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including
without limitation, claims relating to Atkinson’s direct or indirect ownership of shares of SDS Inc. – DE’s capital
stock, or Atkinson’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC,
or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party
or Atkinson may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of
this prospectus, the Company has no agreements with Atkinson otherwise relating to, and has not issued to Atkinson, any simple agreement
for future equity or convertible note. Further, Atkinson irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that Atkinson believed should have been
paid or were owed to Atkinson by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also
agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to
ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future,
or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization
table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Atkinson owned 383,274 shares of common
stock pursuant to the Settlement Agreement. Atkinson also irrevocably covenanted that they would not sue us or the other released parties
in respect of any of the matters released and discharged. |
| ● | Under our Settlement Agreement with 35’sNextChapters,
LLC (“35’sNextChapters”), dated as of May 13, 2022, the parties agreed, among other things, to a general release and
discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed
on an exhibit to the agreement, including without limitation, claims relating to 35’sNextChapters’ direct or indirect ownership
of shares of SDS Inc. – DE’s capital stock, or 35’sNextChapters’ direct or indirect ownership of membership interests
of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement
was intended to release any rights that any party or 35’sNextChapters may have under the terms of that certain Invitation to Join
the Board of Directors between Ronald Saslow and the Company or that certain Simple Agreement for Future Equity and/or Convertible Note,
as applicable. As of the date of this prospectus, the Company has no agreements with 35’sNextChapters otherwise relating to, and
has not issued to 35’sNextChapters, any convertible note or Invitation to Join the Board of Directors between Ronald Saslow and
the Company. Further, 35’sNextChapters irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever
released and waived their rights to any claim, distributions, payments, or other amounts that 35’sNextChapters believed should
have been paid or were owed to 35’sNextChapters by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. –
DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE,
irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they
may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE,
whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond
that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that 35’sNextChapters
owned 150,000 shares of common stock pursuant to the Settlement Agreement. 35’sNextChapters also irrevocably covenanted that they
would not sue us or the other released parties in respect of any of the matters released and discharged. Ronald Saslow, a former director
of the Company, as Manager of 35’sNextChapters, is deemed to beneficially own the shares of common stock owned by 35’sNextChapters
and has sole voting and dispositive power over its shares. |
| ● | In July 2021, we issued a SAFE to 35’sNextChapters,
whose Manager, Ronald Saslow, is a former director of the Company, and is deemed to beneficially own the securities and interests in
securities owned by 35’sNextChapters and has sole voting and dispositive power over its securities. In October 2022, we entered
into a cancellation and exchange agreement with 35’sNextChapters in which we agreed to cancel its SAFE in exchange for the issuance
of 74,627 shares of common stock. The number of shares was equal to the purchase amount under the SAFE divided by approximately $3.35,
based on a $25 million valuation for the Company. |
| ● | In April 2021, we issued a SAFE to the Nelson Trust, one
of whose co-trustees is Daniel D. Nelson, our Chief Executive Officer, Chairman, and a director of the Company, in exchange for a payment
of $100,000. See “Description of Securities – SAFEs” for a further description of the terms of the SAFE. In
October 2022, we entered into a cancellation and exchange agreement with the Nelson Trust in which we agreed to cancel its SAFE in exchange
for the issuance of 29,851 shares of common stock. The number of shares was equal to the purchase amount under the SAFE divided by approximately
$3.35, based on a $25 million valuation for the Company. |
| ● | On October 15, 2021, the Company issued a 6% convertible
unsecured promissory note in a private placement in the amount of $1,500,000 to the Nelson Trust, whose co-trustees are Daniel D. Nelson,
our Chief Executive Officer, Chairman, and a director of the Company, and Jodi B. Nelson. The convertible note incurred interest at 6%
annually and was to mature on October 15, 2024. The convertible note contained provisions for optional and mandatory conversion and conversion
price adjustments. On November 13, 2023, the Company issued a settlement notice to the holders of the 6% convertible unsecured promissory
notes undertaking to effect conversions as if 110% of the principal being converted was being converted. The Nelson Trust also entered
into a subscription agreement and investor rights and lockup agreement which provided information and inspection rights, registration
rights, lock-up provisions, participation rights in subsequent securities offerings and private placements, and typical “drag along”
and “tag along” rights. See “Description of Securities – 6% Convertible Unsecured Promissory Notes”
for a further description of the terms of the convertible note and related agreements. On November
16, 2023, the closing of the Company’s initial public offering and the listing of its common stock on the NYSE American constituted
a Liquidity Event with respect to the convertible note. As a result, on November 16, 2023, the principal of $1,500,000 outstanding
under the convertible note automatically converted into a total of 660,000 shares of common stock, based on the conversion price of 50%
of the initial public offering price of $5.00 per share, in accordance with the settlement notice described above, and the interest under
the convertible note was waived in accordance with its terms. |
| ● | In April 2022, Nelson Financial Services Inc. became the
insurance agent providing group benefits for the Company. Total dollar benefits provided to the Company under the group benefits plan
in 2022 and 2023 were approximately $48,374 and $138,470, respectively. Total dollar payments to Nelson Financial Services Inc. in 2022
and 2023 under the group benefits plan were approximately $2,790 and $4,771, respectively. As Chief Executive Officer and sole owner
of Nelson Financial Services Inc., the approximate dollar value of Mr. Nelson’s interest in this transaction was approximately
$2,790 and $4,771 in 2022 and 2023, respectively. |
Promoters and Certain Control Persons
Each of Dennis Gile, our largest stockholder and
a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, and John Dorsey, the second-largest beneficial
owner of our common stock and a former Chief Executive Officer and director of the Company, may be deemed a “promoter” as
defined by Rule 405 of the Securities Act. For information regarding compensation and other items of value that have been provided or
that may be provided to these individuals, please refer to “Executive Compensation” and “Certain Relationships
and Related Party Transactions – Transactions with Related Persons”.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information
with respect to the beneficial ownership of our common stock as of the date of this prospectus for (i) each of our named executive officers,
other executive officers, directors and director nominees; (ii) all of our executive officers and directors as a group; and (iii) each
other stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock.
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 common stock that such person or any member of such group
has the right to acquire within sixty (60) days of the date of this prospectus. For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons named below, any shares that such person or persons has the right to
acquire within sixty (60) days of the date of this prospectus are deemed to be outstanding for such person, but not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned
does not constitute an admission of beneficial ownership by any person.
Unless otherwise indicated, the address of each
beneficial owner listed in the table below is c/o Signing Day Sports, Inc., 8355 East Hartford Rd., Suite 100, Scottsdale, AZ 85255.
Title
of Class | |
Name of Beneficial Owner | |
Amount and
Nature of
Beneficial
Ownership | | |
Percent
of
Class (%)(1) | |
Common Stock | |
Daniel D. Nelson, Chief Executive Officer, Chairman, and Director | |
| 819,851 | (2) | |
| 5.8 | |
- | |
Damon Rich, Interim Chief Financial Officer | |
| - | | |
| - | |
Common Stock | |
David O’Hara, Chief Operating Officer and Secretary | |
| 196,406 | (3) | |
| 1.4 | |
Common Stock | |
Richard Symington, President, Chief Technology Officer, and Director | |
| 100,000 | | |
| 0.7 | |
Common Stock | |
Glen Kim, Director | |
| 757,433 | (4) | |
| 5.4 | |
Common Stock | |
Roger Mason Jr., Director | |
| 12,000 | (5) | |
| * | |
Common Stock | |
Greg Economou, Director | |
| 6,000 | (6) | |
| * | |
Common Stock | |
All directors and executive officers (7 persons) | |
| 1,891,690 | | |
| 13.6 | % |
Common Stock | |
Dennis Gile(7) | |
| 2,176,377 | | |
| 15.6 | |
Common Stock | |
Dorsey Family Holdings, LLC(8) | |
| 1,309,940 | | |
| 9.4 | |
Common Stock | |
John Dorsey(9) | |
| 1,369,940 | (9) | |
| 9.8 | |
Common Stock | |
Byrd Enterprises of Arizona, Inc.(10) | |
| 767,785 | | |
| 5.5 | |
Common Stock | |
Virginia Byrd(11) | |
| 817,785 | | |
| 5.8 | |
Common Stock | |
Zone Right, LLC(12) | |
| 752,433 | (12) | |
| 5.4 | |
Common Stock | |
The Nelson Revocable Living Trust(13) | |
| 709,851 | | |
| 5.1 | |
Common Stock | |
Jodi B. Nelson(14) | |
| 819,851 | (14) | |
| 5.8 | |
* | Non-officer director beneficially owning less than 1% of
the shares of the Company’s common stock. |
| (1) | Based on 13,958,847 shares of common stock issued and outstanding as
of the date of this prospectus.
|
| (2) | The shares of common stock beneficially owned consist of (i) 709,851 shares of common stock held by the
Nelson Trust, (ii) 5,000 shares of common stock issuable upon the exercise of an option held by
Daniel D. Nelson, (iii) 30,000 shares of common stock issuable upon the exercise of an option
held by Daniel D. Nelson, and (iv) 75,000 shares of common stock issuable
upon the exercise of an option held by Daniel D. Nelson within 60 days of the date of this
prospectus. Daniel D. Nelson and Jodi B. Nelson, who is the spouse of Mr. Nelson, are the co-trustees of the Nelson Trust. Mr. Nelson
is deemed to beneficially own the shares of common stock beneficially owned by the Nelson Trust and have shared voting and dispositive
power with Ms. Nelson over its shares. Mr. Nelson also has shared voting and dispositive power with Ms. Nelson over the shares of common
stock that may be purchased by exercise of Mr. Nelson’s stock options. |
| (3) | Consists of (i) 90,000 shares of common stock, (ii) 15,938 shares of common stock issuable upon exercise
of an option within 60 days of the date of this prospectus, (iii) 15,469 shares of common stock issuable upon exercise of an option within
60 days of the date of this prospectus, and (iv) 75,000 shares of common stock issuable upon the
exercise of an option within 60 days of the date of this prospectus. |
| (4) | Consists of (i) 752,433 shares of common stock held by Zone Right and (ii) 5,000 shares of common stock
issuable upon exercise of an option held by Glen Kim. Mr. Kim is the managing member of Zone
Right. Mr. Kim is deemed to beneficially own the shares of common stock beneficially owned by Zone Right and has voting and dispositive
power over its shares. |
| (5) | Consists of 12,000 shares of common stock issuable upon the exercise of an option within
60 days of the date of this prospectus. |
| (6) | Consists of 6,000 shares of common stock issuable upon the exercise of an option within
60 days of the date of this prospectus. |
| (7) | Dennis Gile’s last known address is 4010 E. Leland St., Mesa,
AZ 85215. |
| (8) | John Dorsey, a former officer and director of the Company, is the manager of Dorsey LLC. Mr. Dorsey is
deemed to beneficially own the shares of common stock beneficially owned by Dorsey LLC and has voting and dispositive power over its shares.
Dorsey LLC’s last known address is 18690 N. 101st Pl., Scottsdale, AZ 85255. |
| (9) | The shares of common stock beneficially owned consist of 1,309,940 shares of common stock held by Dorsey
LLC and 60,000 shares of common stock held by John Dorsey. John Dorsey, a former officer and director of the Company, is the manager of
Dorsey LLC. Mr. Dorsey is deemed to beneficially own the shares of common stock beneficially owned by Dorsey LLC and has voting and dispositive
power over its shares. Mr. Dorsey’s last known address is 18690 N. 101st Pl., Scottsdale, AZ 85255. |
| (10) | Byrd Enterprises is an Arizona corporation. Virginia Byrd, its president and sole shareholder, is deemed
to beneficially own the shares of common stock beneficially owned by Byrd Enterprises and has voting and dispositive power over its shares.
Byrd Enterprises’ business address is 500 Polk Street, Suite 37, Greenwood, IN 46143. |
| (11) | The shares of common stock beneficially
owned consist of 50,000 shares of common stock held by Virginia Byrd Revocable Trust and
767,785 shares of common stock held by Byrd Enterprises. Virginia Byrd, Byrd Enterprises’
president and sole shareholder, is deemed to beneficially own the shares of common stock
beneficially owned by Byrd Enterprises and has voting and dispositive power over its shares.
Virginia Byrd Revocable Trust is an Indiana trust provided for by the Virginia Byrd Revocable
Trust Agreement established on February 6, 2009. Virginia Byrd, trustee of the Virginia Byrd
Revocable Trust, is deemed to beneficially own the shares of common stock beneficially owned
by the Virginia Byrd Revocable Trust and has voting and dispositive power over its shares. |
| (12) | Zone Right’s managing member, Glen Kim, a director of the Company, is deemed to beneficially own
the shares of common stock beneficially owned by Zone Right and has voting and dispositive power over its shares. Zone Right’s business
address is 8840 Warner Ave, Suite 200B, Fountain Valley, CA 92708. |
| (13) | The Nelson Trust is an Arizona trust provided for by the Nelson Revocable Living Trust Agreement established
on March 9, 1999 and amended and restated on November 21, 2005. Daniel D. Nelson, Chief Executive Officer, Chairman, and a director of
the Company, and Jodi B. Nelson, who is the spouse of Mr. Nelson, are the co-trustees of the Nelson Trust, and are deemed to beneficially
own the shares of common stock beneficially owned by the Nelson Trust and have shared voting and dispositive power over its shares. The
Nelson Trust’s business address is 8753 E. Bell Road, Suite 110, Scottsdale, AZ 85260. |
| (14) | The shares of common stock beneficially owned consist of (i) 709,851 shares of common stock held by the
Nelson Trust, (ii) 5,000 shares of common stock issuable upon the exercise of an option held by
Daniel D. Nelson, (iii) 30,000 shares of common stock issuable upon the exercise of an option
held by Daniel D. Nelson, and (iv) 75,000 shares of common stock issuable
upon the exercise of an option held by Daniel D. Nelson within 60 days of the date of this
prospectus. Jodi B. Nelson is a co-trustee of the Nelson Trust and is the spouse of Mr. Nelson, and is deemed to beneficially own
the shares of common stock beneficially owned by each of the Nelson Trust and Mr. Nelson and have shared voting and dispositive power
over such shares. Ms. Nelson’s business address is 9820 E Thompson Peak Pkwy, Lot
623, Scottsdale, AZ 85255. |
Changes in Control
There are no arrangements known to us the operation
of which may at a subsequent date result in a change in control of the Company.
SELLING STOCKHOLDER
This prospectus relates to
the offer and sale by Tumim of up to 4,661,102 shares of our common stock that have been and may be issued by us to Tumim under the
Purchase Agreement. For additional information regarding the shares of our common stock included in this prospectus, see the section
titled “Tumim Stone Capital Committed Equity Financing” above. We are registering the shares of our common stock included
in this prospectus pursuant to the provisions of the Registration Rights Agreement we entered into with Tumim on January 5, 2024 in order
to permit the Selling Stockholder to offer the shares included in this prospectus for resale from time to time. Except for the transactions
contemplated by the Purchase Agreement and the Registration Rights Agreement and as set forth elsewhere in this prospectus, Tumim has
not had any material relationship with us within the past three years. As used in this prospectus, the term “Selling Stockholder”
means Tumim Stone Capital LLC.
The table below presents information
regarding the Selling Stockholder and the shares of our common stock that may be resold by the Selling Stockholder from time to time
under this prospectus. This table is prepared based on information supplied to us by the Selling Stockholder, and reflects holdings as
of January 26, 2024. The number of shares in the column “Maximum Number of Shares of Common Stock to be Offered Pursuant to this Prospectus”
represents all of the shares of our common stock being offered for resale by the selling stockholder under this prospectus. The Selling
Stockholder may sell some, all or none of the shares being offered for resale in this offering. We do not know how long the selling stockholder
will hold the shares before selling them and, except as set forth in the section titled “Plan of Distribution” in
this prospectus, we are not aware of any existing arrangements between the Selling Stockholder and any other stockholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the shares of our common stock being offered for resale by this prospectus.
Beneficial ownership is determined in accordance
with Rule 13d-3(d) promulgated by the SEC under the Exchange Act, and includes shares of our common stock with respect to which the Selling
Stockholder has sole or shared voting and investment power. The percentage of shares of our common stock beneficially owned by the Selling
Stockholder prior to the offering shown in the table below is based on an aggregate of 13,958,847 shares of our common stock outstanding
on January 26, 2024. Because the purchase price to be paid by the selling stockholder for shares of our common stock, if any, that we
may elect to sell to the selling stockholder in one or more VWAP Purchases from time to time under the Purchase Agreement will be determined
at the end of the applicable three-trading-day period following each VWAP Purchase, the actual number of shares of our common stock that
we may sell to the Selling Stockholder under the Purchase Agreement may be fewer than the number of shares being offered for resale under
this prospectus. The fourth column assumes the resale by the selling stockholder of all of the shares of our common stock being offered
for resale pursuant to this prospectus.
| |
Number of Shares of
Common Stock
Beneficially Owned Prior
to this Offering | | |
Maximum
Number of
Shares of
Common
Stock to be
Offered
Pursuant to
this | | |
Number of Shares of
Common Stock Beneficially
Owned After this Offering(3) | |
Name of Selling Stockholder | |
Number(1) | | |
Percent(2) | | |
Prospectus | | |
Number | | |
Percent | |
Tumim Stone Capital LLC(4) | |
| 661,102 | | |
| 4.7 | | |
| 4,661,102 | | |
| - | | |
| - | |
| (1) | Represents the 661,102 shares of our common stock we issued to Tumim on January 26, 2024 as Commitment
Shares in consideration for entering into the Purchase Agreement with us. In accordance with Rule 13d-3(d) under the Exchange Act,
we have excluded from the number of shares beneficially owned prior to the offering all of the shares that Tumim may be required to
purchase under the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to conditions
contained in the Purchase Agreement, the satisfaction of which are entirely outside of Tumim’s control, including the
registration statement of which this prospectus forms a part becoming and remaining effective. Furthermore, VWAP Purchases of our
common stock under the Purchase Agreement are subject to certain agreed upon maximum amount limitations set forth in the Purchase
Agreement. Also, the Purchase Agreement prohibits us from issuing and selling any shares of our common stock to Tumim to the extent
such shares, when aggregated with all other shares of our common stock then beneficially owned by Tumim, would cause Tumim’s
beneficial ownership of our common stock to exceed the 4.99% Beneficial Ownership Cap. The Purchase Agreement also prohibits us from
issuing or selling shares of our common stock under the Purchase Agreement in excess of the 19.99% Exchange Cap, unless we obtain
stockholder approval to do so. The Exchange Cap will not be applicable to limit the number of Purchase Shares that we may sell to
Tumim in any VWAP Purchase that we effect pursuant to the Purchase Agreement (if any), to the extent the purchase price per share
paid by Tumim for such Purchase Shares is equal to or greater than the greater of book or market value of the common stock
(calculated in accordance with the applicable listing rules of the NYSE American) at the time we deliver the VWAP Purchase
Notice for such VWAP Purchase to Tumim, adjusted as required by the NYSE American to take into account our payment of the Commitment
Fee to Tumim and the amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection with
the CEFF, and otherwise as may be necessary to ensure compliance with the applicable rules of the NYSE American. Neither the
Beneficial Ownership Limitation nor the Exchange Cap (to the extent applicable under the applicable rules of the NYSE American) may
be amended or waived under the Purchase Agreement. |
| (2) | Applicable
percentage ownership is based on 13,958,847 shares of our common stock outstanding as of January
26, 2024. |
| (3) | Assumes the sale of all shares of our common stock being offered for resale pursuant to this prospectus. |
| (4) | The business address of Tumim Stone Capital LLC is 2 Wooster Street, 2nd Floor, New York,
NY 10013. Tumim Stone Capital LLC’s principal business is that of a private investor. Maier Joshua Tarlow is the manager of 3i Management,
LLC, the general partner of 3i, LP, which is the sole member of Tumim Stone Capital, LLC, and has sole voting control and investment discretion
over securities beneficially owned directly by Tumim Stone Capital LLC and indirectly by 3i Management, LLC and 3i, LP. 3i Management,
LLC is also the manager of Tumim Stone Capital LLC. We have been advised that none of Mr. Tarlow, 3i Management, LLC, 3i, LP or Tumim
Stone Capital LLC is a member of FINRA, or an independent broker-dealer, or an affiliate or associated person of a FINRA member or independent
broker-dealer. The foregoing should not be construed in and of itself as an admission by Mr. Tarlow as to beneficial ownership of the
securities beneficially owned directly by Tumim Stone Capital LLC and indirectly by 3i Management, LLC and 3i, LP. |
DESCRIPTION OF SECURITIES
General
Our authorized capital stock currently consists
of 150,000,000 shares of common stock, $0.0001 par value per share. No other classes of securities are authorized under our Amended and
Restated Certificate of Incorporation.
The following description summarizes important
terms of the common stock and securities that may converted into or exercised to purchase the common stock. This summary does not purport
to be complete and is qualified in its entirety by the provisions of our Amended and Restated Certificate of Incorporation and Second
Amended and Restated Bylaws which have been filed as exhibits to the registration statement of which this prospectus is a part.
As of the date of this prospectus, there were 13,958,847 shares of
common stock issued and outstanding.
Common Stock
The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the stockholders. Under our Amended and Restated Certificate
of Incorporation and Second Amended and Restated Bylaws, any corporate action to be taken by vote of stockholders other than for election
of directors shall be authorized by the affirmative vote of a majority of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter. Directors are elected by a plurality of votes. Stockholders entitled to vote in an election
of directors may remove any director from office at any time, with or without cause, by the affirmative vote of a majority in voting power
thereof. The holders of one-third of the outstanding shares of stock entitled to vote, present in person, by remote communication,
or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Stockholders
do not have cumulative voting rights.
Holders of common stock are entitled to receive
ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. In the
event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally
available for distribution to stockholders after the payment of all of our debts and other liabilities.
Holders of common stock have no preemptive, conversion
or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock.
Representative’s Warrants
We agreed to issue warrants to Boustead, as the
representative of the underwriters of our initial public offering in November 2023, to purchase a number of shares of common stock equal
to 7% of the total number of shares sold in the Company’s initial public offering at an exercise price equal to 135% of the public
offering price of the shares sold in the initial public offering. On November 16, 2023, in connection with the closing of the initial
public offering, a representative’s warrant was issued to Boustead. The representative’s warrant may be exercised to issue
84,000 shares of common stock at an exercise price of $6.75 per share, based on the initial public offering price of $5.00 per share.
The representative’s warrant is exercisable upon issuance, will have a cashless exercise provision and will terminate on the fifth
anniversary of the effective date of the IPO Registration Statement, or November 13, 2028. The representative’s warrant also provides
for customary anti-dilution provisions and immediate “piggyback” registration rights with respect to the registration of the
shares of common stock underlying the warrants, which registration rights shall terminate on the fifth anniversary of the effective date
of the IPO Registration Statement, or November 13, 2028. We granted the underwriters an option for
a period of 45 days from the date of the IPO Prospectus to purchase up to 15% of the total number of our shares to be offered by us pursuant
to the initial public offering (excluding shares subject to this option). If the underwriters exercised this option in full, in addition
to other underwriter compensation, Boustead would be entitled to receive one or more additional representative’s warrants to purchase
up to 12,600 shares of common stock. The additional representative’s warrants would have had the same terms as the initial representative’s
warrant. The underwriters’ over-allotment option expired unexercised. We registered all representative’s warrants and
the shares underlying the representative’s warrants that we were required to issue in the initial public offering.
The representative’s warrants and the underlying
shares may be deemed to be compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). In accordance with FINRA Rule
5110(e)(1), neither the representative’s warrant nor any of our shares of common stock issued upon exercise of the representative’s
warrant may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or
call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately
following the commencement date of sales in the initial public offering, subject to certain exceptions. The representative’s warrant:
(i) fully complies with lock-up restrictions pursuant to FINRA Rule 5110(e)(1); and (ii) fully complies with transfer restrictions pursuant
to FINRA Rule 5110(e)(2).
Options
On August 31, 2022, we established the Signing Day Sports, Inc. 2022
Equity Incentive Plan. The purpose of the Plan is to grant restricted stock, stock options and other forms of incentive compensation to
our officers, employees, directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards
granted under the Plan is 750,000 shares. Cancelled and forfeited stock options and stock awards may again become available for grant
under the Plan. As of the date of this prospectus, 9,000 shares remain available for issuance under the Plan. For a further description
of the terms of the Plan, please see “Executive Compensation — 2022 Equity Incentive Plan” in this prospectus.
In September 2022, we granted stock options to
certain employees, consultants, officers, and directors that may be exercised to purchase a total of 158,000 shares of common stock,
not including stock options or portions of stock options that subsequently terminated due to employee, officer, or director departures.
The options have an exercise price of $3.10 per share, and are subject to various vesting conditions. The options will expire in September
2032. In March 2023, we granted a stock option that is exercisable to purchase a total of 40,000 shares of common stock. The option has
an exercise price of $3.10 per share, and is subject to certain vesting conditions. The option will expire in March 2033. In April 2023,
we granted a stock option to purchase a total of 100,000 shares of common stock with an exercise price of $2.50 per share, which is subject
to certain vesting conditions. In April 2023, we also granted a stock option to purchase a total of 3,000 shares of common stock with
an exercise price of $3.10 per share, which is subject to certain vesting conditions. The option will expire in April 2033. In April
2023, we also granted stock options to purchase a total of 16,000 shares of common stock with an exercise price of $2.50 per share, which
are subject to certain vesting conditions. The options will expire in April 2033. In May 2023, we granted a stock option to purchase
a total of 24,000 shares of common stock with an exercise price of $2.50 per share. In May 2023, we granted a stock option to purchase
50,000 shares of common stock with an exercise price of $2.50 per share, which is subject to certain vesting conditions. The option will
expire in May 2033. In November 2023, we granted stock options to purchase a total of 250,000 shares of common stock with an exercise
price of $2.25 per share, which are subject to certain vesting conditions. The options will expire in November 2033. In November 2023,
we also granted a stock option to purchase 10,000 shares of common stock with an exercise price of $5.00 per share, which are subject
to certain vesting conditions. The option will expire in November 2033. The description above does not include granted stock options
or portions of granted stock options that subsequently terminated unexercised due to employee departures.
We have filed a Registration Statement on Form
S-8 with the SEC to register the potential exercise of these options.
6% Convertible Unsecured Promissory Notes
From September 2021 to December 2021, we conducted
a private placement of 6% convertible unsecured promissory notes due three years from the date of execution and entered into related subscription
agreements and investor rights and lockup agreements with a number of accredited investors. Pursuant to the agreements, we issued 27 convertible
notes for aggregate loans of $6,305,000. As described below, to address possible claims with respect to the increase of the outstanding
principal under the convertible notes to 110% of the outstanding principal amount, we issued a settlement notice to the holders of the
6% convertible unsecured promissory notes undertaking to effect conversions as if 110% of the principal being converted was being converted
to address possible claims with respect to the increase of the outstanding principal under the convertible notes to 110% of the outstanding
principal amount. The convertible notes incurred interest at 6% annually. The convertible notes were to mature on October 15, 2024 as
to the principal amount of $3,300,000; November 15, 2024 as to the principal amount of $1,205,000; and December 23, 2024 as to the principal
amount of $1,800,000, respectively.
The 6% convertible unsecured promissory notes
contained both optional and mandatory conversion provisions allowing for the conversion of the outstanding balance under the notes to
be converted into shares of common stock, subject to waiver of all accrued interest on the principal subject to such conversion. The convertible
notes were convertible at the holders’ option at a conversion price per share equal to the price per share determined initially
by dividing $50 million by the total number of outstanding shares of the Company, subject to adjustment as described below. In connection
with an initial public offering and listing of the common stock on Nasdaq, the NYSE American, the NYSE, or the OTCQX tier of OTC Markets
Group Inc. (“OTCQX”), the notes were to automatically be converted under a mandatory conversion provision into shares of common
stock of the Company at the initial conversion price per share equal to 60% of the public offering price per share of the common stock
offered to the public in the Company’s initial public offering, subject to adjustment as described below. In the event of a sale
of all or substantially all of the capital stock or assets of the Company to an unaffiliated third person, or Sale of Control, an acquisition
by a special purpose acquisition corporation listed on Nasdaq or the NYSE, or a SPAC, or an acquisition or merger of the Company by a
publicly-reporting company under the Exchange Act without significant business activities and is trading on one of certain securities
markets, or a Reverse Merger (collectively, an “Alternative Liquidity Event”), the former note holders were to have the option
to convert the notes at the initial conversion price per share equal to 60% of the aggregate transaction consideration divided by the
total number of outstanding shares of common stock of the acquiror resulting from such event, subject to adjustment as described below.
The 6% convertible unsecured promissory notes
further provided that the above conversion prices would be adjusted to reflect the applicable price per share, or conversion or exercise
price per share, of shares of common stock or securities convertible or exercisable for common stock in a subsequent capital raise in
the form of a private placement, initial public offering or Alternative Liquidity Event, at a price that was lower than the convertible
notes’ optional conversion price. As described below (see “—8% Convertible Unsecured Promissory Notes”),
from August 2022 to January 2023, we issued 8% unsecured convertible promissory notes with an optional conversion price per share equal
to $25 million divided by the total number of outstanding shares of the Company’s common stock, which was 50% lower than the initial
optional conversion price per share of the convertible notes issued in 2021. In addition, the 8% unsecured convertible promissory notes
provided that they would automatically convert upon the occurrence of an initial public offering and each of the events defined as an
Alternative Liquidity Event above at 50% of the price applicable to such transactions. As a result, the optional conversion price of the
6% unsecured convertible promissory notes was adjusted to equal the optional conversion price per share of the 8% unsecured convertible
promissory notes, equal to $25 million divided by the total number of outstanding shares of the Company’s common stock, and the
automatic conversion price of the 6% unsecured convertible promissory notes was adjusted to equal 50% of an initial public offering price
or price applicable to an Alternative Liquidity Event price. Subsequently, as described below, in March 2023 and April 2023 we conducted
one private placement and in May 2023 we completed a subsequent private placement. In these private placements, we issued 8% unsecured
promissory notes with respective warrants with an exercise price per share equal to $2.50, which is lower than the prior as-adjusted optional
conversion price. As a result, the optional conversion price of the notes was adjusted to equal the exercise price of such warrants, or
$2.50 per share.
A holder of a 6% convertible unsecured promissory
note was not permitted to be issued shares of common stock upon conversion of the notes (“conversion shares”) to the extent
that the former note holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of common
stock outstanding. Each former note holder was permitted to increase or decrease the beneficial ownership limit to any other percentage
not in excess of 9.99%, provided that any increase in such percentage would not be effective until 61 days following notice from the former
convertible note holder.
The subscription agreements for the convertible
notes provided that, in the event that within twelve months of the closing of the private placement of the 6% convertible unsecured promissory
notes, the Company had not consummated an initial public offering of its common stock and the listing or trading of its common stock on
Nasdaq, the NYSE, the NYSE American, or the OTCQX, and had not consummated an Alternative Liquidity Event, the Company may elect either
(a) to repay all or part of each note, subject to the holder’s right to convert each note, or (b) if the Company does not repay
each note, the unpaid principal amount of each note would automatically increase to 110% of the outstanding principal amount. As of the
12-month anniversary of the closing of this private placement, the Company had not consummated an initial public offering or Alternative
Liquidity Event, and had not repaid any portion of the principal amounts under the convertible notes. However, the convertible notes themselves
did not contain this provision. The convertible notes provided that in the event that by the maturity date, the Company has not consummated
an initial public offering of its common stock and the listing or trading of its common stock on Nasdaq, the NYSE, the NYSE American,
or the OTCQX, and has not consummated an Alternative Liquidity Event, the Company may elect either (a) upon thirty (30) days prior written
notice to the holder, to prepay all or a portion of the principal amount of each note and accrued interest hereon, subject to the holder’s
right to convert the note into common stock during such thirty (30) day period, or (b) if the Company does not prepay the entire principal
amount of the note or the remaining principal amount of the note, the note would automatically increase to 110% of the original or unpaid
portion of the outstanding principal amount. As a result, the outstanding principal amount under the convertible notes was determined
not to have increased to 110% of that amount at any time while the notes were outstanding. However, to address possible claims with respect
to the increase of the outstanding principal under the convertible notes to 110% of the outstanding principal amount, on November 13,
2023, we issued a settlement notice to the holders of the 6% convertible unsecured promissory notes undertaking to effect conversions
as if 110% of the principal being converted was being converted to address possible claims with respect to the increase of the outstanding
principal under the convertible notes to 110% of the outstanding principal amount.
Each note could be prepaid by the Company in whole
or in part without penalty, fees or premium upon not less than 20 business days prior written notice to the holder, subject to the Holder’s
right to convert all or any portion of the note into conversion shares at the optional conversion price prior to the prepayment date.
The investor rights and lockup agreements provide
for typical “drag along” and “tag along” rights. Each investor party is permitted to sell a portion of the investor’s
conversion shares pursuant to a Sale of Control transaction equal to the percentage of the common stock that stockholders holding a majority
of the outstanding voting equity of the Company elected to sell in the Sale of Control transaction. Each investor party may also be required
to sell their conversion shares to the proposed acquiror in the Sale of Control transaction.
The investor rights and lockup agreements also
provide that the shares of common stock issued upon conversion of the convertible notes are subject to certain lockup provisions until
the 180th day after the date of the closing of our initial public offering, or May 14, 2024, subject to certain exceptions. In addition,
the investor rights and lockup agreements provide that the convertible note investors may not transfer or dispose of any shares of common
stock for the period ending up to 180 days after the date of the final prospectus for the Company’s initial public offering, or
May 11, 2023, subject to certain exceptions.
The investor rights and lockup agreements further
provide the following registration rights. Within 30 business days following the consummation of the first to occur of an initial public
offering, a Sale of Control or a Reverse Merger, as applicable, the Company must file a registration statement on Form S-1 or Form S-3,
as available, or Resale Registration Statement, in order to register for resale all of the shares of common stock of the Company or common
stock of any successor-in-interest to the Company issued to all holders of the notes upon automatic conversion of the notes, and must
use its bests efforts to cause such Resale Registration Statement to be declared effective by the SEC within 90 business days from the
date of its initial filing; provided, that such conversion shares will continue to be subject to restrictions on resale for a period of
six months following completion of either the initial public offering, Sale of Control or a Reverse Merger. In the event that, for any
reason, the Company is unable to comply with the above registration requirement, note investors holding a majority-in-interest in the
convertible notes have a one-time right, at any time after 180 days from the effective date of the registration statement in connection
with its initial public offering, to request that the Company file a Resale Registration Statement with respect to the outstanding shares
of common stock into which the notes had been converted having an anticipated aggregate offering price, net of selling expenses, of at
least $5,000,000, in which event the Company shall (x) within ten days after the date such request is given, give notice thereof to all
other note investors; and (y) as soon as practicable, and in any event within 60 days after the date such request, file a Resale Registration
Statement covering all such shares that were included in the majority-in-interest request to be registered and any additional such shares
requested to be included in such registration by any other note investors, subject to certain limitations and exceptions. In addition,
the Company agreed to provide “piggyback” registration rights to the note investors, so as to require us to include, at the
option of the former note holders, the shares of common stock underlying their securities in any registration statement to register other
shares of common stock that the Company determines to file after its initial public offering. The Company must generally keep any required
or requested registration statement effective for a period of at least 180 days after the expiration of the lockup requirements described
above, subject to extensions under certain circumstances. The Company also may not agree to allow others to include securities in a registration
except to the extent that the inclusion will not reduce the number of shares of common stock issuable upon conversion of the 6% convertible
unsecured promissory notes, or allow them to initiate a demand for registration of any securities. The Company also provided customary
indemnification to the former note holders relating to any damages to the former note holders arising from such registrations. Investors
that were issued a majority of the shares issued upon the automatic conversion of the 6% convertible unsecured promissory notes have waived
their registration rights with respect to these shares.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, and in accordance
with the settlement notice referred to above, on November 16, 2023, the outstanding principal under the convertible notes automatically
converted into 2,774,200 shares of common stock at a conversion price equal to 50% of the price of the common stock in the initial public
offering, $5.00 per share, pursuant to the adjustment provisions under the convertible notes. Upon automatic conversion, any interest
accrued under the convertible notes was waived in accordance with their terms.
The investor rights and lockup agreements previously
provided participation rights in subsequent securities offerings, including the initial public offering, to purchase up to the number
of shares having a value that is up to 50% of the total principal of the convertible notes issued to all of the investors in the convertible
notes. The investor rights and lockup agreements also provided access rights to audited annual financial statements within 120 days of
the end of each fiscal year, unaudited monthly financial statements, and unaudited quarterly financial statements, an annual budget, tax
filing-related information, and daily access to the Company’s books and records. Upon the occurrence of the closing of the initial
public offering and listing of the common stock on the NYSE American in November 2023, these rights terminated.
In addition, in connection with the closing of
the Company’s initial public offering and listing of the common stock on the NYSE American as of November 16, 2023, the Company’s
6% convertible unsecured promissory notes with aggregate outstanding principal of $6,305,000 automatically converted into a total of 2,774,200
shares of common stock at a conversion price of $2.50 per share in accordance with a settlement notice undertaking to effect conversions
of principal as if 110% of the principal being converted was being converted, and the Company’s 8% convertible unsecured promissory
notes with aggregate outstanding principal of $1,465,000 automatically converted into a total of 586,000 shares of common stock at a conversion
price of $2.50 per share, in each case at 50% of the public offering price of $5.00 per share, in accordance with the terms of the notes.
All interest accrued on such principal was waived upon conversion in accordance with the terms of the notes.
8% Convertible Unsecured Promissory Notes
From August 2022 to January 2023, we conducted
a private placement of the Company’s 8% convertible unsecured promissory notes to a number of accredited investors under subscription
agreements. Pursuant to the agreements, we issued convertible notes for aggregate loans of $1,465,000. The convertible notes incurred
interest at 8% annually. The convertible notes were initially due to mature on August 8, 2023 unless converted in accordance with their
terms.
The convertible notes contained both optional
and mandatory conversion provisions allowing for the conversion of the outstanding balance under the notes to be converted into shares
of common stock, subject to waiver of all accrued interest on the principal subject to such conversion. The convertible notes were convertible
at the holders’ option at a conversion price per share equal to the price per share determined by dividing $25 million by the total
number of outstanding shares of the Company. In connection with an initial public offering and listing of the common stock on Nasdaq,
the NYSE American, or the NYSE, the notes were to automatically be converted under a mandatory conversion provision into shares of common
stock of the Company at the conversion price per share equal to 50% of the public offering price per share of the common stock offered
to the public in the initial public offering, or the IPO Conversion Price. In the event of an “Alternative Liquidity Event,”
which was defined in a substantially similar manner as in the 6% convertible unsecured promissory notes, the former note holders would
have the option to convert the notes at the conversion price per share equal to 50% of the aggregate transaction consideration divided
by the total number of outstanding shares of common stock of the acquiror resulting from such an event, or the Alternative Liquidity Event
Conversion Price.
A holder of an 8% convertible unsecured promissory
note was not permitted to be issued conversion shares to the extent that the former note holder (together with its affiliates) would beneficially
own in excess of 9.99% of the number of shares of common stock outstanding. Each former note holder was permitted to increase or decrease
the beneficial ownership limit to any other percentage not in excess of 9.99%, provided that any increase in such percentage would not
be effective until 61 days following notice from the former convertible note holder.
The 8% convertible unsecured promissory notes
provided that in the event that, by the maturity date, the Company had not consummated an initial public offering of its common stock
and the listing or trading of its common stock on Nasdaq, the NYSE, or the NYSE American, and had not consummated an Alternative Liquidity
Event, the Company could either (a) upon thirty (30) days prior written notice to the holders, elect to repay all or a portion of the
principal amount of the notes and accrued interest hereon, subject to the holders’ right to convert the note into common stock during
such thirty (30) day period, or (b) if the Company did not repay the entire principal amount of the notes or the remaining principal amount
of the notes, the notes would automatically increase to 120% of the original or unpaid portion of the outstanding principal amount. The
notes otherwise did not permit prepayment. On August 7, 2023, the 8% Convertible Note Amendment Agreement was signed with the holders
of the majority of the outstanding balance under these convertible notes. The 8% Convertible Note Amendment Agreement amended the maturity
date of all of these convertible notes to August 8, 2025. Pursuant to the 8% Convertible Note Amendment Agreement, a provision in the
convertible notes providing for an increase of the outstanding balance under the convertible notes to 120% of the original principal amount
upon non-repayment by the maturity date was accelerated, and the outstanding balance under the convertible notes was increased in aggregate
to $1,758,000. The 8% Convertible Note Amendment Agreement also provided for the immediate conversion of the additional amount of the
outstanding balance under the convertible notes into 146,500 shares of common stock at $2.00 per share instead of the applicable optional
conversion price, approximately $3.29 per share at the time of the conversion, not including any accrued but unpaid interest, which was
waived with respect to the converted outstanding balance. As a result, the 8% convertible unsecured promissory notes’ aggregate
underlying principal was $1,465,000 both before and after such increase of the outstanding balance and conversion of such increase.
In addition, the Company agreed to provide “piggyback”
registration rights to the former note holders, so as to require us to include, at the option of the former note holders, the shares of
common stock underlying their securities in any registration statement to register other shares of common stock that the Company determines
to file after its initial public offering. The Company also provided customary indemnification to the former note holders relating to
any damages to the holders arising from such registrations. Investors that were issued a majority of the shares issued upon the automatic
conversion of the 8% convertible unsecured promissory notes have waived their registration rights with respect to these shares.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the outstanding principal under the convertible notes automatically converted into 586,000 shares of common stock at a conversion
price equal to 50% of the price of the common stock in the initial public offering, $5.00 per share, pursuant to the adjustment provisions
under the convertible notes. Upon automatic conversion, any interest accrued under the convertible notes was waived in accordance with
their terms.
The shares of common stock issued upon conversion
of the 8% convertible unsecured promissory notes are subject to certain lockup provisions until 365 days after the commencement of trading
of our common stock, subject to certain exceptions.
8% Unsecured Promissory Notes
In March 2023 and April 2023 we conducted one
private placement, and in May 2023 we completed a subsequent private placement, in which we entered into subscription agreements with
accredited investors pursuant to which we issued 8% unsecured promissory notes. The total aggregate principal amount under the notes outstanding
is $2,350,000. The notes incurred interest at the annual rate of 8%. The amount outstanding under the 8% unsecured promissory notes was
required to be repaid upon the earlier to occur of the consummation of a Liquidity Event or the second anniversary of the initial closing
date of the respective private placement (March 17, 2025 as to $1,500,000 principal and May 2, 2025 as to $850,000 principal). If a Liquidity
Event occurred before the second anniversary of the initial closing date of the applicable private placement, the warrants issued with
these notes were to be automatically exercised as to the unexercised portion of the warrants, the outstanding balance due under the 8%
unsecured promissory notes was to be deemed repaid in the amount of the exercise price for the automatic exercise of the unexercised portion
of the respective warrants (see “—Warrants – Investor Warrants – Warrants Issued With 8% Unsecured Promissory
Notes” below), and any remaining balance outstanding would be required to be repaid in cash. If a Liquidity Event were not to
occur before the second anniversary of the initial closing date of the applicable private placement, then both principal and interest
outstanding under the notes would have been required to be repaid in cash. The notes could be prepaid at the discretion of the Company.
Under the subscription agreements with the investors
in the first private placement of the 8% unsecured promissory notes, the Company was required to use the first $450,000 of the net proceeds
from the private placement to expand its current operations, including its technology and intellectual property portfolio, and to fund
the costs of its initial public offering. The Company was required to use the next $800,000 of the net proceeds from the private placement
to repurchase up to 600,000 shares of common stock that were held by Dennis Gile, our largest stockholder and a former officer and director
of the Company, at a price equal to approximately $1.35 per share. The repurchase was required to be consummated only to the extent that
it did not impair the Company's capital within the meaning of Section 160 of the DGCL or the Company’s ability to pay down its debts
as they become due. The Company was required to enter into an agreement with Mr. Gile providing that Mr. Gile will use the proceeds of
the repurchase to settle an existing lawsuit filed against Mr. Gile by John Dorsey, a former officer and director of the Company, subject
to a full release of Mr. Gile and the Company, and that Mr. Gile will resign from the board of directors of the Company and from any officer
position with the Company upon the repurchase. The Company was required to use any remaining net proceeds from the private placement,
which consisted of $250,000 less placement agent fees and expenses, for working capital and other general corporate purposes. Subsequently,
the Company used the net proceeds as required. For discussion of related developments, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations –
Repurchase of Shares, Settlement and Release”.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the warrants issued with the promissory notes were automatically exercised to purchase a total
of 940,000 shares of common stock for $2.50 per share of common stock, and the principal balance under the promissory notes became immediately
due and was deemed repaid in the amount of the aggregate exercise price for the automatic exercise of the unexercised portion of the warrants.
Any remaining balance outstanding under the promissory notes was required to be repaid in cash within three business days of the closing
of the initial public offering. Pursuant to these terms, a total of $113,304 in accrued interest became due as of November 16,
2023 under the promissory notes. For related discussion, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources – Recent Developments – Automatic Conversion of Convertible
Promissory Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory Notes”.
15% OID Promissory Notes
On August
2, 2023, August 18, 2023, September 11, 2023, and September 22, 2023, the Company issued 15% OID promissory notes for total principal
of $352,942 to certain accredited investors in a private placement for gross proceeds of $300,000. The principal under the 15% OID promissory
notes accrue 5% interest annually, and principal and interest under the notes must be repaid by December 31, 2023. The notes may be prepaid
without a premium or penalty.
On November 20, 2023, the Company repaid the aggregate
balance of $117,648 under two 15% OID promissory notes, and on November 29, 2023, the Company
repaid the balance of $117,647 under one 15% OID promissory note. On December 29, 2023, the Company repaid the balance of $117,647 under
the last outstanding 15% OID promissory note.
Warrants
Investor Warrants
Warrants Issued With 8% Convertible Unsecured
Promissory Notes
In connection with our private placement of 8%
convertible unsecured promissory notes (see “—8% Convertible Unsecured Promissory Notes” above), from August
2022 to January 2023, we issued warrants to a number of accredited investors. Following an initial public offering or Alternative Liquidity
Event, each warrant will be automatically exercisable for the amount of shares of common stock equal to the original principal amount
of the respective convertible note divided by the IPO Conversion Price or the Alternative Liquidity Event Conversion Price, as applicable.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the warrants became automatically exercisable to purchase a total of 586,000 shares
of common stock for $2.50 per share of common stock, which was equal to 50% of the price
of the common stock in the initial public offering, $5.00 per share, i.e., the IPO Conversion Price.
The warrants have a five-year term. The shares
of common stock underlying the warrants are subject to certain lockup provisions until 365 days after the commencement of trading of our
common stock, subject to certain exceptions.
Warrants Issued With 8% Unsecured Promissory
Notes
In connection with our private placements of 8%
unsecured promissory notes (see “—8% Unsecured Promissory Notes” above), in March 2023, April 2023 and May 2023,
we issued warrants to purchase an aggregate of 940,000 shares of common stock exercisable at $2.50 per share. The warrants were voluntarily
exercisable for cash prior to the maturity date of the respective 8% unsecured promissory notes (see “—8% Unsecured Promissory
Notes” above), or would be automatically exercised as to any unexercised portion for shares of common stock upon the occurrence
of a Liquidity Event-based maturity of the respective 8% unsecured promissory notes in exchange for the Company’s deemed repayment
of the notes in the amount of the exercise price for the automatic exercise of the unexercised portion of the respective warrants, with
any remaining balance owed on the promissory notes to be repaid in cash.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the warrants issued with the promissory notes were automatically exercised to purchase a total
of 940,000 shares of common stock for $2.50 per share of common stock, and the principal balance under the promissory notes became immediately
due and was deemed repaid in the amount of the aggregate exercise price for the automatic exercise of the unexercised portion of the warrants.
The warrants had a five-year term. The Company
was required to register the resale of all of the shares of common stock that such warrants may or shall be exercised to purchase in the
IPO Registration Statement. The Company must generally keep the IPO Registration Statement effective for a period as shall be required
to permit the warrant investors to complete the offer and sale of their shares. The Company and the investors also provided customary
mutual indemnification relating to any damages arising from such registration.
Placement Agent’s Warrants
Placement Agent’s Warrants for Private
Placements
Boustead acted as placement agent in our private
placements of the convertible promissory notes, promissory notes, warrants, and 15% OID promissory notes described above. Pursuant to
the Boustead Engagement Letter, in addition to a commission equal to 7% of the gross proceeds raised in the private placements, a non-accountable
expense allowance equal to 1% of the gross proceeds raised in the private placements, and payment of certain other expenses, we agreed
to issue Boustead five-year warrants to purchase a number of shares of common stock in an amount equal to 7% of the common stock underlying
the securities sold in the private placements at an exercise price equal to 135% of the public offering price of the shares of common
stock in the Company’s initial public offering, except that the exercise price of the warrant issued in connection with our private
placement of 6% convertible unsecured promissory notes was agreed to be equal to the conversion price as defined in the 6% convertible
unsecured promissory notes. Each of the placement agent’s warrants will terminate five years after issuance.
Accordingly, a warrant to purchase common stock
was issued to Boustead in December 2021 in connection with our private placement of 6% convertible unsecured promissory notes, exercisable
to purchase 7% of the original principal amount of the Company’s 6% convertible unsecured promissory notes divided by the convertible
notes’ applicable conversion price, at an exercise price equal to the convertible notes’ applicable per-share conversion price.
In addition, pursuant to the Boustead Engagement
Letter, a warrant to purchase shares of common stock was issued to Boustead in November 2023 in connection with our private placements
of 8% unsecured promissory notes and respective investor warrants, exercisable to purchase an aggregate of 7% of the common stock underlying
the warrants that were issued to the initial 8% unsecured promissory note holders at an exercise price equal to 135% of the public offering
price of the shares of common stock in the Company’s initial public offering. This warrant was issued in connection with and as
replacement for the cancellation of warrants that were issued to Boustead from March 17, 2023 to May 12, 2023, which were exercisable
to purchase an aggregate of 7% of the common stock underlying the warrants that were issued to the initial 8% unsecured promissory note
holders, at an initial exercise price of $2.50 per share, pursuant to the Boustead Engagement Letter. However, pursuant to a cancellation
agreement, Boustead and the Company agreed to cancel this placement agent’s warrant.
Boustead waived any rights to fees, expenses,
and warrant compensation with respect to our private placement of 15% OID promissory notes. Boustead also waived its rights to warrants
to purchase shares of common stock in connection with our private placement of 8% convertible unsecured promissory notes and respective
investor warrants.
Under the Boustead Engagement Letter, the placement
agent’s warrants have “piggyback” registration rights. Boustead notified the Company that it waived these registration
rights with respect to the IPO Registration Statement and any registration statements relating to this offering.
Placement Agent’s Warrants for Committed
Equity Financing Facility
Under the Boustead Engagement Letter, Boustead is acting as the placement
agent in connection with the transactions contemplated by the Purchase Agreement. We agreed to issue Boustead 49,193 shares of common
stock immediately after we issued the Commitment Shares to Tumim on January 26, 2024, equal to 7.0% of the number of Commitment Shares
that would have been issued but for the application of the Beneficial Ownership Limit, as a fee pursuant to the Boustead Engagement Letter.
Under the Boustead Engagement Letter, the Company is also required to issue to Boustead warrants to purchase a number of shares equal
to 7.0% of the shares of common stock issued to Tumim pursuant to purchases under the Purchase Agreement, with an exercise price equal
to the applicable purchase price per share, or, in the event that the Penny Warrants are required to be issued pursuant to the Purchase
Agreement, warrants to purchase 52,500 shares of common stock, with the same exercise price terms as the Penny Warrants. The warrants
that are required to be issued to Boustead will be exercisable for a period of five years from the date of issuance and contain cashless
exercise provisions. Boustead also has certain registration rights with respect to these warrants. Boustead has waived its registration
rights applicable to these placement agent’s warrants with respect to the registration statement of which this prospectus forms
a part and any other registration statements relating to this offering. Boustead and its affiliates are not in any manner related to Tumim
or any of Tumim’s affiliates. Boustead’s compensation under its engagement letter agreement in connection with the Purchase
Agreement is subject to reduction or adjustment to the extent that such compensation is determined to be in excess of or otherwise noncompliant
with applicable rules of FINRA.
SAFEs
From March 2021 to July 2021, the Company raised
$1,980,000 from investors in exchange for securities called Simple Agreements for Future Equity (collectively, the “SAFEs”).
The SAFEs were subject to different conversion calculations depending on the event triggering conversions as described in the SAFE, including
an equity financing, a liquidity event such as the Company’s initial public offering, or an automatic conversion at the end of 18
months because no other conversion-triggering event has occurred. The terms of the SAFEs are discussed below. As also discussed below,
all of the SAFEs have been cancelled and exchanged for common stock.
SAFEs – General
A SAFE is an agreement
between an investor and a company in which an investor invests cash into a company and the company in turn issues a SAFE contract that
will automatically convert into cash, equity in the company, or other future repayment if certain trigger events occur. SAFE instruments
were developed for startup companies seeking substantial funds quickly. SAFEs like those we issued convert into cash, equity in the company,
or other future repayment upon the occurrence of agreed-upon events indicating that the company has reached sufficient maturity to be
accurately valued. At that point the amount contributed by the investor will automatically convert into an amount of cash, equity in the
company, or other future repayment represented by the dollar amount contributed divided by the agreed expected company valuation.
Unlike common or preferred
stock, SAFEs do not represent a current equity stake and do not entitle investors to typical equity rights such as rights to dividends
or voting on major corporate matters. Instead, the terms of the SAFE must be met in order for an investor to receive an equity stake
with these kinds of rights. Also, unlike debt, SAFEs do not represent a right to interest payments or any current legal obligation by
the SAFE issuer for the outstanding amount of a loan. If a SAFE issuer is dissolved or otherwise non-operative, SAFE holders typically
have no rights to demand or receive any portion of any remaining assets, unlike debtholders and equity holders.
SAFEs – Specific Conversion Terms
From March 2021 to July 2021, our predecessor
entity SDS LLC – AZ issued eight SAFEs to investors for total gross proceeds of $1,980,000. The SAFEs had the following conversion
terms.
Upon an Equity Financing (defined as a bona fide
transaction or series of transactions with the principal purpose of raising capital, pursuant to which the Company issues and sells preferred
stock at a fixed pre-money valuation) before the expiration or termination of these instruments, on the initial closing of such Equity
Financing, the SAFEs would have automatically converted into preferred stock in an amount of shares equal to the SAFE Purchase Amount
divided by the Equity Financing’s offering price per share multiplied by 80%, or the SAFE Conversion Price Per Share, and with identical
rights as the preferred stock in such offering except for per share liquidation preference, the initial conversion price for purposes
of price-based anti-dilution protection and the basis for any dividend or distribution rights, which will
be based on the SAFE Conversion Price Per Share.
Upon a SAFE Liquidity Event (defined as any of
certain changes of voting control or disposition of substantially all assets of the Company, a listing of the Company’s equity securities
in connection with an effective resale registration statement on Form S-1, or an initial public offering of the Company), the SAFEs would
have automatically been entitled to receive a portion of proceeds from the SAFE Liquidity Event due and payable to the investors immediately
prior to, or concurrent with the consummation of the initial public offering, equal to the greater of (i) the SAFE Purchase Amount or
(ii) an amount equal to a percentage of the proceeds from the initial public offering with such percentage calculated by dividing the
SAFE Purchase Amount by $20,000,000.
If there had been a Dissolution Event (defined
as (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors or (iii) any
other liquidation, dissolution or winding up of the Company, excluding a SAFE Liquidity Event), whether voluntary or involuntary), the
SAFE investors would have automatically been entitled to receive a portion of the cash or other proceeds equal to the SAFE Purchase Amount,
due and payable to the investors immediately prior to the consummation of the Dissolution Event.
If after 18 months, there had been no Equity Financing,
SAFE Liquidity Event, or Dissolution Event where the SAFE investors have received equity interests in the Company or other payment as
contemplated above, then the SAFEs would have automatically converted to the number of shares of common stock of the Company equal to
the SAFE Purchase Amount divided by the issued and outstanding shares of common stock of the Company on a fully-diluted basis divided
by $20,000,000.
SAFE Cancellations and Exchanges
From September 22, 2022 to October 11, 2022, we
entered into cancellation and exchange agreements with the holders of the SAFEs. Under these agreements, each SAFE holder agreed to cancel
and exchange the holder’s SAFE for a number of shares of common stock equal to the purchase amount under the SAFE divided by approximately
$3.35, based on a $25 million valuation for the Company. As a result, SAFEs that were purchased in the aggregate amount of $1,980,000
were cancelled and exchanged for a total of 591,048 shares of common stock.
Anti-Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of
the DGCL, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a
period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
| ● | before such date, the board of directors of the corporation approved either the business combination or
the transaction that resulted in the stockholder becoming an interested stockholder; |
| ● | upon completion of the transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding
for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares
owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| ● | on or after such date, the business combination is approved by the Board and authorized at an annual or
special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662∕3% of the outstanding voting
stock that is not owned by the interested stockholder. |
In general, Section 203 defines
a “business combination” to include the following:
| ● | any merger or consolidation involving the corporation and the interested stockholder; |
| ● | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving
the interested stockholder; |
| ● | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation
of any stock of the corporation to the interested stockholder; |
| ● | any transaction involving the corporation that has the effect of increasing the proportionate share of
the stock or any class or series of the corporation beneficially owned by the interested stockholder; and |
| ● | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or
other financial benefits by or through the corporation. |
In general, Section 203 defines
an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially
owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding
voting stock of the corporation.
The statute could prohibit or delay mergers or
other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may
offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
A Delaware corporation may “opt out”
of these provisions with an express provision in its certificate of incorporation. We have not opted out of these provisions, which may,
as a result, discourage or prevent mergers or other takeover or change of control attempts of us.
Second Amended and Restated Bylaws
Our Second Amended and Restated Bylaws contain
certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control
of our company or changing our board of directors and management.
Our Second Amended and Restated Bylaws permit
the board of directors to establish the number of directors and fill any vacancies and newly created directorships. These provisions will
prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors by filling the
resulting vacancies with its own nominees. In addition, our Second Amended and Restated Bylaws provide that in addition to any other vote
required by law, no member of our board of directors may be removed from office by our stockholders without the approval of not less than
the majority of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors. Our
Second Amended and Restated Bylaws also do not provide our stockholders with the power to call a special meeting of stockholders and contain
certain advance notice provisions for the submission and presentation of stockholder meeting proposals or director nominations at a stockholder
meeting, which may limit the ability of stockholders to influence the composition and business decisions of our management.
Our
Second Amended and Restated Bylaws expressly provided for a right of first refusal of the Company for any proposed sale or transfer of
stock by a stockholder. However, this right of first refusal provided that it would terminate upon the date securities of the Company
were first offered to the public pursuant to a registration statement or offering statement filed with, and declared effective or qualified
by, as applicable, the SEC under the Securities Act. In connection with the completion of the Company’s initial public offering
in November 2023, the right of first refusal under the Second Amended and Restated
Bylaw terminated in accordance with its terms.
Our Second Amended and Restated Bylaws also provide
that the Company may also agree with any stockholders to restrict the sale or other disposal of the stock of the Company owned by such
stockholders. Our Second Amended and Restated Bylaws were expressly subject to certain restrictions set forth in the Shareholder Agreement
prior to its termination.
The holders of our common stock do not have cumulative
voting rights in the election of our directors. The combination of the present ownership by a few stockholders of a significant portion
of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our
board of directors or for a third party to obtain control of our company by replacing its board of directors.
Transfer Agent and Registrar
We have appointed Securities Transfer Corporation,
telephone (469) 633-0101, as the transfer agent for our common stock.
Trading Symbol and Market
Our common stock is listed on the NYSE American
under the symbol “SGN”.
SHARES ELIGIBLE FOR FUTURE
SALE
Future sales of substantial amounts of shares
of our common stock, including shares issued upon the exercise of outstanding options and warrants, in the public market, or the possibility
of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital
in the future.
There are 13,958,847 shares of common stock issued and outstanding.
The common stock sold by the Selling Stockholder will be freely tradable without restriction or further registration or qualification
under the Securities Act.
Previously issued shares of common stock that
were not offered and sold in the Company’s initial public offering by means of the Final IPO Prospectus, the resale offering that
commenced contemporaneously with the initial public offering by means of the Final Resale Prospectus, as well as shares issuable upon
the exercise of warrants or pursuant to the terms of other agreements or instruments that are not covered by an effective registration
statement, are, or will be upon issuance, “restricted securities,” as that term is defined in Rule 144 under the Securities
Act. These restricted securities are eligible for public sale only if such public resale is registered under the Securities Act or if
the resale qualifies for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below.
In addition, certain outstanding shares of common stock are subject to certain lock-up restrictions, which are also summarized below.
Rule 144
In general, a person who has beneficially owned
restricted shares of our common stock for at least 12 months, or at least six months in the event we have been a reporting company under
the Exchange Act for at least 90 days before the sale, would be entitled to sell such securities, provided that such person is not deemed
to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the 90 days preceding the sale.
A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled
to sell within any three-month period only a number of shares that does not exceed the greater of the following:
| ● | 1% of the number of shares of our common stock then outstanding; or |
| ● | 1% of the average weekly trading volume of our common stock during the four calendar weeks preceding the
filing by such person of a notice on Form 144 with respect to the sale; |
provided that, in each case, we are subject to
the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Rule 144 trades must also comply with the
manner of sale, notice and other provisions of Rule 144, to the extent applicable.
As of the date of this prospectus, the amount of shares of common stock
that may be resold pursuant to Rule 144, subject to its requirements and restrictions, is 10,644,299 shares.
Rule 701
In general, Rule 701 allows a stockholder who
purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate
of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply
with the public information, holding period, volume limitation or notice provisions of Rule 144, provided that, in each case, we are subject
to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Rule 701 also allows a stockholder who
purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is deemed to have been an affiliate
of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply
with the holding period provisions of Rule 144, provided that, in each case, we are subject to the periodic reporting requirements of
the Exchange Act for at least 90 days before the sale.
Lock-Up Agreements
2021 Private Placement Lock-Up Period
From September 2021 to December 2021, we conducted
a private placement of 6% convertible unsecured promissory notes due three years from the date of execution and entered into related subscription
agreements and investor rights and lockup agreements with a number of accredited investors. In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the outstanding principal under the convertible notes automatically converted into 2,774,200 shares of common stock. The shares
of common stock issued upon conversion of the convertible notes are subject to certain lockup provisions under the investor rights and
lockup agreements until the 180th day after the date of the closing of our initial public offering, or May 14, 2024, subject to certain
exceptions. In addition, the convertible note investors may not transfer or dispose of any shares of common stock for the period ending
up to 180 days after the date of the final prospectus for the Company’s initial public offering, or May 11, 2023, subject to certain
exceptions.
One of the investors who received shares upon
conversion of a convertible note may not be subject to these lock-up provisions because the holder’s convertible note was transferred
to the holder by the initial investor prior to its conversion without expressly assigning the investor’s rights and obligations
under the respective investor rights and lockup agreement.
2022 Private Placement Lock-Up Period
From August 2022 to January 2023, we conducted
a private placement of the Company’s 8% convertible unsecured promissory notes and respective warrants under subscription agreements
with a number of accredited investors. In connection with the closing of the initial public offering of the Company’s common stock
and listing of the common stock for trading on the NYSE American, on November 16, 2023, the outstanding principal under the convertible
notes automatically converted into 586,000 shares of common stock. The shares of common stock issued pursuant to the conversion of the
convertible notes and that may be issued upon exercise of the warrants are or will be subject to certain lockup restrictions under the
subscription agreements until the 365th day after the commencement of trading of our common stock, or November 14, 2024, subject to certain
exceptions.
Service Providers Lock-Up Period
On November 16, 2023, the Company issued a total
of 10,700 shares of common stock to two service providers pursuant to the service provider agreements with such service providers. Each
of the service providers entered into a restricted stock award agreement with the Company which provided that the service provider will
not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract
for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in
any of the foregoing transactions with respect to, any of the granted shares without the prior written consent of the Company or its managing
underwriter, for up to 12 months plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate
regulatory restrictions.
Company Lock-Up
We, all of our directors and officers and stockholders
holding 5% or more of our shares at the time of our initial public offering (as well as holders of convertible or exercisable securities
which convert into or are exercisable into common stock) agreed with the underwriters of our initial public offering, subject to certain
exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or securities convertible into or exercisable
or exchangeable for our common stock for a period of 12 months, from the date on which the trading of our common stock commenced (on November
14, 2023) as to our directors, officers and security holders, and from the closing date of the initial public offering (on November 16,
2023) as to us. The underwriters waived certain lock-up requirements or agreed to shorter lock-up periods with respect to some of such
persons, and may do so in the future in any respects of such lock-up requirements at their discretion.
Registration Rights
Registration Rights of Tumim Stone Capital
On January 5, 2024, the Company entered into the
Purchase Agreement with Tumim, providing for a CEFF, pursuant to which, upon the terms and subject to the satisfaction of the conditions
contained in the Purchase Agreement, Tumim has committed to purchase, at the Company’s direction in its sole discretion, up to an
aggregate of $25,000,000 of the Company’s common stock, subject to certain limitations set forth in the Purchase Agreement, from
time to time during the term of the Purchase Agreement. Concurrently with the execution of the Purchase Agreement, the Company and Tumim
also entered into the Registration Rights Agreement, pursuant to which the Company agreed to file with the SEC one or more registration
statements to register under the Securities Act the offer and resale by Tumim of all of the shares of common stock that may be issued
and sold by the Company to Tumim from time to time under the Purchase Agreement.
Under the Registration Rights Agreement, the Company
was required to make the initial filing of the registration statement of which this prospectus forms a part within 30 days after the date
of the Purchase Agreement. The Company must use commercially reasonable efforts to have the registration statement of which this prospectus
forms a part declared effective by the SEC as soon as reasonably practicable, but in no event later than 60 days after the date of the
Purchase Agreement. The registration statement of which this prospectus forms a part must cover the resale of the Commitment Shares and
up to the maximum number of Purchase Shares permitted to be included in the registration statement of which this prospectus forms a part
under applicable SEC rules, regulations and interpretations. If any shares of common stock required to be registered under a registration
statement pursuant to the Purchase Agreement and the Registration Rights Agreement may not be covered by the registration statement of
which this prospectus forms a part, and we elect to sell substantially all of the shares included in the registration statement of which
this prospectus forms a part, then an additional registration statement covering the resale of up to the maximum number of shares permitted
to be included in such additional registration statement must be filed within ten business days, and the Company must use its commercially
reasonable efforts to cause such additional registration statement to become effective as soon as reasonably practicable, but in no event
later than 60 days after the applicable filing deadline for such additional registration statement. If any shares of common stock remaining
required to be registered under a registration statement pursuant to the Purchase Agreement and the Registration Rights Agreement may
not be covered by such additional registration statement, and we elect to sell substantially all of the shares included in such additional
registration statement, then an additional registration statement covering the resale of up to the maximum number of shares permitted
to be included in such additional registration statement must be filed within ten business days, and the Company must use its commercially
reasonable efforts to cause such additional registration statement to become effective as soon as reasonably practicable, but in no event
later than 60 days after the applicable filing deadline for such additional registration statement. The same requirements will apply to
each additional registration statement required to be filed pursuant to the Purchase Agreement and the Registration Rights Agreement.
The Company will also be required to use commercially reasonable efforts to maintain the effectiveness of each registration statement
required to be filed pursuant to the Registration Rights Agreement until the date that Tumim no longer holds any of the shares that have
been sold or issued to it, subject to suspensions due to material non-public events for up to 20 consecutive trading days and up to 60
aggregate trading days in any 365-day period.
In addition, in the event that the Commencement
does not occur by February 15, 2024, and Tumim terminates the Purchase Agreement as a result, the Company will be required to issue to
Tumim five-year warrants that may be exercised to purchase 750,000 shares of common stock at an exercise price of $0.01 per share, with
full ratchet price protection and other antidilution protection. The Company will be required to file a registration statement on Form
S-1 covering the resale by Tumim of all of the shares of common stock that may be issued upon exercise of the warrants, which must be
declared effective by the SEC by the earlier of the 45th calendar day after the date that such registration statement is filed if subject
to review by the SEC, and the fifth calendar day after the date that such registration statement is filed if the Company is notified that
it will not be reviewed by the SEC. The Company will be required to maintain the effectiveness of the registration statement until the
later of the date that the warrants are terminated and all shares that were purchased by exercise of the warrants are sold.
Registration Rights of 6% Convertible Unsecured
Promissory Notes
In connection with the private placement of 6%
convertible unsecured promissory notes, the former note holders entered into related subscription agreements and investor rights and lockup
agreements which provided the following registration rights. Within 30 business days following the consummation of the first to occur
of an initial public offering, a Sale of Control or a Reverse Merger, as applicable, the Company will file a Resale Registration Statement
in order to register for resale all of the shares of common stock of the Company or common stock of any successor-in-interest to the Company
issued to all holders of the notes upon automatic conversion of the notes, and use its bests efforts to cause such Resale Registration
Statement to be declared effective by the SEC within 90 business days from the date of its initial filing; provided, that such conversion
shares will continue to be subject to restrictions on resale for a period of 180 days following completion of either the initial public
offering, Sale of Control or Reverse Merger, as applicable. In the event that, for any reason, the Company is unable to comply with the
above registration requirement, the former note holders holding the majority of the outstanding notes have a one-time right, at any time
after 180 days from the effective date of the registration statement in connection with its initial public offering, to request that the
Company file a Resale Registration Statement with respect to the notes’ underlying conversion shares then outstanding having an
anticipated aggregate offering price, net of selling expenses, of at least $5,000,000, in which event the Company shall (x) within ten
days after the date such request is given, give notice thereof to all other former note holders; and (y) as soon as practicable, and in
any event within 60 days after the date such request, file a Resale Registration Statement covering all the notes’ underlying conversion
shares that were requested to be registered and any additional conversion shares requested to be included in such registration by any
other former note holders, subject to certain limitations and exceptions. In addition, the Company agreed to provide “piggyback”
registration rights to the former note holders, so as to require us to include, at the option of the former note holders, the shares of
common stock underlying their securities in any registration statement to register other shares of common stock that the Company determines
to file after its initial public offering. The Company must generally keep any required or requested registration statement effective
for a period of at least 180 days after the expiration of the lockup requirements described above, subject to extensions under certain
circumstances. The Company also may not agree to allow others to include securities in a registration except to the extent that the inclusion
will not reduce the number of shares of common stock issuable upon conversion of the 6% convertible unsecured promissory notes, or allow
them to initiate a demand for registration of any securities. The Company also provided customary indemnification to the former note holders
relating to any damages to the holders arising from such registrations. For a description of other terms applicable to the 6% convertible
unsecured promissory notes, see “Description of Securities – 6% Convertible Unsecured Promissory Notes”.
Investors that were issued a majority of the shares
issued upon the automatic conversion of the 6% convertible unsecured promissory notes have waived their registration rights.
Registration Rights of 8% Convertible Unsecured
Promissory Notes and Respective Warrants
In connection with the private placement of 8%
convertible unsecured promissory notes and respective warrants, the Company agreed to provide “piggyback” registration rights
to the investors in such private placement, so as to require us to include, at the option of the investors, the shares of common stock
underlying or issued upon conversion or exercise of these securities in any registration statement to register other shares of common
stock that the Company determines to file after the Company’s initial public offering. For a description of other terms applicable
to the 8% convertible unsecured promissory notes, see “Description of Securities – 8% Convertible Unsecured Promissory
Notes”. For a description of other terms applicable to the respective warrants, see “Description of Securities –
Warrants – Investor Warrants – Warrants Issued With 8% Convertible Unsecured Promissory Notes”.
Investors that were issued a majority of the shares
issued upon the automatic conversion of the 8% convertible unsecured promissory notes have waived their registration rights.
Registration Rights of Placement Agent’s
Warrants
Under the Boustead Engagement Letter, its placement
agent’s warrants have “piggyback” registration rights. For a description of other terms applicable to the placement
agent’s warrants, see “Description of Securities – Warrants – Placement Agent’s Warrants”.
Boustead notified the Company that it waived these
registration rights with respect to the IPO Registration Statement and any registration statements relating to this offering.
Registration Rights of the Representative’s
Warrants
The representative’s warrants carry certain
registration rights. The registration statement for our initial public offering registered the sale of the representative’s warrants
and the resale of the shares of common stock issuable upon exercise of the representative’s warrants. For a description of the terms
of the representative’s warrants, see “Description of Securities – Representative’s Warrants”.
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S.
HOLDERS OF OUR COMMON STOCK
The following is a summary of the material U.S.
federal income and estate tax consequences of the ownership and disposition of our common stock that may be issued pursuant to this offering.
This summary is limited to Non-U.S. Holders (as defined below) that hold our common stock as a capital asset (generally, property held
for investment) for U.S. federal income tax purposes. This summary does not discuss all of the aspects of U.S. federal income and estate
taxation that may be relevant to a non-U.S. Holder in light of the Non-U.S. Holder’s particular investment or other circumstances.
Accordingly, all prospective Non-U.S. Holders should consult their own tax advisors with respect to the U.S. federal, state, local and
non-U.S. tax consequences of the ownership and disposition of our common stock.
This summary is based on provisions of the Code,
applicable U.S. Treasury regulations, and administrative and judicial interpretations, all as in effect or in existence on the date of
this prospectus. Subsequent developments in U.S. federal income or estate tax law, including changes in law or differing interpretations,
which may be applied retroactively, could alter the U.S. federal income and estate tax consequences of owning and disposing of our common
stock as described in this summary. There can be no assurance that the Internal Revenue Service, or IRS, will not take a contrary position
with respect to one or more of the tax consequences described herein and we have not obtained, nor do we intend to obtain, a ruling from
the IRS with respect to the U.S. federal income or estate tax consequences of the ownership or disposition of our common stock.
As used in this summary, the term “Non-U.S.
Holder” means a beneficial owner of our common stock that is not, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity treated as a corporation)
created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; |
| ● | an entity or arrangement treated as a domestic
partnership; |
| ● | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of
its source; or |
| ● | a trust, if (1) a U.S. court is able to
exercise primary supervision over the trust’s administration and one or more “United States persons” (within the meaning
of the Code) has the authority to control all of the trust’s substantial decisions, or (2) the trust has a valid election in
effect under applicable U.S. Treasury regulations to be treated as a United States person. |
If an entity or arrangement treated as a partnership
for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in such a partnership generally will depend
upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships,
and partners in partnerships, that hold our common stock should consult their own tax advisors as to the particular U.S. federal income
and estate tax consequences of owning and disposing of our common stock that are applicable to them.
This summary does not consider any specific facts
or circumstances that may apply to a Non-U.S. Holder and does not address any special tax rules that may apply to particular Non-U.S.
Holders, such as:
| ● | a Non-U.S. Holder that is a financial institution,
insurance company, tax-exempt organization, pension plan, broker, dealer or trader in securities, dealer in currencies, U.S. expatriate,
controlled foreign corporation or passive foreign investment company; |
| ● | a non-U.S. Holder holding our common stock as
part of a conversion transaction, constructive sale, wash sale or other integrated transaction or a hedge, straddle or synthetic security; |
| ● | a Non-U.S. Holder that holds or receives our common stock pursuant to the exercise of any employee stock
option or otherwise as compensation; or |
| ● | a non-U.S. Holder that at any time owns, directly, indirectly or constructively, 5% or more of our outstanding
common stock. |
In addition, this summary does not address any
U.S. state or local, or non-U.S. or other tax consequences, or any U.S. federal income or estate tax consequences for beneficial owners
of a Non-U.S. Holder, including stockholders of a controlled foreign corporation or passive foreign investment company that holds our
common stock.
Each Non-U.S. Holder should consult its own
tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of owning and disposing of our common
stock.
Distributions on Our Common Stock
We do not currently expect to pay any cash dividends
on our common stock. If we make distributions of cash or property (other than certain pro rata distributions of our common stock) with
respect to our common stock, any such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent
paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax rules. If a distribution exceeds
our current and accumulated earnings and profits, the excess will be treated as a nontaxable return of capital to the extent of the Non-U.S.
Holder’s adjusted tax basis in our common stock and will reduce (but not below zero) such Non-U.S. Holder’s adjusted tax basis
in our common stock. Any remaining excess will be treated as gain from a disposition of our common stock subject to the tax treatment
described below in “— Dispositions of Our Common Stock.”
Distributions on our common stock that are treated
as dividends and that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States will
be taxed on a net income basis at the regular graduated rates and in the manner applicable to United States persons. An exception may
apply if the Non-U.S. Holder is eligible for, and properly claims, the benefit of an applicable income tax treaty and the dividends are
not attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States. In such case, the
Non-U.S. Holder may be eligible for a lower rate under an applicable income tax treaty between the United States and its jurisdiction
of tax residence. Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United
States will not be subject to the U.S. withholding tax if the Non-U.S. Holder provides to the applicable withholding agent a properly
executed IRS Form W-8ECI (or other applicable form) in accordance with the applicable certification and disclosure requirements. A Non-U.S.
Holder treated as a corporation for U.S. federal income tax purposes may also be subject to a “branch profits tax” at a 30%
rate (unless the Non-U.S. Holder is eligible for a lower rate under an applicable income tax treaty) on the Non-U.S. Holder’s earnings
and profits (attributable to dividends on our common stock or otherwise) that are effectively connected with the Non-U.S. Holder’s
conduct of a trade or business within the United States. The amount of taxable earnings and profits is generally reduced by amounts reinvested
in the operations of the U.S. trade or business and increased by any decline in its equity.
The certifications described above must be provided
to the applicable withholding agent prior to the payment of dividends and must be updated periodically. A Non-U.S. Holder may obtain a
refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS. Non-U.S. Holders should
consult their own tax advisors regarding their eligibility for benefits under any relevant income tax treaty and the manner of claiming
such benefits.
The foregoing discussion is subject to the discussions
below under “—Backup Withholding and Information Reporting” and “—FATCA Withholding.”
Dispositions of Our Common Stock
A Non-U.S. Holder generally will not be subject
to U.S. federal income tax (including U.S. withholding tax) on gain recognized on any sale or other disposition of our common stock unless:
| ● | the gain is effectively connected with the Non-U.S.
Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable
to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States); in such case, the gain would
be subject to U.S. federal income tax on a net income basis at the regular graduated rates and in the manner applicable to United States persons
(unless an applicable income tax treaty provides otherwise) and, if the Non-U.S. Holder is treated as a corporation for U.S. federal income
tax purposes, the “branch profits tax” described above may also apply; |
| ● | the Non-U.S. Holder is an individual who is present
in the United States for 183 days or more in the taxable year of the disposition and meets certain other requirements; in such
case, except as otherwise provided by an applicable income tax treaty, the gain, which may be offset by certain U.S. source capital losses,
generally will be subject to a flat 30% U.S. federal income tax, even if the Non-U.S. Holder is not treated as a resident of the United States
under the Code; or |
| ● | we are or have been a “United States real
property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time during the shorter of (i) the five-year
period ending on the date of disposition and (ii) the period that the Non-U.S. Holder held our common stock. |
Generally, a corporation is a USRPHC, if the fair
market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in a trade or business. We believe that we are not currently,
and we do not anticipate becoming in the future, a USRPHC. However, because the determination of whether we are a USRPHC is made from
time to time and depends on the relative fair market values of our assets, there can be no assurance in this regard. If we were a USRPHC,
the tax relating to disposition of stock in a USRPHC generally will not apply to a Non-U.S. Holder whose holdings, direct, indirect and
constructive, constituted 5% or less of our common stock at all times during the applicable period, provided that our common stock is
“regularly traded on an established securities market” (as provided in applicable U.S. Treasury regulations) at any time during
the calendar year in which the disposition occurs. However, no assurance can be provided that our common stock will be regularly traded
on an established securities market for purposes of the rules described above. Non-U.S. Holders should consult their own tax advisors
regarding any possible adverse U.S. federal income tax consequences to them if we are, or were to become, a USRPHC.
The foregoing discussion is subject to the discussions
below under “—Backup Withholding and Information Reporting” and “—FATCA Withholding.”
Federal Estate Tax
Any shares of our common stock that are owned
(or treated as owned) by an individual who is not a U.S. citizen or resident of the United States (as specially defined for U.S. federal
estate tax purposes) at the time of his or her death will be included in that individual’s gross estate for U.S. federal estate
tax purposes, unless an applicable estate tax or other treaty provides otherwise, and therefore may be subject to U.S. federal estate
tax.
Backup Withholding and Information Reporting
Backup withholding (currently at a rate of 24%)
may apply to dividends paid by U.S. corporations in some circumstances, but will not apply to payments of dividends on our common stock
to a Non-U.S. Holder if the Non-U.S. Holder provides to the applicable withholding agent a properly executed IRS Form W-8BEN or W-8BEN-E
(or other applicable form) certifying under penalties of perjury that the Non-U.S. Holder is not a United States person or is otherwise
entitled to an exemption. However, the applicable withholding agent generally will be required to report to the IRS (and to such Non-U.S.
Holder) payments of dividends on our common stock and the amount of U.S. federal income tax, if any, withheld from those payments. In
accordance with applicable treaties or agreements, the IRS may provide copies of such information returns to the tax authorities in the
country in which the Non-U.S. Holder resides.
The gross proceeds from sales or other dispositions
of our common stock may be subject, in certain circumstances discussed below, to U.S. backup withholding and information reporting. If
a Non-U.S. Holder sells or otherwise disposes of any of our common stock outside the United States through a non-U.S. office of a non-U.S.
broker and the disposition proceeds are paid to the Non-U.S. Holder outside the United States, the U.S. backup withholding and information
reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not U.S. backup withholding,
will apply to a payment of disposition proceeds, even if that payment is made outside the United States, if a Non-U.S. Holder sells our
common stock through a non-U.S. office of a broker that is a United States person or has certain enumerated connections with the United
States, unless the broker has documentary evidence in its files that the Non-U.S. Holder is not a United States person and certain other
conditions are met or the Non-U.S. Holder otherwise qualifies for an exemption.
If a Non-U.S. Holder receives payments of the
proceeds of a disposition of our common stock to or through a U.S. office of a broker, the payment will be subject to both U.S. backup
withholding and information reporting unless the Non-U.S. Holder provides to the broker a properly executed IRS Form W-8BEN or W-8BEN-E
(or other applicable form) certifying under penalties of perjury that the Non-U.S. Holder is not a United States person, or the Non-U.S.
Holder otherwise qualifies for an exemption.
Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be credited against the Non-U.S. Holder’s U.S. federal income tax liability
(which may result in the Non-U.S. Holder being entitled to a refund), provided that the required information is timely furnished to the
IRS.
FATCA Withholding
The Foreign Account Tax Compliance Act and related
Treasury guidance (commonly referred to as FATCA) impose U.S. federal withholding tax at a rate of 30% on payments to certain foreign
entities of (i) U.S.-source dividends (including dividends paid on our common stock) and (ii) the gross proceeds from the sale
or other disposition of property that produces U.S.-source dividends (including sales or other dispositions of our common stock). This
withholding tax applies to a foreign entity, whether acting as a beneficial owner or an intermediary, unless such foreign entity complies
with (i) certain information reporting requirements regarding its U.S. account holders and its U.S. owners and (ii) certain
withholding obligations regarding certain payments to its account holders and certain other persons. Accordingly, the entity through which
a Non-U.S. Holder holds its common stock will affect the determination of whether such withholding is required. While withholding under
FATCA would have also applied to payments of gross proceeds from the sale or other disposition of our common stock on or after January
1, 2019, U.S. Treasury regulations proposed in December 2018 eliminate such withholding on payments of gross proceeds entirely. Taxpayers
generally may rely on these proposed U.S. Treasury regulations until final U.S. Treasury regulations are issued. Non-U.S. Holders are
encouraged to consult their tax advisors regarding the possible application of FATCA in their particular circumstances.
PLAN OF DISTRIBUTION
The shares of our common stock offered by this
prospectus are being offered by the Selling Stockholder, Tumim Stone Capital LLC. The shares may be sold or distributed from time
to time by the Selling Stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely
as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or
at fixed prices, which may be changed. The sale of the shares of our common stock offered by this prospectus could be effected in one
or more of the following methods:
| ● | ordinary
brokers’ transactions; |
| ● | transactions
involving cross or block trades; |
| ● | through
brokers, dealers, or underwriters who may act solely as agents; |
| ● | “at
the market” into an existing market for our common stock; |
| ● | in
other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through
agents; |
| ● | in
privately negotiated transactions; or |
| ● | any
combination of the foregoing. |
In order to comply with the securities laws of
certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain
states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s
registration or qualification requirement is available and complied with.
Tumim is an “underwriter” within the
meaning of Section 2(a)(11) of the Securities Act.
Tumim has informed us that it intends to use one
or more registered broker-dealers to effectuate all sales, if any, of our common stock that it has acquired and may in the future acquire
from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the
then current market price. Each such registered broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Tumim has informed us that each such broker-dealer will receive commissions from Tumim that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating
in the distribution of the shares of our common stock offered by this prospectus may receive compensation in the form of commissions,
discounts, or concessions from the purchasers, for whom the broker-dealers may act as agent, of the shares sold by the Selling Stockholder
through this prospectus. The compensation paid to any such particular broker-dealer by any such purchasers of shares of our common stock
sold by the Selling Stockholder may be less than or in excess of customary commissions. Neither we nor the Selling Stockholder can presently
estimate the amount of compensation that any agent will receive from any purchasers of shares of our common stock sold by the Selling
Stockholder.
We know of no existing arrangements between the
Selling Stockholder or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares
of our common stock offered by this prospectus.
We may from time to time file with the SEC one
or more supplements to this prospectus or amendments to the registration statement of which this prospectus forms a part to amend, supplement
or update information contained in this prospectus, including, if and when required under the Securities Act, to disclose certain information
relating to a particular sale of shares offered by this prospectus by the Selling Stockholder, including the names of any brokers, dealers,
underwriters or agents participating in the distribution of such shares by the Selling Stockholder, any compensation paid by the Selling
Stockholder to any such brokers, dealers, underwriters or agents, and any other required information.
We will pay the expenses incident to the registration under the Securities
Act of the offer and sale of the shares of our common stock covered by this prospectus by the Selling Stockholder. As consideration for
its irrevocable commitment to purchase our common stock under the Purchase Agreement, we have issued to Tumim 661,102 shares of our common
stock as Commitment Shares. We also have agreed to reimburse Tumim for the fees and disbursements of its counsel, payable upon execution
of the Purchase Agreement, in an amount not to exceed $75,000 ($50,000 of which has been paid as of the time we executed the Purchase
Agreement).
We also have agreed to indemnify Tumim and certain
other persons against certain liabilities in connection with the offering of shares of our common stock offered hereby, including liabilities
arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Tumim has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished
to us by Tumim specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid
in respect of such liabilities. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors,
officers, and controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy
as expressed in the Securities Act and is therefore, unenforceable.
We estimate that the total expenses for the offering will be approximately
$187,495.
Tumim has represented to us that at no time prior
to the date of the Purchase Agreement has Tumim or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever,
directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock
or any hedging transaction, which establishes a net short position with respect to our common stock. Tumim has agreed that during the
term of the Purchase Agreement, neither Tumim, nor any of its agents, representatives or affiliates will enter into or effect, directly
or indirectly, any of the foregoing transactions.
We have advised the Selling Stockholder that it
is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the Selling
Stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the
entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security
in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this
prospectus.
This offering will terminate on the date that
all shares of our common stock offered by this prospectus have been sold by the selling stockholder.
Our common stock is currently listed on the NYSE
American under the symbol “SGN”.
LEGAL MATTERS
The validity of the securities covered by this
prospectus has been passed upon for us by Bevilacqua PLLC.
As of the date of this prospectus, Bevilacqua
PLLC owns 15,000 shares of common stock. Bevilacqua PLLC received these shares as partial consideration for legal services previously
provided to us.
EXPERTS
The financial statements of the Company as of
and for the fiscal year ended December 31, 2022 appearing elsewhere in this prospectus have been included herein in reliance upon the
report of BARTON CPA, an independent registered public accounting firm (“Barton”), appearing elsewhere herein (which contains
an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as
disclosed in Note 1 to the consolidated financial statements), and upon the authority of said firm as experts in accounting and auditing.
The financial statements of the Company as of
and for the fiscal year ended December 31, 2021 appearing elsewhere in this prospectus have been included herein in reliance upon the
report of Marcum LLP, an independent registered public accounting firm (“Marcum”),
appearing elsewhere herein (which contains an explanatory paragraph describing conditions that raise substantial doubt about our
ability to continue as a going concern as disclosed in Note 1 to the consolidated financial statements), and upon the authority
of said firm as experts in accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
Marcum audited our consolidated financial statements
for the year ended December 31, 2021. On March 6, 2023, Marcum resigned as our independent registered public accounting firm. The audit
report issued by Marcum on January 24, 2023, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified
as to audit scope or accounting principles, but included an explanatory paragraph that there was substantial doubt as to the Company’s
ability to continue as a going concern. Marcum did not provide an audit report on our financial statements for any period subsequent to
December 31, 2021. Marcum has not provided any audit services to the Company subsequent to January 24, 2023.
During the year ended December 31, 2021 and subsequently
during 2022 and through March 6, 2023, (i) there were no “disagreements” between us and Marcum (as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K promulgated by the SEC (“Regulation S-K”) and the related instructions to this item)
on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Marcum, would have caused them to make reference to the subject matter of the disagreements in
connection with their report on the financial statements for such period, and (ii) there were no “reportable events” as such
term is defined in Item 304(a)(1)(v) of Regulation S-K, other than as described below.
During the year ended December 31, 2021, in connection
with the audit of our financial statements as of and for the year ended December 31, 2021, several material weaknesses in our internal
control over financial reporting were identified. The material weaknesses related to the following: a) Ineffective controls over period
end financial disclosures and reporting process: Due to resource constraints, we have not formally defined internal controls over the
period end financial disclosure and reporting process, including the identification of subsequent events, which increases susceptibility
to fraud or error, and b) Revenue recognition – customer contracts: In connection with Marcum’s testing of revenue, several
test selections did not have documentation such as a corresponding contract or third party written documentation of the customer’s
order.
We provided Marcum with a copy of the foregoing
disclosures and requested Marcum to furnish us with a letter addressed to the SEC stating whether or not Marcum agrees with the above
disclosures. A copy of Marcum’s letter is filed as Exhibit 16.1 to the registration statement of which this prospectus is a part.
On
March 1, 2023, we engaged Barton as our new independent registered public accounting firm. During the year ended December 31, 2021
and subsequently during 2022 and through March 1, 2023, we (or any person on
our behalf) did not consult with Barton regarding any of the matters described in Items 304(a)(2)(i) or 304(a)(2)(ii) of Regulation
S-K.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement
on Form S-1 under the Securities Act with respect to the securities being offered by this prospectus. This prospectus does not contain
all of the information included in the registration statement. For further information about us and our securities, you should refer to
the registration statement and the exhibits and schedules filed with the registration statement. Whenever we make reference in this prospectus
to any of our contracts, agreements or other documents, the references are materially complete but may not include a description of all
aspects of such contracts, agreements or other documents, and you should refer to the exhibits attached to the registration statement
for copies of the actual contract, agreement or other document.
We
file periodic reports, proxy and information statements and other information with the SEC. Such annual, quarterly and special
reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We also
make these documents publicly available, free of charge, on our website at https://www.signingdaysports.com/ as soon as reasonably practicable
after filing such documents with the SEC. Information on, or accessible through, our website is not part of this prospectus.
FINANCIAL STATEMENTS
|
|
Page |
Unaudited Consolidated
Financial Statements for the Three and Nine Months Ended September 30, 2023 and September 30, 2022 |
|
|
Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 |
|
F-2 |
Unaudited Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2023 and September 30, 2022 |
|
F-3 |
Unaudited Consolidated Statements of Stockholders’
and Members’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022 |
|
F-4 |
Unaudited Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2023 and September 30, 2022 |
|
F-5 |
Notes to Unaudited
Consolidated Financial Statements |
|
F-6 |
|
|
Page |
Audited Consolidated
Financial Statements for the Years Ended December 31, 2022 and December 31, 2021 |
|
|
Report of Independent Registered Public
Accounting Firm (PCAOB ID: 6968) |
|
F-29 |
Report of Independent Registered Public
Accounting Firm (PCAOB ID: 688) |
|
F-31 |
Consolidated Balance Sheets as of December
31, 2022 and December 31, 2021 |
|
F-32 |
Consolidated Statements of Operations for
the Years Ended December 31, 2022 and December 31, 2021 |
|
F-33 |
Consolidated Statements of Stockholders’
and Members’ Equity (Deficit) for the Years Ended December 31, 2022 and December 31, 2021 |
|
F-34 |
Consolidated Statements
of Cash Flows for the Years Ended December 31, 2022 and December 31, 2021 |
|
F-35 |
Notes to Consolidated
Financial Statements |
|
F-36 |
SIGNING
DAY SPORTS, INC.
Consolidated
Balance Sheets
| |
September
30,
2023
(Unaudited) | | |
December
31,
2022 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
Current assets | |
| | |
| |
Cash and
cash equivalents | |
$ | 22,517 | | |
$ | 254,409 | |
Accounts receivable | |
| - | | |
| 15,670 | |
Prepaid expense | |
| 7,816 | | |
| 13,841 | |
Current operating lease
right of use asset | |
| 82,353 | | |
| - | |
Other
current assets | |
| - | | |
| 17,412 | |
| |
| | | |
| | |
Total
current assets | |
| 112,686 | | |
| 301,332 | |
| |
| | | |
| | |
Property and equipment, net | |
| 14,102 | | |
| 10,302 | |
Intangible assets | |
| 16,501 | | |
| 22,000 | |
Operating lease right of
use asset | |
| 145,214 | | |
| - | |
Internally developed software | |
| 1,078,956 | | |
| 12,529 | |
Deferred tax asset | |
| 100,000 | | |
| 100,000 | |
Deferred offering cost | |
| 431,431 | | |
| - | |
Other
assets | |
| 24,000 | | |
| 8,000 | |
| |
| | | |
| | |
Total
assets | |
$ | 1,922,890 | | |
$ | 454,163 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,696,840 | | |
$ | 614,158 | |
Accrued liabilities | |
| 1,025,380 | | |
| 512,688 | |
Deferred revenue | |
| 4,259 | | |
| 44,073 | |
Deferred rent | |
| - | | |
| 9,894 | |
Current operating lease
right of use liability | |
| 82,353 | | |
| 13,924 | |
Tenant deposit | |
| 9,894 | | |
| 9,894 | |
Convertible notes - current
maturities | |
| - | | |
| 1,315,000 | |
Loans
payable | |
| 678,666 | | |
| 120,000 | |
| |
| | | |
| | |
Total current liabilities | |
| 3,497,392 | | |
| 2,639,631 | |
| |
| | | |
| | |
Non-current liabilities | |
| | | |
| | |
Convertible
and nonconvertible notes - net of current maturities, less unamortized debt issuance costs | |
| 9,804,857 | | |
| 5,917,080 | |
Noncurrent
operating lease liability | |
| 165,754 | | |
| - | |
| |
| | | |
| | |
Total
liabilities | |
$ | 13,468,003 | | |
$ | 8,556,711 | |
| |
| | | |
| | |
Stockholders’
deficit | |
| | | |
| | |
Common stock: par
value $0.0001 per share; 150,000,000 authorized shares, 7,737,652 and 8,086,152 shares issued and outstanding as of September 30,
2023, and December 31, 2022 respectively. | |
| 760 | | |
| 809 | |
Additional paid-in capital | |
| 2,610,753 | | |
| 3,377,459 | |
Subscription Receivable | |
| (11 | ) | |
| - | |
Accumulated
deficit | |
| (14,156,615 | ) | |
| (11,480,816 | ) |
| |
| | | |
| | |
Total stockholders’
deficit | |
| (11,545,113 | ) | |
| (8,102,548 | ) |
| |
| | | |
| | |
Total liabilities and
stockholders’ deficit | |
$ | 1,922,890 | | |
$ | 454,163 | |
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
SIGNING
DAY SPORTS, INC.
Consolidated
Statements of Operations
(Unaudited)
| |
Three
Months Ended | | |
Nine
Months Ended | |
| |
September 30, | | |
September 30, | | |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Revenues, net | |
$ | 55,212 | | |
$ | 3,352 | | |
$ | 226,042 | | |
$ | 71,701 | |
Cost of revenues | |
| 10,238 | | |
| 162,050 | | |
| 36,273 | | |
| 680,557 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit (loss) | |
| 44,974 | | |
| (158,698 | ) | |
| 189,769 | | |
| (608,856 | ) |
| |
| | | |
| | | |
| | | |
| | |
Operating cost
and expenses | |
| | | |
| | | |
| | | |
| | |
Advertising and marketing | |
| 75,565 | | |
| 131,075 | | |
| 312,295 | | |
| 818,028 | |
General
and administrative | |
| 567,522 | | |
| 733,191 | | |
| 1,838,026 | | |
| 3,329,038 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 643,087 | | |
| 864,266 | | |
| 2,150,321 | | |
| 4,147,066 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) from
operations | |
| (598,113 | ) | |
| (1,022,964 | ) | |
| (1,960,552 | ) | |
| (4,755,922 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (309,271 | ) | |
| - | | |
| (764,719 | ) | |
| - | |
Interest income | |
| - | | |
| 5 | | |
| - | | |
| 1,100 | |
Other expense | |
| (2,347 | ) | |
| - | | |
| - | | |
| (53,640 | ) |
Other
Income | |
| (9,894 | ) | |
| 29,682 | | |
| 49,470 | | |
| 85,724 | |
| |
| | | |
| | | |
| | | |
| | |
Total other income (expense) | |
| (321,512 | ) | |
| 29,687 | | |
| (715,249 | ) | |
| 33,184 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (919,625 | ) | |
$ | (993,277 | ) | |
$ | (2,675,801 | ) | |
$ | (4,722,738 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted
average common shares outstanding - basic and diluted | |
| 7,614,070 | | |
| 5,421,113 | | |
| 7,614,070 | | |
| 5,421,113 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share
- basic and diluted | |
| 0.12 | | |
| 0.18 | | |
| 0.35 | | |
| 0.87 | |
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
SIGNING
DAY SPORTS, INC.
Consolidated
Statements of Changes In Stockholders’ Deficit
(Unaudited)
| |
Common Stock | | |
| | |
Subscription | | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Additional | | |
Receivable | | |
Deficit | | |
Deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance at December 31, 2021 | |
| 7,495,104 | | |
$ | 750 | | |
$ | 1,245,267 | | |
| - | | |
$ | (4,807,002 | ) | |
$ | (3,560,985 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,016,227 | ) | |
| (2,016,227 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2022 | |
| 7,495,104 | | |
| 750 | | |
| 1,245,267 | | |
| | | |
| (6,823,229 | ) | |
| (5,577,212 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,713,233 | ) | |
| (3,729,460 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30, 2022 | |
| 7,495,104 | | |
$ | 750 | | |
$ | 1,245,267 | | |
| - | | |
$ | (8,536,462 | ) | |
$ | (9,306,672 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at December 31, 2022 | |
| 8,086,152 | | |
$ | 809 | | |
| 3,377,459 | | |
| - | | |
| (11,480,816 | ) | |
| (8,102,548 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense | |
| - | | |
| - | | |
| 178,333 | | |
| - | | |
| - | | |
| 178,333 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock repurchase and retirement | |
| (600,000 | ) | |
| (60 | ) | |
| (799,940 | ) | |
| - | | |
| - | | |
| (800,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (865,251 | ) | |
| (865,251 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2023 (Restated) | |
| 7,486,152 | | |
$ | 749 | | |
| 2,755,852 | | |
| - | | |
| (12,346,067 | ) | |
| (9,589,466 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation expense adjustment | |
| - | | |
| - | | |
| (145,099 | ) | |
| - | | |
| - | | |
| (145,099 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock | |
| 105,000 | | |
| 11 | | |
| - | | |
| (11 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (890,923 | ) | |
| (890,923 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at June 30, 2023 | |
| 7,591,152 | | |
$ | 760 | | |
$ | 2,610,753 | | |
| (11 | ) | |
$ | (13,236,990 | ) | |
$ | (10,625,488 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (919,625 | ) | |
| (919,625 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at Sept. 30, 2023 | |
| 7,591,152 | | |
$ | 760 | | |
$ | 2,610,753 | | |
| (11 | ) | |
$ | (14,156,615 | ) | |
$ | (11,545,113 | ) |
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
SIGNING
DAY SPORTS, INC.
Consolidated
Statements of Cash Flows
(Unaudited)
| |
Nine Months
Ended | | |
Nine Months
Ended | |
| |
September 30, | | |
September 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash flows from operating activities | |
| | |
| |
Net loss | |
$ | (2,675,801 | ) | |
$ | (4,722,738 | ) |
Adjustments to reconcile net income to net cash used in
operating activities: | |
| | | |
| | |
Depreciation | |
| 1,842 | | |
| - | |
Stock-based compensation | |
| 33,283 | | |
| - | |
(Increase) decrease in assets: | |
| | | |
| | |
Accounts receivable | |
| 15,670 | | |
| 1,130 | |
Prepaid and other assets | |
| 7,437 | | |
| 185,027 | |
Operating lease right of use asset | |
| (227,567 | ) | |
| - | |
Deferred offering costs | |
| (431,431 | ) | |
| - | |
Increase (decrease) in liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 1,595,376 | | |
| 77,780 | |
Deferred revenue | |
| (39,814 | ) | |
| (32,268 | ) |
Deferred rent | |
| (9,894 | ) | |
| (31,960 | ) |
Lease liabilities | |
| 234,183 | | |
| (22,312 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (1,496,716 | ) | |
| (4,545,340 | ) |
| |
| | | |
| | |
Cash flows from investing
activities | |
| | | |
| | |
Development of internal software | |
| (1,066,427 | ) | |
| (648,791 | ) |
Purchase of intellectual property | |
| 5,499 | | |
| (22,000 | ) |
Purchase of property and equipment | |
| (5,642 | ) | |
| - | |
| |
| | | |
| | |
Net cash used in investing activities | |
| (1,066,570 | ) | |
| (670,791 | ) |
| |
| | | |
| | |
Cash flows from financing
activities | |
| | | |
| | |
Proceeds from issuance of convertible notes | |
| 2,572,777 | | |
| 700,000 | |
Proceeds from loans | |
| 558,666 | | |
| 120,000 | |
Proceeds from issuance of common stock | |
| (49 | ) | |
| - | |
Distribution to member | |
| (800,000 | ) | |
| - | |
| |
| | | |
| | |
Net cash provided by financing
activities | |
| 2,331,394 | | |
| 820,000 | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (231,892 | ) | |
| (4,396,131 | ) |
| |
| | | |
| | |
Cash and cash equivalents, beginning
of period | |
| 254,409 | | |
| 4,687,550 | |
| |
| | | |
| | |
Cash and cash equivalents, end of
period | |
| 22,517 | | |
| 291,419 | |
| |
| | | |
| | |
Supplemental cash flow information | |
| | | |
| | |
Cash paid for interest expense | |
$ | - | | |
$ | - | |
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
SIGNING
DAY SPORTS, INC.
NOTES
TO FINANCIAL STATEMENTS
September
30, 2023
(Unaudited)
Note 1
- Principal Business Activity and Significant Accounting Policies
Principal
Business Activity
Signing
Day Sports, Inc. (formerly known as Signing Day Sports, LLC) (“Company”) was formed and began operations in January 2019
and provides a digital ecosystem to help high school athletes get discovered and recruited by college coaches across the United States
of America.
The
Company’s website and mobile phone application provides an opportunity for athletes to create a personal profile by uploading measurables,
videos of key drills, testing stats, academics and demographic information. Coaches can evaluate a prospect’s video, watch two
separate prospects side by side simultaneously, and perform other actions with the video to visually evaluate talent. Intangible assets
consist of development software, patented technology, customer lists, trademarks, software IP, and customer data in the form of verifiable
video uploads, player statistics, and academic records.
Principles
of Consolidation
The
accompanying consolidated financial statements (sometimes referred to herein as “financial statements”) include the accounts
of Signing Day Sports, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances and
transactions have been eliminated.
Going
Concern Considerations
Our
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. We sustained significant losses and negative cash flows from operations
and are dependent on debt and equity financing to fund operations. We incurred a net loss of approximately $0.920 million and $2.676
million for the three and nine months ended September 30, 2023, respectively and $0.993
million and $4.723 million for the three and nine months ended September 30, 2022. We had cash used in operating activities of approximately
$1.497 million and $4.545 million for the nine months ended September 30, 2023 and 2022, respectively, and have cumulative losses of
approximately $20.8 million and $18.1 million as of September 30, 2023 and December 31, 2022, respectively. These conditions raise substantial
doubt about our ability to continue as a going concern.
The
Company is continuing its path to profitability through increased business development, marketing and sales of the Company’s multiple
lines of subscriptions.
Failure
to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results
of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s
potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales
channels.
We
are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they
come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern
as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying financial statements
do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Basis
of Presentation
These
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Concentrations
of Credit Risk
The
Company maintains its cash account in several deposit accounts, the balances of which are periodically more than federally insured limits.
At September 30, 2023 and December 31, 2022, the Company had no amounts uninsured.
Receivables
and Credit Policy
The
Company estimates an allowance for doubtful accounts based upon an evaluation of the status of receivables, historical experience, and
other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.
There were $0 of open receivables at September 30, 2023 and $15,670 at December 31, 2022. At September 30, 2023 and December 31, 2022,
the Company believes the accounts receivable are fully collectable and has no reserve established.
Payment
Terms
Users
may access the Company’s website and application on either a free-trial or paid basis. During 2022 and 2021, certain organizations
were also permitted to access the Company’s website and application under a separate free use arrangement. This free use arrangement
was discontinued as of December 31, 2022. Users that are not eligible or no longer eligible for free-trial access are required to have
subscriptions by making payment to the Company prior to access to the Company’s website and application, except that user organizations
may have subscriptions by agreeing to make payment on a monthly installment basis. If a required payment is not made, access to
the Company’s website and application is suspended until the required payment is received.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend
the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired
or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in
income.
Depreciation
is provided using the straight-line method, based on useful lives of the assets which range from three to five years.
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand,
competition, and other economic factors. Based on this assessment there was no impairment at September 30, 2023 and December 31, 2022.
Internally
Developed Software
Software
consists of an internally developed information system for use by the Company in matching athletes with qualified coaches. The Company
has capitalized costs incurred with development and upgrades of the information systems in accordance with applicable accounting standards.
Costs incurred up to and including the feasibility stage of development as well as maintenance costs are expensed as incurred. The Company
amortizes these capitalized costs on a straight-line basis over the estimated useful life of the asset of five years.
The
Company periodically performs reviews of the recoverability of such capitalized technology costs. At the time a determination is made
that capitalized amounts are not recoverable based on estimated cash flows to be generated from technology; any remaining capitalized
amounts are written off. During the nine months ended September 30, 2023 and 2022, the Company did not have an impairment charge.
Intangible
Assets
Intangible
assets consist of development software, patented technology, customer lists, trademarks, software IP, and customer data in the form of
verifiable video uploads, player statistics, and academic records. Intangible assets are stated at cost less accumulated amortization.
For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives
of the related assets. For intangible assets with indefinite lives, the assets are tested periodically for impairment.
Stock
Subscription Revenue
The
Company records stock issuances at the effective date. If the subscription is not funded upon issuance, the Company records a stock subscription
receivable as an asset on the balance sheet. When stock subscription receivables are not received prior to the issuance of financial
statements at a reporting date in satisfaction of the requirements under Accounting Standards Codification (“ASC”), 505-10-45-2,
the stock subscription receivable is reclassified as a contra account to stockholder’s equity (deficit) on the balance sheet.
Fair
Value Measurements
The
Company uses the fair value framework that prioritizes the inputs to valuation techniques for recognizing financial assets and liabilities
measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered
to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement
date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable
in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input
that is significant to the fair value measurement in its entirety.
These
levels are:
Level
1 – This level consists of valuation techniques in which all significant inputs are unadjusted quoted prices from active markets
for assets or liabilities that are identical to the assets or liabilities being measured.
Level
2 – This level consists of valuation techniques in which significant inputs include quoted prices from active markets for assets
or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical
or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all
significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.
Level
3 – This level consists of valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Unobservable inputs are valuation technique inputs that reflect assumptions about inputs that market participants would use in pricing
an asset or liability.
The
Company’s financial instruments also include accounts and receivable, accounts payable, and accrued liabilities. Due to the short-term
nature of these instruments, their fair values approximate their carrying values on the balance sheet.
ASC
825-10, Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value
(fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election
date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported
in earnings at each subsequent reporting date.
The
Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance
with ASC 820, Fair Value Measurement.
Due
to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance
sheet dates.
Income
Taxes
Income
taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of internally developed software and net operating loss and research and development
tax credit carry forwards for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The
Company converted to a C corporation in August of 2021. As a limited liability company for the 2020 year and through the date of conversion
in 2021, the Company’s taxable loss was allocated to members in accordance with their respective percentage of ownership. Therefore,
no provision for income taxes has been included in the financial statements for the period prior to the Company’s conversion to
a C corporation.
The
Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual
is necessary for uncertain tax positions. As of September 30, 2023 and December 31, 2022, the unrecognized tax benefits accrual was zero.
The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.
As of September 30, 2023, the 2020 through 2022 tax years generally remain subject to examination by federal and state authorities.
Deferred
Revenue
Deferred
revenues are contract liabilities for collections on subscription agreements in excess of revenue recognized.
Revenue
Recognition
The
Company accounts for revenue under the guidance of ASC 606, Revenue from Contracts from Customers (“ASC 606”).
ASC
606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue
to be recognized. Under the ASC 606 guidance, an entity is required to perform the following five steps:
(1)
identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity
satisfies a performance obligation.
Revenue
from performance obligations satisfied at a point in time consist of sales to individuals representing a one-month subscription and are
recognized at the end of the subscription.
Revenue
from performance obligations satisfied over time consists of the sale of subscription agreements to individual organizations or customers
that are more than one month in duration and are recognized on a monthly basis over the life of the subscription agreement.
Debt
Issuance Costs
Debt
issuance costs are amortized over the period the related obligation is outstanding using the straight-line method. The straight-line
method is a reasonable estimate of the effective interest method due to the relatively short maturities of the related debt. Debt issuance
costs are included within long-term debt on the balance sheet. Amortization of debt issuance costs is included in interest expense in
the accompanying financial statements. As of September 30, 2023 and December 31, 2022, unamortized debt issuance costs are $315,143 and
$387,920, respectively.
Advertising
Costs
Advertising
and marketing costs are expensed as incurred. Such costs amounted to $75,565 and $312,295 for the three and nine months ended September
30, 2023, respectively, and $131,075 and $818,028 for the three and nine months ended September 30, 2022, respectively. Advertising costs
are included in advertising and marketing expenses in the statements of operations.
Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Contract
Costs
Incremental
costs of obtaining a contract are expensed as incurred as the amortization period of the asset that otherwise would have been recognized
is estimated to be one year or less.
Stock-Based
Compensation
The
Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation (“ASC
718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation
awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based
payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions
of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation
is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods
or services.
Treasury
stock
Treasury
stock are shares the Company has acquired of the Company’s capital stock and have all been cancelled. The cost of the acquired
shares is presented as a deduction from stockholders’ equity.
Basic
and Diluted Net Loss per Common Share
Basic
loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each
period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding
plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive. As of September 30, 2023 and December 31, 2022, 386,650
and 253,000, respectively, stock options were excluded from dilutive earnings per share as their effects were anti-dilutive.
Leases
At
the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating
or finance lease at commencement. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset
for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease.
As
most of the Company’s leases do not provide an implicit interest rate, the lease liability is calculated at lease commencement
as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing
rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized
basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the
lease.
The
lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms
may include optional extension periods when it is reasonably certain that those options will be exercised.
Leases
with an initial expected term of 12 months or less are not recorded in the Balance Sheet and the related lease expense is recognized
on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not separate fixed
lease components from the fixed non-lease components.
Adopted
Accounting Pronouncements
On
January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). This standard replaced the incurred loss
methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current
conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, such as accounts
receivable. At September 30, 2023, the Company does not have financial assets measured at amortized cost and the allowance is currently
zero.
New Accounting
Pronouncements
The
Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not
expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
Correction
to Prior Period Financial Statements
During
the three months ended September 30, 2023, the Company determined that the unaudited consolidated financial statements for the
three months ended March 31, 2023 and June 30, 2023, contained an immaterial misstatement. Under capitalization of internally developed
software costs resulted in an understatement of cost of revenues and general and administrative expenses for the three months ended March
31, 2023 and unrecognized expenses resulted in an understatement of general and administrative expenses for the three months June 30,
2023. Because correcting the error in the current period would materially misstate those financial statements, the prior period(s)
financial statements should be corrected, even though such revision previously was and continues to be immaterial to the prior period(s)
financial statements. However, correcting prior period(s) financial statements for immaterial errors would not require previous
filings to be amended (e.g., no Form 10-K/A required).
In
accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and “SAB 108”), Signing Day Sports evaluated
these errors and determined that they were immaterial to each of the reporting periods affected and, therefore, amendment of previously
filed reports was not required. However, in order to provide consistency in the Consolidated Statement of Cash Flows and as permitted
by SAB 108, revisions for these immaterial amounts to previously reported annual amounts are reflected in the financial information herein
and will be reflected in future filings containing such financial information as permitted by SAB 108.
The
following table presents the effects of the immaterial prior period adjustment on the consolidated balance sheet (unaudited) of March
31, 2023:
| |
As
of March 31, 2023 | |
| |
As
Reported | | |
Correction of
Error | | |
As
Adjusted | |
Software development & intangible
assets | |
$ | 447,869 | | |
$ | 86,972 | | |
$ | 534,841 | |
Accounts Payable | |
| 991,754 | | |
| 16,456 | | |
| 1,008,210 | |
Accumulated deficit | |
| (12,416,583 | ) | |
| 70,516 | | |
| (12,346,067 | ) |
| |
| | | |
| | | |
| | |
The
following table presents the effects of the immaterial prior period adjustment on the consolidated statement of operations (unaudited)
for the three months ended March 31, 2023:
| |
For
the Three Months Ended March 31, 2023 | |
| |
As
Reported | | |
Correction of
Error | | |
As
Adjusted | |
Cost of revenues | |
$ | 71,439 | | |
$ | 66,898 | | |
$ | 4,541 | |
General and administrative expenses | |
$ | 676,685 | | |
$ | 3,618 | | |
$ | 673,067 | |
Net loss | |
| (935,767 | ) | |
| 70,516 | | |
| (865,251 | ) |
Net loss per common share – basic and
diluted | |
$ | 0.12 | | |
$ | 0.01 | | |
$ | 0.11 | |
The following
table presents the effects of the immaterial prior period adjustment on the consolidated balance sheet (unaudited) of June 30, 2023:
| |
As
of June 30, 2023 | |
| |
As
Reported | | |
Correction of
Error | | |
As
Adjusted | |
Unamortized Debt Issuance Costs | |
$ | 477,424 | | |
$ | 83,219 | | |
$ | 394,205 | |
Accounts Payable | |
| 924,501 | | |
| 109,688 | | |
| 1,034,189 | |
Accumulated deficit | |
| (13,134,383 | ) | |
| 192,907 | | |
| (13,326,990 | ) |
The
following table presents the effects of the immaterial prior period adjustment on the consolidated statement of operations (unaudited)
for the three months ended June 30, 2023:
| |
For
the Three Months Ended June 30, 2023 | |
| |
As
Reported | | |
Correction of
Error | | |
As
Adjusted | |
General and administrative expenses | |
| 586,716 | | |
$ | 78,678 | | |
$ | 667,540 | |
Net loss | |
| (812,245 | ) | |
| 78,678 | | |
| (890,923 | ) |
Net loss per common share – basic and
diluted | |
$ | 0.11 | | |
$ | 0.01 | | |
$ | 0.12 | |
Note
2 - Revenue
The
following table disaggregates the Company’s revenue based on the timing of satisfaction of performance obligations as of:
| |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Total
revenue from contracts with customers recognized over time | |
$ | 10,317 | | |
$ | 812 | | |
$ | 93,487 | | |
$ | 66,883 | |
The following
table presents our contract liabilities (deferred revenue) and certain information related to these balances as of:
| |
September
30,
2023 | | |
December
31,
2022 | |
Contract liabilities
(deferred revenue) | |
$ | 4,259 |
| |
$ | 44,073 |
|
| |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenue
recognized in the period from: | |
| | | |
| | | |
| | | |
| | |
Amounts
included in contract liabilities at the beginning of the period | |
$ | 10,317 | | |
$ | 812 | | |
$ | 45,846 | | |
$ | 63,800 | |
Note
3 - Property, Plant and Equipment
The Company’s
property, plant and equipment include the following:
| |
| | |
Accumulated | | |
| |
| |
Cost
Basis | | |
Depreciation | | |
Net | |
| |
September
30, 2023 | |
Office
Furniture | |
$ | 18,021 | | |
$ | 3,919 | | |
$ | 14,102 | |
| |
December
31, 2022 | |
Office
Furniture | |
$ | 12,380 | | |
$ | (2,078 | ) | |
$ | 10,302 | |
Note 4
- Internally Developed Software
Internally
developed software asset consists of the following:
| |
September
30, 2023 | |
| |
| | |
Accumulated | | |
| | |
| |
| |
Cost | | |
Amortization | | |
Impairment | | |
Net | |
| |
| | | |
| | | |
| | | |
| | |
Internally developed software | |
$ | 1,178,616 | | |
$ | 110,646 | | |
$ | - | | |
$ | 1,067,970 | |
| |
December
31, 2022 | |
| |
| | |
Accumulated | | |
| | |
| |
| |
Cost | | |
Amortization | | |
Impairment | | |
Net | |
| |
| | | |
| | | |
| | | |
| | |
Internally developed software | |
$ | 820,951 | | |
$ | - | | |
$ | (820,951 | ) | |
$ | - | |
During
Q4 2022, the Company recognized an impairment loss on its internally developed software amounting to $820,951 due to a decrease in projected
revenues, writing down the asset to zero as of December 31, 2022. The Company did not have an impairment charge for the nine months ended
September 30, 2023.
Note 5
- Intangible Assets
The Company’s
intangible assets include the following:
| |
| | |
Accumulated | | |
| |
| |
Cost
Basis | | |
Amortization | | |
Net | |
| |
September
30, 2023 | |
Intellectual property | |
$ | 22,000 | | |
$ | (5,499 | ) | |
$ | 16,501 | |
Proprietary technology | |
| 18,700 | | |
| (7,714 | ) | |
| 10,986 | |
Total | |
$ | 40,700 | | |
$ | (13,213 | ) | |
$ | 27,487 | |
| |
December
31, 2022 | |
Intellectual property | |
$ | 22,000 | | |
$ | - | | |
$ | 22,000 | |
Proprietary technology | |
| 18,700 | | |
| (6,171 | ) | |
| 12,529 | |
Total | |
$ | 40,700 | | |
$ | (6,171 | ) | |
$ | 34,529 | |
Intellectual
property amortization expense for the three and nine months ended September 30, 2023 was $1,833 and $5,499, respectively. Proprietary
technology amortization expense for the three and nine months ended September 30, 2022 was $514 and $1,543, respectively.
Note 6
- Notes Payable
Convertible
and nonconvertible notes payable consists of:
| |
September
30,
2023 | | |
December
31,
2022 | |
9
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon initial public offering (IPO) or other “sale of control” as defined in the agreement.
If IPO or sale of control is not consummated by March 31, 2022, the Company has the option to repay notes at anytime prior to maturity
date of October 15, 2024. | |
$ | 3,300,000 | | |
$ | 3,300,000 | |
| |
| | | |
| | |
12
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. If IPO or sale of control
is not consummated by March 31, 2022 the Company has the option to repay notes at anytime prior to maturity date of November 15,
2024. | |
| 1,205,000 | | |
| 1,205,000 | |
| |
| | | |
| | |
6
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. If IPO or sale of control
is not consummated by March 31, 2022 the Company has the option to repay notes at anytime prior to maturity date of December 23,
2024. | |
| 1,800,000 | | |
| 1,800,000 | |
| |
| | | |
| | |
15
convertible notes payable, bear interest at 8%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. Notes may only be prepaid
by the Company with the written consent of the holder prior to the maturity date of August 8, 2025. | |
| 1,465,000 | | |
| - | |
| |
| | | |
| | |
11
nonconvertible notes payable, bear interest at 8%, no monthly payments, unsecured, notes have warrants that are payable upon IPO
or other “sale of control” as defined in the agreement. Notes may be prepaid by the Company at any time in its sole discretion
prior to the maturity on dates ranging from March 17, 2025 to May 2, 2025. | |
| 2,350,000 | | |
| - | |
| |
$ | 10,120,000 | | |
$ | 7,620,000 | |
| |
| | | |
| | |
Less unamortized debt issuance costs | |
| (315,143 | ) | |
| (387,920 | ) |
| |
| | | |
| | |
Debt, less unamortized
debt issuance costs | |
$ | 9,804,857 | | |
$ | 7,232,080 | |
Future maturities
of convertible notes payable are as follows:
| |
Amount | |
Years ending December 31, | |
| |
Remainder of 2023 | |
$ | - | |
2024 | |
| 6,305,000 | |
2025 | |
| 3,815,000 | |
Total | |
$ | 10,120,000 | |
On
August 7, 2023, the fifteen 8% convertible notes payable with an outstanding balance of $1,465,000 as of June 30, 2023 and that were
due to mature on August 8, 2023 (“August 2023 Notes Payable”), were amended. The maturity date of the August 2023 Notes Payable
were amended to August 8, 2025. Pursuant to the agreement, if the August 2023 Notes Payable are not re-paid by the amended maturity date,
the outstanding balance will increase to 120% of the original principal amount. In addition, if the August 2023 Notes Payable are not
repaid by the amended maturity date, the amendment provides for the immediate conversion of the additional amount of the outstanding
balance under the convertible notes into 146,500 shares of common stock at $2.00 per share instead of the applicable optional conversion
price of approximately $3.29 per share at the time of the conversion, not including any accrued but unpaid interest, which was waived
with respect to the converted outstanding balance.
Offering
of 15% OID Promissory Notes
On
August 2, 2023, August 18, 2023, September 11, 2023, and September 22, 2023, the Company
issued 15% Original-Issue-Discount (“OID”) promissory notes having total principal of $352,942 to certain accredited investors
in a private placement for gross proceeds of $300,000. The principal under the OID promissory notes accrue 5% interest annually, and
principal and interest under the notes must be repaid by December 31, 2023. The promissory notes may be prepaid without a premium or
penalty. As of September 30, 2023, accrued interest under these promissory notes totaled $52,942.
Boustead
acted as placement agent in this private placement. Pursuant to our engagement letter agreement with Boustead, we agreed to pay a commission
equal to 7% of the gross proceeds, a non-accountable expense allowance equal to 1% of the gross proceeds, and payment of certain other
expenses. However, Boustead waived its fees and expenses for this private placement.
Note
7 - Leases
The
Company leases office space under a long-term operating lease from a third party through May 31, 2023. Monthly rent was $12,075.
In December 2021, the Company entered into an agreement to sublease their office space to an unrelated party under an operating
lease agreement. The sublease ended on May 31, 2023 and included fixed rent of $9,894 a month. As a result of the sublease, the
Company incurred a loss on the transaction of $43,785 during the year ended December 31, 2021, which is included within accrued
liabilities in the accompanying balance sheet. The lease liability will be amortized over the remainder of the lease. As of June 30,
2023 and December 31, 2022, the unamortized balance was $0 and $13,924, respectively.
During
2021, the Company entered into a lease for office space with a related party with the lease commencing in January 2022. The office space
was owned by John Dorsey. The lease agreement required monthly payments of approximately $20,800 plus tax, with an increase of three
percent every year on each anniversary date until January 2026. In August 2022, the Company entered into a lease termination agreement
whereby both parties agreed to terminate the lease and release each other from all future obligations.
In
November 2022, the company signed a 6-month short-term lease for office space which expired on April 30, 2023. Monthly rent was $7,491
per month plus rental tax. The Company amended and renewed this office space lease under a long-term operating lease which commenced
on May 4, 2023. Monthly rent ranges from $7,359 to $8,042 per month plus tax. The lease contains escalating rental payments and one option
to renew for up to three years. The exercise of the lease renewal option is at the Company’s sole discretion. The lease agreement
does not include any material residual value guarantees or material restrictive covenants.
Leases
with an initial expected term of 12 months or less are not recorded in the Balance Sheet and the related lease expense is recognized
on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not separate fixed
lease components from the fixed non-lease components. As of December 31, 2022 and 2021, there were no leases with an expected term greater
than 12 months.
The components
of lease expense were as follows:
| |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Non-related party lease expense | |
$ | 21,155 | | |
$ | 57,695 | | |
$ | 141,867 | | |
$ | 106,627 | |
Related party lease
expense | |
$ | - | | |
$ | 21,268 | | |
$ | - | | |
$ | 148,876 | |
Total operating lease
expense | |
$ | 21,155 | | |
$ | 78,963 | | |
$ | 141,867 | | |
$ | 255,503 | |
Total lease
assets and liabilities were as follows:
| |
September 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Operating lease right of use asset | |
$ | 259,121 | | |
$ | - | |
Less: operating asset
lease accumulated depreciation | |
| (31,554 | ) | |
| - | |
Net operating lease right
of use asset | |
$ | 227,567 | | |
| - | |
Current operating lease liability | |
$ | 82,353 | | |
$ | - | |
Noncurrent operating
lease liability | |
| 165,754 | | |
| - | |
Total operating lease
liability | |
$ | 248,107 | | |
$ | - | |
Future minimum
lease payments under non-cancelable leases as of September 30, 2023 were as follows:
| |
Amount | |
Years ending December 31, | |
| |
Remainder of 2023 | |
$ | 22,077 | |
2024 | |
| 90,076 | |
2025 | |
| 92,784 | |
2026 | |
| 55,358 | |
Total future minimum lease payments | |
$ | 260,295 | |
Less: interest | |
| (12,188 | ) |
Total lease liability | |
$ | 248,107 | |
Note 8
- Income Taxes
Deferred
tax assets consist of the following components as of September 30, 2023 and December 31, 2022:
| |
September 30,
2023 | | |
Dec.
31, 2022 | |
Deferred Tax Asset (Liabilities) | |
| | |
| |
Net operating loss carryforwards | |
$ | 2,720,000 | | |
$ | 1,860,000 | |
Internally developed software | |
| 320,000 | | |
| 470,000 | |
Furniture and fixtures | |
| (3,000 | ) | |
| (3,000 | ) |
R&D Tax Credit Carryforwards | |
| 125,000 | | |
| 160,000 | |
AZ Refundable R&D
Tax Credit | |
| 100,000 | | |
| 100,000 | |
| |
| | | |
| | |
Net
deferred tax assets before valuation allowance | |
$ | 3,262,000 | | |
$ | 2,587,000 | |
| |
| | | |
| | |
Less valuation allowance | |
| (3,162,000 | ) | |
| (2,487,000 | ) |
| |
| | | |
| | |
Net deferred tax assets | |
$ | 100,000 | | |
$ | 100,000 | |
The
Company has a valuation allowance against most of the amount of its net deferred tax assets due to the uncertainty of realization of
the deferred tax assets due to the operating loss history of the Company. The Company currently provides a valuation allowance against
deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation
allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.
The
Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to income from
continuing operations primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes
and tax-exempt income.
As of September 30, 2023 and December 31, 2022, the Company had approximately
$10,500,000 and $7,900,000, respectively, of federal net operating loss carryforwards available to offset future taxable income. Under
current tax law, the federal net operating losses generated do not expire and may be carried forward indefinitely. As of September 30,
2023 and December 31, 2022, the Company has approximately $225,000 and $260,000, respectively, of federal and state research and development
credits. The 2022 Arizona credit of $100,000 is refundable, and the remaining federal credit from 2022 will expire in 2042, and the 2021
credits expire in 2041.
Note
9 - Recapitalization
At
inception, the Company was organized as a limited liability company (LLC). During 2020, The LLC formed two wholly- owned subsidiaries,
Signing Day Sports Football, LLC (SDSF LLC) and Signing Day Sports Baseball, LLC (SDSB LLC).
Signing
Day Sports, LLC, an Arizona limited liability company (“SDS LLC – AZ”), was formed on January 21, 2019. SDS LLC –
AZ formed two wholly-owned subsidiaries, Signing Day Sports Football, LLC, an Arizona limited liability company (“SDSF LLC”),
and Signing Day Sports Baseball, LLC, an Arizona limited liability company (“SDSB LLC”), on September 29, 2020 and November
25, 2020, respectively.
On
June 5, 2020, a process to change SDS LLC – AZ into a Delaware corporation was initiated. On that date, a certificate of formation
for Signing Day Sports, LLC, a Delaware limited liability company (“SDS LLC – DE”), and a certificate of conversion
of SDS LLC – AZ into SDS LLC – DE, were filed with the Delaware Secretary of State. On September 9, 2021, a certificate of
incorporation for Signing Day Sports, Inc., a Delaware corporation (“SDS Inc. – DE” or the “Company”),
and a certificate of conversion of SDS LLC – DE into SDS Inc. – DE were filed with the Delaware Secretary of State. From
September 9, 2021 to July 11, 2022, SDS Inc. – DE operated as the successor entity to SDS LLC – AZ, and SDS LLC – AZ
continued to be registered as an active entity with the Arizona Corporation Commission while its conversion into SDS LLC – DE pended.
On
July 11, 2022, an Agreement and Plan of Merger was entered into between SDS LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc. –
DE (the “Merger Agreement”). On the same date, pursuant to the Merger Agreement, a certificate of merger was filed with the
Delaware Secretary of State and a statement of merger was filed with the Arizona Secretary of State effecting the merger of SDS LLC –
AZ, SDSF LLC, and SDSB LLC with and into SDS Inc. – DE, and SDS Inc. – DE succeeded to the rights, property, obligations,
and liabilities of each of SDS LLC – AZ, SDSF LLC, and SDSB LLC. In anticipation of the Merger Agreement and its consummation,
in April 2022 and May 2022, SDS LLC – AZ, SDS Inc. – DE, and each of the members or stockholders of SDS LLC – AZ, SDSF
LLC, SDSB LLC, and SDS Inc. – DE, entered into Settlement Agreement and Releases (collectively, the “Settlement Agreements”),
which provided, among other things, for the mutual general release of all claims by the parties against and relating to SDS LLC –
AZ, SDSF LLC, SDSB LLC, and SDS Inc. – DE, and confirmed the owners and related amounts of all outstanding shares of common stock
of SDS Inc. represented by the capitalization table exhibit to the Settlement Agreements.
SDS
Inc. – DE has 150,000,000 shares authorized. No shares were formally issued. On July 11, 2022, it was agreed that all previous
members in SDS LLC -AZ owned 7,495,104 common shares of SDS Inc. – DE at the date of the merger.
Note
10 - Stockholder’s Deficit
Common
Stock
The Company is authorized to issue 150,000,000 shares of $0.0001 par
value common stock as of September 30, 2023 and December 31, 2022, respectively. The Company has 7,591,152 and 8,086,152 shares issued
and outstanding as of September 30, 2023 and December 31, 2022.
Reverse
Stock Split
On
April 14, 2023 (the “Effective Date”),
the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware. Upon the filing and effectiveness,
April 14, 2023, pursuant to the Delaware General Corporation Law of this Certificate of Amendment to the Certificate of Incorporation
of the Corporation, each five (5) shares of Common Stock issued and outstanding immediately prior to the Effective Date shall, automatically
and without any action on the part of the respective holder thereof, be combined and converted into one (1) share of Common Stock (the
“Reverse Stock Split”).
The
Certificate of Amendment effected a 1-for-5 Reverse Stock Split on the Effective Date and was approved by shareholders on April 4, 2023,
and the Board of Directors on April 11, 2023. Accordingly, all share and per share amounts for
all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable,
to reflect this reverse stock split.
Treasury
Stock
On
March 31, 2023, under the terms of a Repurchase and Resignation Agreement, dated March 21, 2023, with Dennis Gile (the “Repurchase
Agreement”), we paid an aggregate purchase price of $800,000 for the repurchase (the “Repurchase”) of 600,000 shares
of common stock from Dennis Gile, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director
of the Company, at approximately $1.33 per share. Pursuant to the Repurchase Agreement, $695,000 of the $800,000 payment was made to
the attorneys for John Dorsey, a former officer and director of the Company (the “Dorsey/Gile Settlement Payment”), as part
of the settlement of a private lawsuit under a settlement agreement between Mr. Gile and Mr. Dorsey (the “Dorsey/Gile Lawsuit”)
between these individuals and Dorsey LLC (the “Dorsey/Gile Settlement Agreement”). Pursuant to the Repurchase Agreement,
the balance of the aggregate purchase price was paid to the attorneys for Mr. Gile. Pursuant to the Repurchase Agreement, Mr. Gile agreed
to resign his position as Chairman and every other director and officer position he held with the Company effective as of March 21, 2023.
Prior to such date, on March 20, 2023, Mr. Gile delivered notice of resignation from such positions, which stated that it was effective
March 19, 2023. Pursuant to the Repurchase Agreement, Mr. Gile will not receive any severance payments in connection with any other agreement
with the Company as a result of his resignation. The Repurchase was also conditioned on the Company’s prior review of and consent
to the Dorsey/Gile Settlement Agreement prior to its execution, and receipt of a certificate from the Chief Financial Officer of the
Company that the Repurchase will not impair the Company’s capital within the meaning of Section 160 of the Delaware General Corporation
Law (“DGCL”) or the Company’s ability to pay down its debts as they become due (the “CFO Certificate”).
Under the Repurchase Agreement, the Dorsey/Gile Settlement Agreement was required to fully resolve, settle and dismiss the Gile/Dorsey
Lawsuit and contain a general release of claims by all the plaintiffs in the Dorsey/Gile Lawsuit in favor of Mr. Gile, the Company, the
Company’s affiliates, stockholders, and certain other Company releasees. Under the Repurchase Agreement, Mr. Gile agreed to indemnify
the Company for claims arising out of or based upon the Repurchase Agreement. Pursuant to the Repurchase Agreement, a copy of the Dorsey/Gile
Settlement Agreement was reviewed and consented to by the Company and entered into as of March 20, 2023. Under the Dorsey/Gile Settlement
Agreement, between Mr. Gile, Mr. Dorsey, and Dorsey LLC, Mr. Gile agreed to pay the Dorsey/Gile Settlement Payment and transfer 40,000
shares of the Company to Mr. Dorsey. Mr. Gile, Mr. Dorsey and Dorsey LLC agreed to mutual releases of all claims relating to the Dorsey/Gile
Lawsuit and to dismiss the Dorsey/Gile Lawsuit. Although the Dorsey/Gile Settlement Agreement did not contain a release of the Company
and did not contain releases by the plaintiffs of Mr. Gile other than with respect to the Lawsuit, the Company waived any related requirements
under the Repurchase Agreement in light of the expected execution of the Mutual Release Agreement (as defined below). The CFO Certificate
was received as of March 21, 2023. The repurchased shares were cancelled as of March 31, 2023. The transfer of 40,000 shares by Mr. Gile
to Mr. Dorsey occurred on April 4, 2023, after waiver of the board of directors of the repurchase rights and purchase rights provided
for under the Shareholder Agreement by resolutions adopted on March 24, 2023.
Equity
Incentive Plan
In
August 2022, the Board of Directors adopted the Company’s 2022 Equity Incentive Plan (the “2022 Plan”), effective as
of August 31, 2022. Awards that may be granted under the 2022 Plan include: (a) Incentive Stock Options, (b) Non-qualified Stock Options,
(c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f) Performance Compensation Awards. The persons
eligible to receive Awards are the Employees, Consultants and Directors of the Company and its Affiliates and such other individuals
designated by the Committee who are reasonably expected to become Employees, Consultants and Directors after the receipt of Awards. The
purpose of the 2022 Plan is to attract and retain the types of Employees, Consultants and Directors who will contribute to the Company’s
long-term success; (b) provide incentives that align the interests of Employees, Consultants and Directors with those of the stockholders
of the Company; and (c) promote the success of the Company’s business. The 2022 Plan shall be administered by the Committee or,
in the Board’s sole discretion, by the Board. Subject to the terms of the Plan and the provisions of Section 409A of the Code (if
applicable), the Committee’s charter and Applicable Laws, and in addition to other express powers and authorization conferred by
the Plan. The Board reserved 750,000 shares of common stock issuable upon the grant of awards. Stock options comprise all of the awards
granted since the 2022 Plan’s inception. As of September 30, 2023, there were 273,350 shares available for grant under the 2022
Plan and the Company had granted 90,000 restricted stock awards and 386,650 stock options to purchase common stock. The stock options
generally vest based on one to four years of continuous service and have ten-year contractual terms.
The
following table summarizes stock option activity for the nine months ended September 30, 2023:
| |
| | |
Weighted | | |
| |
| |
| | |
Average | | |
Intrinsic | |
| |
Options | | |
Exercise Price | | |
Value | |
Outstanding at December 31, 2022 | |
| 262,000 | | |
$ | 3.10 | | |
| | |
Granted | |
| 296,800 | | |
| 1.91 | | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
Forfeited or expired | |
| (172,150 | ) | |
| 1.61 | | |
| | |
| |
| | | |
| | | |
| | |
Outstanding at September 30, 2023 | |
| 386,650 | | |
$ | 2.99 | | |
$ | 4,020 | |
| |
| | | |
| | | |
| | |
Exercisable at September 30, 2023 | |
| 159,449 | | |
$ | 3.04 | | |
$ | 4,020 | |
| |
Nine Months
Ended | |
| |
September 30, | |
| |
2023 | |
Weighted average grant-date fair value of options
granted during the period | |
$ | 1.22 | |
The following table summarizes restricted stock award activity for
the nine months ended September 30, 2023:
| |
Restricted Stock Awards | | |
Weighted
Average
Grant Date Fair value | |
Outstanding, beginning of year | |
| - | | |
$ | - | |
Granted | |
| 90,000 | | |
| 1.72 | |
Vested | |
| (45,000 | ) | |
| 1.72 | |
Cancelled | |
| - | | |
| - | |
| |
| | | |
| | |
Outstanding, end of period | |
| 45,000 | | |
$ | 1.72 | |
The following table presents, on a weighted average
basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted:
| |
Nine Months
Ended | |
| |
September 30, | |
| |
2023 | |
Risk-free interest rate | |
| 3.52 | % |
Expected term (in years) | |
| 5.42 | |
Expected volatility | |
| 50 | % |
Expected dividend yield | |
$ | - | |
Private Placement
In March 2023 and April 2023 we conducted one
private placement, and in May 2023 we completed a subsequent private placement in which we entered into subscription agreements with
a number of accredited investors, pursuant to which we issued 8% unsecured promissory notes in the aggregate principal amount of $2,350,000,
which bear interest at the annual rate of 8%, and accompanying warrants to purchase an aggregate of 940,000 shares of common stock
exercisable at $2.50 per share. The warrants may be voluntarily exercised for cash prior to the maturity date of the promissory notes
or will be automatically exercised as described below. The amount outstanding under the 8% unsecured promissory notes must be repaid
upon the earlier to occur of the consummation of a Liquidity Event or the second anniversary of the initial closing date of the respective
private placement (March 17, 2025 as to $1,500,000 principal and May 2, 2025 as to $850,000 principal). If a Liquidity Event occurs before
the second anniversary of the initial closing date of the applicable private placement, the warrants will be automatically exercised
as to the unexercised portion of the warrants, the outstanding balance under the 8% unsecured promissory notes will be deemed repaid
in the amount of the exercise price for the automatic exercise of the unexercised portion of the related warrants, with any remaining
balance owed on the promissory notes to be repaid in cash. If a Liquidity Event does not occur before the second anniversary of the initial
closing date of the applicable private placement, then both principal and interest outstanding under the notes must be repaid in cash.
The Company agreed to register the resale all of the shares of common stock that such warrants may or shall be exercised to purchase
with the shares being registered for sale in the registration statement of which this prospectus forms a part. The Company must generally
keep the registration statement effective for a period as shall be required to permit the investors to complete the offer and sale of
their shares. The Company and the investors also provided customary mutual indemnification relating to any damages arising from such
registration.
Boustead has acted as placement agent in these
private placements. Pursuant to our engagement letter agreement with Boustead, in addition to a commission equal to 7% of the gross proceeds
raised in the private placements, a non-accountable expense allowance equal to 1% of the gross proceeds raised in the private placements,
and payment of certain other expenses, we agreed to issue Boustead five-year warrants to purchase a number of shares of common stock
equal to 7% of the common stock underlying the warrants accompanying the 8% unsecured promissory notes at an exercise price equal to
the exercise price as defined in such warrants. Under the engagement letter with Boustead, its placement agent’s warrants must
be registered for resale with the Company’s initial public offering. However, Boustead has informally deferred these registration
rights with respect to the registration statement for the initial public offering.
Under the subscription agreements with the investors
in the first of these two private placements, the Company was required to use the first $450,000 of the net proceeds from the private
placement to expand its current operations, including its technology and intellectual property portfolio, and to fund the costs of its
initial public offering. The Company was required to use the next $800,000 of the net proceeds from the private placement to repurchase
up to 600,000 shares of common stock that were held by Dennis Gile, our largest stockholder and a former officer and director of the
Company, at a price equal to approximately $1.35 per share. The repurchase was required to be consummated only to the extent that it
does not impair the Company’s capital within the meaning of Section 160 of the DGCL or the Company’s ability to pay down
its debts as they become due. The Company was required to enter into an agreement with Mr. Gile providing that Mr. Gile will use the
proceeds of the repurchase to settle an existing lawsuit filed against Mr. Gile by John Dorsey, a former officer and director of the
Company, subject to a full release of Mr. Gile and the Company, and that Mr. Gile will resign from the board of directors of the Company
and from any officer position with the Company upon the repurchase. The Company was required to use any remaining net proceeds from the
private placement, which consisted of $250,000 less placement agent fees and expenses, for working capital and other general corporate
purposes. Subsequently, the Company used the net proceeds as required.
Note 11 - Commitments and Contingencies
Legal
The Company may be a party to various
legal actions arising from the normal course of business. In management’s opinion, the Company has adequate legal defenses and/or
insurance coverage and does not believe the outcome of such legal actions will materially affect the Company’s operation and/or
financial position.
Claim of John Dorsey
On or about November 29, 2022, John Dorsey,
a former Chief Executive Officer and director of the Company, through his counsel, sent the Company a letter demanding full payment on
the Alleged Loan in connection with the Loan Dispute. Under the January 2023 Dorsey Settlement Agreement, Mr. Dorsey agreed to a discharge
of the Alleged Loan and waiver and release of claims relating to the Alleged Loan and Loan Dispute and covenant not to sue on the basis
of such claims or otherwise commence any action or proceeding that would be inconsistent with the release of such claims. The Company
agreed to pay Mr. Dorsey $10,000 and issue a promissory note to Mr. Dorsey in the principal amount of $40,000 payable on the earlier
of ten business days following the successful closing of an initial public offering of the Company’s common stock that generates
at least $1 million in net proceeds to the Company or July 1, 2023.
Collaborative Arrangements
The company has entered into collaborative
arrangements with various parties for the cross promotion of technologies and services within certain geographical areas. These arrangements
do not commit the Company or the counterpart to any financial obligation. If these arrangements result in a formal project, the Company
and the counterparties will receive certain equity consideration in the project or be given first right of refusal to provide their products
or services to the projects, as defined by the respective agreements. To date, these arrangements have not resulted in any formal projects.
Note 12 - Related Party Transactions
See Note 9 for related party lease disclosures.
On April 10, 2023, the Company issued
Richard Symington, our President and Chief Marketing Officer and a director, an 8% unsecured promissory note in the amount of $250,000
and a warrant to purchase 100,000 shares of common stock at an exercise price of $2.50 per share in a private placement. The promissory
note bears interest at 8% annually and will mature on the earlier to occur of March 17, 2025 or a Liquidity Event. If a Liquidity Event
occurs before March 17, 2025, the warrant will be automatically exercised as to the unexercised portion of the warrant, the outstanding
balance due under the 8% unsecured promissory note will be deemed repaid in the amount of the unexercised portion of the warrant from
the automatic exercise of the unexercised portion of the warrant, and any remaining balance outstanding under the promissory note must
be repaid in cash. If a Liquidity Event does not occur before March 17, 2025, then both principal and interest outstanding under the
note must be repaid in cash. The warrant may be voluntarily exercised for cash prior to the maturity date of the promissory note or,
as indicated above, will be automatically exercised for shares of common stock upon the consummation of a Liquidity Event. The warrant
has a five-year term. Mr. Symington also entered into a subscription agreement which provided certain registration rights with respect
to the shares underlying the warrant.
Under the Mutual Release Agreement, as
of March 29, 2023, Mr. Dorsey agreed to a general release of claims against and covenant not to sue the Company, the Company’s
affiliates, stockholders, and certain other Company releasees, and the Company agreed to a general release of claims against and covenant
not to sue Mr. Dorsey, Mr. Dorsey’s affiliates, and certain other releasees, subject to payment of the Dorsey/Gile Settlement Payment,
which, as indicated above, was made on March 31, 2023. The releases of claims and covenants not to sue under the Mutual Release Agreement
do not apply to breach of the Dorsey/Gile Settlement Agreement or to the January 2023 Dorsey Settlement Agreement.
Under our Settlement Agreement with Dennis
Gile, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, dated
as of May 12, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers and
directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without
limitation, claims relating to Mr. Gile’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock,
or Mr. Gile’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB
LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or
Mr. Gile may have under the terms of that certain Severance General Waiver and Release Agreement between Mr. Gile and the Company, dated
March 22, 2022, including the releases of any and all claims against the Company and certain related parties as contained therein, Mr.
Gile’s agreement to be terminated effective on January 1, 2022 and receive a severance payment of $53,500 pursuant to Section 1
of the Severance Agreement, paid in March 2022, all of which terms were to remain in force notwithstanding the provisions of the Settlement
Agreement. Further, Mr. Gile irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and
waived their rights to any claim, distributions, payments, or other amounts that Mr. Gile believed should have been paid or were owed
to Mr. Gile by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to
make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests
in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent,
and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Gile owned 2,816,377 shares of common stock pursuant
to the Settlement Agreement. Mr. Gile also irrevocably covenanted that he would not sue the Company or the other released parties in
respect of any of the matters released and discharged. Notwithstanding the Severance Agreement referenced above, Mr. Gile has not had
a written employment agreement with the Company, has not been terminated, and has not received a salary since 2021, but has continued
to receive standard employee benefits on a monthly basis.
Under our Settlement Agreement with Dorsey
LLC, John Dorsey, in his individual capacity, and who was formerly Chief Executive Officer and a director of the Company, and his spouse,
Elena Dorsey, to the extent of such spouse’s community property interest, if any (together, “Dorsey”), dated as of
April 25, 2022, the parties agreed, among other things, (1) that Dorsey had held 959,940 shares of SDS Inc. – DE’s common
stock at that time, (2) that prior to the anticipated redomestication of SDS LLC – AZ to Delaware as a Delaware limited liability
company and conversion to a Delaware corporation, Dorsey was a member of SDS LLC – AZ and was a party to SDS LLC – AZ’s
Fourth Amended Limited Liability Company Operating Agreement dated July 16, 2021 (the “SDS LLC – AZ Operating Agreement”),
(3) that the SDS LLC – AZ Operating Agreement provided Dorsey, among other things, certain anti-dilution protections whereby SDS
LLC – AZ would have been required to issue additional equity to Dorsey if SDS LLC – AZ were to have issued additional equity
which would have the effect of reducing Dorsey’s ownership below 11% of SDS LLC – AZ’s outstanding equity (the “Dorsey
Anti-Dilution Provision”), (4) that on April 25, 2022, Dorsey LLC would receive a total of 350,000 shares of common stock of SDS
Inc. – DE in exchange for Dorsey’s cancellation, waiver, and release of all of Dorsey’s rights under the Dorsey Anti-Dilution
Provision in the SDS LLC – AZ Operating Agreement, (5) to a general release and discharge of claims against us, our officers and
directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without
limitation, claims relating to the Dorsey Anti-Dilution Provision, Dorsey’s direct or indirect ownership of shares of SDS Inc.
– DE’s capital stock, or Dorsey’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC
– DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release
any rights that any party or Dorsey may have under the terms of that certain Offer of Employment between John Dorsey and SDS LLC –
AZ, dated January 13, 2022, or that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date
of this prospectus, the Company has no agreements with Dorsey otherwise relating to, and has not issued to Dorsey, any simple agreement
for future equity or convertible note. Further, Dorsey irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that Dorsey believed should have been
paid or were owed to Dorsey by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed,
in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to
ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future,
or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization
table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Dorsey LLC owned 1,309,940 shares of common
stock pursuant to the Settlement Agreement. Dorsey also irrevocably covenanted that they would not sue us or the other released parties
in respect of any of the matters released and discharged. Mr. Dorsey is deemed to beneficially own the shares of common stock owned by
Dorsey LLC and has sole voting and dispositive powers over its shares.
Under a lease agreement dated as of October
7, 2021 and an addendum dated the same date, we leased our former corporate offices consisting of approximately 7,800 square feet for
a term of five years beginning January 1, 2022 and ending December 31, 2026 for a monthly rent of $20,800 plus tax and certain operating
expenses, with an increase of 3% at the beginning of every calendar year following the first year of the term of the lease agreement
through January 2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411. The office space was owned by John
Dorsey, a former chief executive officer and director of the Company. On August 31, 2022, we entered into a Lease Termination Agreement
in which both parties agreed to terminate the lease and release each other from all future obligations. The total approximate dollar
value of this transaction was $420,992 plus tax and certain operating expenses. The approximate dollar value of the interest of Mr. Dorsey
in this transaction was $420,992.
Note 13 - Subsequent Events
Initial Public Offering
and Underwriting Agreement
On November 13, 2023,
we entered into an Underwriting Agreement (the “Underwriting Agreement”), with Boustead Securities, LLC, a registered broker-dealer
(“Boustead”), as representative of the underwriters named on Schedule 1 thereto, relating to the Company’s initial
public offering of 1,200,000 shares of common stock (the “IPO Shares”). Pursuant to the Underwriting Agreement, in exchange
for Boustead’s firm commitment to purchase the IPO Shares, the Company agreed to sell the IPO Shares to Boustead at a purchase
price (the “IPO Price”) of $4.65 (93% of the public offering price per share of $5.00, after deducting underwriting discounts
and commissions and before deducting a 1% non-accountable expense allowance), and one or more warrants to purchase 7% of the aggregate
number of the IPO Shares, at an exercise price equal to $6.75, equal to 135% of the public offering price, subject to adjustment (“Representative’s
Warrant(s)”).
On November 14, 2023,
the IPO Shares were listed and commenced trading on NYSE American LLC (“NYSE American”).
The closing of the initial
public offering took place on November 16, 2023. At the closing, the Company sold the IPO Shares for total gross proceeds of $6,000,000.
After deducting the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public
offering, the Company received net proceeds of approximately $4.8 million. The Company also issued Boustead a Representative’s
Warrant exercisable for the purchase of 84,000 shares of common stock at an exercise price of $6.75 per share, subject to adjustment.
The Representative’s Warrant may be exercised by payment of cash or by a cashless exercise provision, and may be exercised at any
time for five years following the date of issuance.
The IPO Shares were offered and sold, and the
Representative’s Warrant was issued, pursuant to the Company’s Registration Statement
on Form S-1 (File No. 333-271951), as amended (the “IPO Registration Statement”), initially filed with the SEC on May 15,
2023, and declared effective by the SEC on November 13, 2023 (the “IPO Registration Statement”); pursuant to a Registration
Statement on Form S-1 (File No. 333-275532), which was filed with the SEC pursuant to Rule 462(b) under the Securities Act,
which was effective immediately upon filing on November 13, 2023 (the “462(b) Registration
Statement”); and by means of the Final IPO Prospectus, dated November 13, 2023, filed with the SEC on November 15, 2023
pursuant to Rule 424(b)(4) of the Securities Act. The IPO Registration Statement registered for
sale shares of common stock with a maximum aggregate offering price of $10,350,000; Representative’s Warrants; and shares of common
stock underlying Representative’s Warrants with a maximum aggregate offering price of $724,500. The 462(b) Registration Statement
registered for sale an additional amount of shares of common stock underlying Representative’s Warrants having a proposed
maximum aggregate offering price of $253,575.
The IPO Registration Statement included the registration
for sale of an additional 180,000 shares of common stock at the assumed public offering price of $5.00 per share upon full exercise of
the underwriters’ over-allotment option. The additional shares of common stock underlying the Representative’s Warrant registered
for sale by the 462(b) Registration Statement included 12,600 shares of common stock that the underwriters would have had the option
to purchase upon exercise of a second Representative’s Warrant which would be issuable upon full exercise of the underwriters’
over-allotment option.
In addition, a maximum of 2,346,548 shares were
registered for resale by the selling stockholders named in the IPO Registration Statement, of which a total of 2,214,548 shares of common
stock were included for resale by means of the final prospectus relating to these shares, dated November 13, 2023 (the “Final Resale
Prospectus”), which was filed with the SEC on November 15, 2023 pursuant to Rule 424(b)(3) of the Securities Act. As stated in
the Final Resale Prospectus, any resales of these shares occurred at a fixed price of $5.00 per share until the listing of the common
stock on NYSE American. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices
related to prevailing market prices, or at negotiated prices. The Company will not receive any proceeds from the resale of common stock
by the selling stockholders.
Settlement Notice
to 6% Convertible Unsecured Promissory Note Holders
The subscription agreements for the Company’s
6% convertible unsecured promissory notes provided that, in the event that within 12 months of the closing of the private placement of
the 6% convertible unsecured promissory notes, the convertible notes had not been converted automatically in accordance with their terms,
the Company may elect either (a) to repay all or part of each note, subject to the holder’s right to convert each note, or (b)
if the Company does not repay each note, the unpaid principal amount of each note will automatically increase to 110% of the outstanding
principal amount. As of the 12-month anniversary of the closing of this private placement, the Company had not consummated an initial
public offering or Alternative Liquidity Event, and had not repaid any portion of the principal amounts under the convertible notes.
However, the convertible notes themselves only provided that in the event that by the maturity date, the Company had not consummated
an initial public offering of its common stock and the listing or trading of its common stock on a Qualified Exchange and had not consummated
an Alternative Liquidity Event, the Company may elect either (a) upon 30 days prior written notice to the holder, to prepay all or a
portion of the principal amount of the notes and accrued interest hereon, subject to the holder’s right to convert the note into
common stock during such 30-day period, or (b) if the Company does not prepay the entire principal amount of the notes or the remaining
principal amount of the notes, the notes will automatically increase to 110% of the original or unpaid portion of the outstanding principal
amount. As the maturity date of these notes had not occurred, the outstanding principal amount under each note had been determined not
to have increased to 110% of that amount. However, in accordance with a settlement notice issued to the holders of the 6% convertible
unsecured promissory notes on November 13, 2023 undertaking to effect conversions of principal as if 110% of the principal being converted
was being converted to address possible claims with respect to the increase of the outstanding principal under the convertible notes
to 110% of the outstanding principal amount, the holders of the 6% convertible unsecured promissory notes were issued a number of shares
of common stock upon conversion of the convertible notes upon the closing of the initial public offering in the amount that would be
applicable as if the principal under the convertible notes had been increased to 110% of the outstanding principal. See “—Automatic
Conversion of Convertible Promissory Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory Notes”.
Automatic Conversion
of Convertible Promissory Notes and Automatic Repayment of Principal Under Certain Nonconvertible Promissory Notes
In connection with the
closing of the Company’s initial public offering on November 16, 2023, the Company’s 6% convertible unsecured promissory
notes with aggregate outstanding principal of $6,305,000 automatically converted into an aggregate of 2,774,200 shares of common stock
at a conversion price of $2.50 per share in accordance with the terms of these promissory notes and our settlement notice to the holders
of these notes providing for the issuance of a number of shares that would be applicable as if the principal under the convertible notes
had been increased to 110% of the outstanding principal (see “—Settlement Notice to 6% Convertible Unsecured Promissory
Note Holders”). All accrued interest on the principal under the notes was waived in accordance with the terms of the notes.
Similarly, in connection
with the closing of the Company’s initial public offering, the Company’s 8% convertible unsecured promissory notes with aggregate
outstanding principal of $1,465,000 automatically converted into an aggregate of 586,000 shares of common stock at a conversion price
of $2.50 per share in accordance with their terms. All accrued interest on the principal under the notes was waived in accordance with
the terms of the notes.
In addition, in connection
with the closing of the Company’s initial public offering, warrants to purchase a total of 940,000 shares of common stock at an
exercise price of $2.50 per share were automatically exercised. The proceeds were automatically used to repay the outstanding principal
underlying 8% nonconvertible promissory notes consisting of $2,350,000. On the same date, a total of $113,304 in accrued interest under
the promissory notes became due.
Equity Line of Credit
On November 16, 2023, the Company entered into
a Term Sheet for an Equity Line of Credit with 3i Management (the “Term Sheet”). The Term Sheet is non-binding except as
described below, and was subject to the preparation and execution of definitive documentation to effect the transactions contemplated
under the Term Sheet. The Term Sheet provides that 3i LP (the “Investor”) will commit to invest up to $25,000,000 as an equity
line of credit under which the Company may require the Investor to make purchases of its common stock for a 24-month term, as follows.
The Company may send a purchase notice (the “Purchase Notice”) between 4:00 PM and 6:30 PM Eastern Time stating the number
of shares that the Investor will be required to purchase, subject to a purchase limit (the “Purchase Limit”). The Company
may raise additional capital three trading days after the date that the Purchase Notice is sent (the “Purchase Notice Date”).
The purchase price for shares to be purchased pursuant to a Purchase Notice will be 95% of the lowest daily volume weighted average price
during the three trading days following the Purchase Notice Date. The Purchase Limit will be equal to the lesser of (i) 100% of the average
daily trading volume over the five days before the Purchase Notice Date, (ii) 30% of the daily trading volume on the Purchase Notice
Date, or (iii) $2,000,000.
The Term Sheet stated
the Company will be required to file a registration statement with the SEC for the offering of any shares under the equity line of credit
within 30 calendar days and to cause such registration statement to be effective within 60 calendar days. Any purchase pursuant to a
Purchase Notice will be subject to a commitment fee equal to 2% of the amount purchased, paid in cash or shares of common stock, based
on the price equal to the five-day average volume-weighted average price prior to the filing of the registration statement in accordance
with the other terms described above (the “Commitment Fee”). The Investor will not be required to purchase or hold more than
4.99% of the outstanding common stock of the Company.
The Term Sheet also
contains the following binding terms: Upon the signing of the Term Sheet, the Company must pay $50,000 to the Investor’s legal
counsel for payment of legal and due diligence fees. In addition, if the Company does not close the equity line of credit by February
15, 2024, the Company must issue the Investor a warrant to purchase 750,000 shares of common stock, with an exercise price of $0.01 per
share, with full ratchet and anti-dilution protections and registration rights.
The Term Sheet expired
on November 24, 2023. As of the date of this report, the parties continued to be in discussions relating to preparation and execution
of definitive documentation. There is no assurance that definitive documentation for this transaction will be executed.
Repayment of Related-Party
Promissory Notes
The following promissory
notes held by related parties were fully repaid subsequent to September 30, 2023, as follows:
| ● | On October
10, 2023, the outstanding balance of $37,635.07 was fully repaid under a promissory note
issued on July 11, 2022 with outstanding principal of $35,000, incurring interest at 6%,
to Daniel Nelson, Chief Executive Officer, Chairman and director of the Company. |
| ● | On October
10, 2023, the outstanding balance of $97,670.41 was fully repaid under a promissory note
issued on March 8, 2023 with outstanding principal of $95,000 to Nelson Financial Services
Inc., whose sole owner is Daniel Nelson, Chief Executive Officer, Chairman and director of
the Company. |
In connection with the
closing of the Company’s initial public offering on November 16, 2023, the following promissory notes held by related parties became
due, and were repaid as of November 27, 2023:
| ● | A promissory
note with an outstanding balance of $40,000 issued on January 12, 2023 to John Dorsey, a
former Chief Executive Officer and director of the Company. |
| ● | A
promissory note issued on July 23, 2023 with principal of $130,000, incurring interest at
6%, and with an outstanding balance of $130,000 held by Daniel Nelson, Chief Executive Officer,
Chairman and director of the Company. Mr. Nelson waived all interest owed under the promissory
note. |
| ● | A promissory
note with an outstanding balance of $10,238.36 issued on March 17, 2023 with principal of
$10,000, incurring interest at 6%, to Daniel Nelson, Chief Executive Officer, Chairman and
director of the Company. |
Appointment of President and Chief Technology
Officer
On November 22, 2023,
the board of directors of Signing Day Sports, Inc. (the “Company”) approved the appointment of Richard Symington as President
and Chief Technology Officer of the Company. Mr. Symington will hold office until his successor has been duly appointed and qualified
or his earlier removal or resignation.
Mr. Symington, 44, previously
served as the Company’s President and Chief Marketing Officer and a member of the Company’s board of directors from April
2023 to May 2023. From May 2015 to February 2020, Mr. Symington was the Manager of Blacklight Technologies LLC. From January 2015 to
September 2019, Mr. Symington was also the founder, Chief Executive Officer, and Manager of Island Marketing Consultants LLC (formerly
A20 Media LLC). From 2002 to 2014, Mr. Symington founded or managed a number of other businesses. Mr. Symington obtained a B.A. in International
Relations from the University of San Diego in 2002 and a Diploma in Culinary Arts/Restaurant Management from Arizona Culinary Institute
in 2003. Management believes that Mr. Symington is qualified to serve as a director due to his experience in technology and marketing-driven
businesses. There are no family relationships among Mr. Symington and any of our executive officers or directors.
President and Chief Technology Officer Employment
Agreement
On November 22, 2023,
the Compensation Committee of the board of directors of the Company (the “Compensation Committee”) approved an Executive
Employment Agreement with Richard Symington, which was dated and entered into by the Company and Mr. Symington on the same date (the
“CTO Employment Agreement”). Under the CTO Employment Agreement, Mr. Symington will be employed in his current capacity as
the Company’s President and Chief Technology Officer. The following is a summary of the terms of the CTO Employment Agreement.
Mr. Symington’s annual base salary will be $375,000, subject to modification upon execution of an amendment or addendum to the
CTO Employment Agreement. The Company will pay or reimburse Mr. Symington for all reasonable and necessary expenses actually incurred
or paid by Mr. Symington during his employment in the performance of his duties under the CTO Employment Agreement. Mr. Symington will
be eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options, and
will be entitled to paid time off and holiday pay in accordance with the Company’s policies in effect from time to time.
Pursuant to the CTO
Employment Agreement, on November 22, 2023, Mr. Symington was granted a stock option pursuant to the Plan and execution of a Plan Stock
Option Agreement. The stock option provides Mr. Symington the right to purchase 50,000 shares of common stock of the Company at an exercise
price of $2.25 per share, which was the closing price of the common stock on NYSE American on November 22, 2023. One-third of the option
will vest and become exercisable on each of the six-month anniversary, the 18-month anniversary, and the 30-month anniversary of November
16, 2023, the date of the consummation of the Company’s initial public offering, provided that Mr. Symington remains in continuous
service with the Company.
Mr. Symington’s employment is at-will.
If the Company terminates Mr. Symington without cause after one year of employment from November 22, 2023, Mr. Symington will be entitled
to the following severance payments: (i) cash in the amount of base salary in effect on the date of such termination payable in 12 monthly
installments; and (ii) all previously earned, accrued, and unpaid benefits from the Company and its employee benefit plans. The payment
of severance may be conditioned on receiving a release of any and all claims that Mr. Symington may have against the Company. Mr. Symington
was required to sign an Employee Confidential Information and Inventions Assignment Agreement, dated as of November 27, 2023 (the “Symington
Confidentiality Agreement”), which prohibits unauthorized use or disclosure of the Company’s proprietary information, contains
a general assignment of rights to inventions and intellectual property rights, non-competition provisions that apply during the term
of employment, non-solicitation provisions that apply during the term of employment and for one year after the term of employment, and
non-disparagement provisions that apply during and after the term of employment.
Chief Executive Officer Employment Agreement
On November 22, 2023,
the Compensation Committee approved an Executive Employment Agreement with Daniel Nelson, the Company’s Chief Executive Officer,
Chairman, and a director, which was dated and entered into by the Company and Mr. Nelson on the same date (the “CEO Employment
Agreement”). Under the CEO Employment Agreement, Mr. Nelson will be employed in his current capacity as the Company’s Chief
Executive Officer. The following is a summary of the terms of the CEO Employment Agreement. Mr. Nelson’s annual base salary will
be $425,000, subject to modification upon execution of an amendment or addendum to the CEO Employment Agreement. The Company will pay
or reimburse Mr. Nelson for all reasonable and necessary expenses actually incurred or paid by Mr. Nelson during his employment in the
performance of his duties under the CEO Employment Agreement. Mr. Nelson will be eligible to participate in comprehensive benefits plans
of the Company, including medical, dental and life insurance options, and will be entitled to paid time off and holiday pay in accordance
with the Company’s policies in effect from time to time.
Pursuant to the CEO
Employment Agreement, on November 22, 2023, Mr. Nelson was granted a stock option pursuant to the Plan and execution of a Plan Stock
Option Agreement. The stock option provides Mr. Nelson the right to purchase 100,000 shares of common stock of the Company at an exercise
price of $2.25 per share, which was the closing price of the common stock on NYSE American on November 22, 2023. The option vests and
becomes exercisable as to half the shares immediately upon the date of grant and as to the remaining half in six equal monthly portions
after the grant date subject to continuous service. Mr. Nelson’s employment is at-will. If the Company terminates Mr. Nelson without
cause, Mr. Nelson will be entitled to the following severance payments: (i) cash in the amount of base salary in effect on the date of
such termination payable in 12 monthly installments; and (ii) all previously earned, accrued, and unpaid benefits from the Company and
its employee benefit plans. The payment of severance may be conditioned on receiving a release of any and all claims that Mr. Nelson
may have against the Company.
Mr. Nelson was required
to sign an Employee Confidential Information and Inventions Assignment Agreement, dated as of November 22, 2023 (the “Nelson Confidentiality
Agreement”), which prohibits unauthorized use or disclosure of the Company’s proprietary information, contains a general
assignment of rights to inventions and intellectual property rights, non-competition provisions that apply during the term of employment,
non-solicitation provisions that apply during the term of employment and for one year after the term of employment, and non-disparagement
provisions that apply during and after the term of employment.
Chief Operating Officer
Employment Agreement
On November 22, 2023,
the Compensation Committee approved an Executive Employment Agreement with David O’Hara, the Company’s Chief Operating Officer
and Secretary, which was dated and entered into by the Company and Mr. O’Hara on the same date (the “COO Employment Agreement”).
The COO Employment Agreement amends, restates and supersedes the Amended and Restated Employment Offer Letter, dated March 14, 2023,
between Mr. O’Hara and the Company. Under the COO Employment Agreement, Mr. O’Hara will be employed in his current capacity
as the Company’s Chief Operating Officer and Secretary. The following is a summary of the terms of the COO Employment Agreement.
Mr. O’Hara’s annual base salary will be $275,000, subject to modification upon execution of an amendment or addendum to the
COO Employment Agreement. Mr. O’Hara is also entitled to a one-time cash bonus payment on the date of the COO Employment Agreement.
The Company will pay or reimburse Mr. O’Hara for all reasonable and necessary expenses actually incurred or paid by Mr. O’Hara
during his employment in the performance of his duties under the COO Employment Agreement. Pursuant to the COO Employment Agreement,
on November 22, 2023, Mr. O’Hara was granted a stock option pursuant to the Plan and execution of a Plan Stock Option Agreement.
The stock option provides Mr. O’Hara the right to purchase 100,000 shares of common stock of the Company at an exercise price of
$2.25 per share, which was the closing price of the common stock on NYSE American on November 22, 2023. The option vests and becomes
exercisable as to half the shares immediately upon the date of grant and as to the remaining half in six equal monthly portions after
the grant date subject to continuous service.
Mr. O’Hara will
be eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options. The
Company will cover 100% of the health insurance premium costs for Mr. O’Hara’s spouse and dependent children. Mr. O’Hara
will also be entitled to paid time off and holiday pay in accordance with the Company’s policies in effect from time to time. Mr.
O’Hara’s employment is at-will. If the Company terminates Mr. O’Hara without cause, Mr. O’Hara will be entitled
to the following severance payments: (i) cash in the amount of base salary in effect on the date of such termination payable in 12 monthly
installments; (ii) benefits under group health and life insurance plans in which Mr. O’Hara participated prior to termination for
12 months following the date of termination; and (iii) all previously earned, accrued, and unpaid benefits from the Company and its employee
benefit plans, including any accrued but unused paid time off. There will be no waiting period for the commencement of these payments.
The payment of severance may be conditioned on receiving a release of any and all claims that Mr. O’Hara may have against the Company.
Mr. O’Hara was
previously required to sign an Employee Confidential Information and Inventions Assignment Agreement, dated as of April 3, 2023 (the
“O’Hara Confidentiality Agreement”), which prohibits unauthorized use or disclosure of the Company’s proprietary
information, contains a general assignment of rights to inventions and intellectual property rights, non-competition provisions that
apply during the term of employment, non-solicitation provisions that apply during the term of employment and for one year after the
term of employment, and non-disparagement provisions that apply during and after the term of employment.
Certificate of Deposit
Secured Line of Credit
On November 22, 2023 the
Board held a discussion of the application for a 12-month certificate of deposit-secured $2,000,000 revolving line of credit at the CD
market rate plus 2.00% with Commerce Bank of Arizona (“CBAZ”) in accordance with the general terms and conditions of the
letter issued by Commerce Bank of Arizona, dated November 20, 2023 which was among the materials circulated to the Board prior to
the meeting. After such discussion, having indicated no concerns with the foregoing proposal, and upon motion duly made and seconded,
the Board unanimously approved the following resolutions: that it is deemed advisable and in the best interest of the Company
and its stockholders to apply for the Credit Line with CBAZ. On December 11, 2023, the Company entered into a Promissory Note for
a Line of Credit with Commerce Bank of Arizona for a 12-month certificate of deposit-secured $2,000,000 revolving line of credit at the
CD market rate plus 2.00%.
The
Company paid loan origination and other fees totaling $5,500 and CBAZ immediately disbursed $334,624.85 of the funds in connection with
this revolving line of credit for crediting the full prepayment of the balance in that amount outstanding in connection with a separate
$350,000 revolving line of credit with CBAZ. The principal balance under the revolving line of credit bears interest at a fixed
rate per annum of 7.21% per annum, and will mature on December 11, 2024. The outstanding balance
under this revolving line of credit was $859,875.15 as of December 22, 2023.
Repayment of Certain
Original Issue Discount Promissory Notes
On November 20, 2023,
the Company repaid the aggregate balance of $117,648 under two 15% Original Issue Discount (“15% OID”) promissory notes,
and on November 29, 2023, the Company repaid the balance of $117,647 under one 15% OID promissory note.
Settlement and Release Agreement
Under a Settlement Agreement and Release, dated
as of December 12, 2023 (the “Midwestern Release Date”), between the Company and Midwestern Interactive, LLC (“Midwestern
Interactive”), a Missouri limited liability company (the “Midwestern Release Agreement”), the Company and Midwestern
Interactive agreed to a mutual release of all claims that could have been asserted as of the Midwestern Release Date. The Company further
agreed to pay Midwestern Interactive $600,000.00 by making a payment of $300,000.00 within three business days of the Midwestern Release
Date and a payment of $300,000.00 on or before April 12, 2024 (the “Midwestern Release Amount”). In addition, the Company
agreed to execute a confession of judgment and affidavit of confession of judgment in favor of Midwestern Interactive as to the obligations
to pay the Midwestern Release Amount plus interest accruing on the Midwestern Release Amount at the rate of 9% per annum from April 12,
2024 plus any costs or expenses, including, but not limited to, attorney’s fees and costs expended to pursue the matter to judgment,
and to enforce and collect the judgment, if necessary.
The Company and Midwestern
Interactive entered into the Release Agreement to resolve a dispute between them involving allegations, on the one hand, by Midwestern
Interactive that it performed work on behalf of the Company for which Midwestern Interactive had not been paid pursuant to a Work for
Hire – Acknowledgement and Assignment, dated December 21, 2022 (the “Work For Hire Agreement”) and, on the other hand,
by the Company that Midwestern Interactive did not perform as required by the Work For Hire Agreement.
Certified
Public Accountants and Advisors
A
PCAOB Registered Firm
713-489-5635
bartoncpafirm.com Cypress, Texas
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors of
Signing Day
Sports, Inc.
7272 E. Indian
School Road, STE 101
Scottsdale,
Arizona 85251
Opinion
on the Financial Statements
We
have audited the accompanying balance sheet of Signing Day Sports, Inc., (the “Company”), as of December 31, 2022, and the
related statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively
referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of Signing Day Sports, Inc. as of December 31, 2022, and the results of its operations and its cash flows for each of the years
then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to Signing Day Sports, Inc. in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Signing
Day Sports, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Substantial
Doubt About the Entity’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, and therefore
a substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events
and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Other
Matter – Prior Year Financial Statements
The
accompanying balance sheet of Signing Day Sports, Inc. as of December 31, 2021, and the related statements of operations and cash flows
for the year then ended were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form
of assurance on them, with the exception of the reverse stock split mentioned below. They were audited by other auditors whose report
dated January 24, 2023, expressed an unmodified opinion on those statements.
As
part of our audit of the December 31, 2022 financial statements, we also audited the 2021 change in common stock related to the reverse
stock split that has been reflected in the financial statements as if it had occurred at the beginning of the first period presented.
Critical
Audit Matters
The
are no critical audit matters matters arising from the current period audit of the financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments.
We
have served as Signing Day Sports, Inc.’s auditor since 2023.
/s/ BARTON
CPA
BARTON CPA
Cypress,
Texas
April 27,
2023
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and Board of Directors of
Signing
Day Sports, Inc.
Opinion
on the Financial Statements
We
have audited, before the effects of the adjustments to retroactively apply the reverse stock split described in Note 12, the accompanying
consolidated balance sheet of Signing Day Sports, Inc. (the “Company”) as of December 31, 2021, the related consolidated
statements of operations, stockholders’ and members’ equity (deficit) and cash flows for the year then ended, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
We
were not engaged to audit, review, or apply any procedures to the adjustments to retroactively apply the effects of the reverse stock
split described in Note 12, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are
appropriate and have been properly applied. Those adjustments were audited by Barton CPA.
Explanatory
Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more
fully described in Note 1, the Company has suffered significant losses and negative cash flows from operations and is dependent on debt
and equity financing to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
/s/
Marcum LLP
Marcum
LLP
We
served as the Company’s auditor from 2021 (such date takes into account the acquisition of Rotenberg Meril Solomon Bertiger &
Guttilla, P.C., by Marcum LLP effective February 1, 2022) through 2023.
Saddle
Brook, New Jersey
January
24, 2023
Signing
Day Sports, Inc.
Consolidated
Balance Sheets
| |
December 31,
2022 | | |
December 31,
2021 (restated) | |
ASSETS | |
| | |
| |
| |
| | |
| |
Current assets | |
| | |
| |
Cash
and cash equivalents | |
$ | 254,409 | | |
$ | 4,687,550 | |
Accounts
receivable, net | |
| 15,670 | | |
| 4,840 | |
Prepaid
expense | |
| 13,841 | | |
| 162,833 | |
Other
current assets | |
| 17,412 | | |
| - | |
| |
| | | |
| | |
Total
current assets | |
| 301,332 | | |
| 4,855,223 | |
| |
| | | |
| | |
Property
and equipment, net | |
| 10,302 | | |
| 12,070 | |
Intellectual
property | |
| 22,000 | | |
| - | |
Software
development & intangible assets | |
| 12,529 | | |
| - | |
Deferred
tax asset | |
| 100,000 | | |
| - | |
Other
assets | |
| 8,000 | | |
| 48,902 | |
| |
| | | |
| | |
Total
assets | |
$ | 454,163 | | |
$ | 4,916,195 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current
liabilities | |
| | | |
| | |
Accounts
payable | |
$ | 614,158 | | |
$ | 182,947 | |
Accrued
liabilities | |
| 512,688 | | |
| 197,417 | |
Deferred
revenue | |
| 44,073 | | |
| 66,549 | |
Deferred
rent | |
| 9,894 | | |
| 31,960 | |
Lease
liabilities | |
| 13,924 | | |
| 43,785 | |
Tenant
deposit | |
| 9,894 | | |
| 9,894 | |
Convertible
notes - current maturities | |
| 1,315,000 | | |
| - | |
Loans
Payable | |
| 120,000 | | |
| - | |
| |
| | | |
| | |
Total
current liabilities | |
| 2,639,631 | | |
| 532,552 | |
| |
| | | |
| | |
Non-current
liabilities | |
| | | |
| | |
Convertible
notes - net of current maturities, | |
| | | |
| | |
less
unamortized debt issuance costs | |
| 5,917,080 | | |
| 5,809,993 | |
SAFE
Agreements | |
| - | | |
| 2,134,635 | |
| |
| | | |
| | |
Total
liabilities | |
$ | 8,556,711 | | |
$ | 8,477,180 | |
| |
| | | |
| | |
Stockholders’
deficit | |
| | | |
| | |
| |
| | | |
| | |
Common stock: par
value $0.0001 per share; 150,000,000 authorized shares, 8,086,152 and 7,495,104 shares issued and outstanding as of December
31, 2022 and 2021, respectively. | |
| 809 | | |
| 750 | |
Additional
paid-in capital | |
| 3,377,459 | | |
| 1,245,267 | |
Accumulated
deficit | |
| (11,480,816 | ) | |
| (4,807,002 | ) |
| |
| | | |
| | |
Total
stockholders’ deficit | |
| (8,102,548 | ) | |
| (3,560,985 | ) |
| |
| | | |
| | |
Total
liabilities and stockholders’ deficit | |
$ | 454,163 | | |
$ | 4,916,195 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Signing
Day Sports, Inc.
Consolidated
Statements of Operations
| |
Year Ended December 31, 2022 | | |
Year Ended December 31, 2021 (restated) | |
| |
| | |
| |
Revenues, net | |
$ | 78,336 | | |
$ | 340,984 | |
Cost of revenues | |
| 783,064 | | |
| 504,342 | |
| |
| | | |
| | |
Gross profit (loss) | |
| (704,728 | ) | |
| (163,358 | ) |
| |
| | | |
| | |
Operating cost and expenses | |
| | | |
| | |
Advertising and marketing | |
| 1,842,666 | | |
| 1,104,939 | |
General and administrative | |
| 3,025,223 | | |
| 5,027,820 | |
Impairment charge | |
| 820,951 | | |
| 2,276,159 | |
| |
| | | |
| | |
Total operating expenses | |
| 5,688,840 | | |
| 8,408,918 | |
| |
| | | |
| | |
Net income (loss) from operations | |
| (6,393,568 | ) | |
| (8,572,276 | ) |
| |
| | | |
| | |
Other income (expense) | |
| | | |
| | |
Interest expense | |
| (597,747 | ) | |
| (78,503 | ) |
Interest income | |
| 1,100 | | |
| 1,187 | |
Deferred tax income | |
| 100,000 | | |
| - | |
Change in fair value of SAFE Agreements | |
| 154,635 | | |
| (154,635 | ) |
Other expense | |
| (53,640 | ) | |
| - | |
Other Income | |
| 115,406 | | |
| - | |
| |
| | | |
| | |
Total other income (expense) | |
| (280,246 | ) | |
| (231,951 | ) |
| |
| | | |
| | |
Net loss | |
$ | (6,673,814 | ) | |
$ | (8,804,227 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding - basic and diluted | |
| 7,614,070 | | |
| 7,495,104 | |
| |
| | | |
| | |
Net loss per common share - basic and diluted | |
| 0.88 | | |
| 1.17 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Signing
Day Sports, Inc.
Consolidated
Statements of Changes In Stockholders’ Deficit
| |
Member’s
Equity | | |
Common
Stock | | |
Additional Paid-in | | |
Accumulated Equity | | |
Total
Stockholders’ | |
| |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
(Deficit) | | |
Deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance
at December 31, 2020 | |
$ | 2,556,242 | | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,556,242 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Member
contributions | |
| 3,437,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,437,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Member
distributions | |
| (750,000 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (750,000 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss attributable to LLC | |
| (3,997,225 | ) | |
| | | |
| | | |
| | | |
| - | | |
| (3,997,225 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
from LLC to Corp | |
| (1,246,017 | ) | |
| 7,495,104 | | |
| 750 | | |
| 1,245,267 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,807,002 | ) | |
| (4,807,002 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2021, as restated | |
$ | - | | |
| 7,495,104 | | |
$ | 750 | | |
$ | 1,245,267 | | |
$ | (4,807,002 | ) | |
$ | (3,560,985 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of Common Stock in exchange for SAFEs cancelation | |
| - | | |
| 591,048 | | |
| 59 | | |
| 1,979,941 | | |
| - | | |
| 1,980,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
based compensation expense | |
| | | |
| | | |
| | | |
| 152,251 | | |
| | | |
| 152,251 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,673,814 | ) | |
| (6,673,814 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2022 | |
$ | - | | |
| 8,086,152 | | |
$ | 809 | | |
$ | 3,377,459 | | |
$ | (11,480,816 | ) | |
$ | (8,102,548 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
Signing
Day Sports, Inc.
Consolidated
Statements of Cash Flows
| |
2022 | | |
2021
(restated) | |
| |
| | |
| |
Cash flows from
operating activities | |
| | |
| |
Net
loss | |
$ | (6,673,814 | ) | |
$ | (8,804,227 | ) |
Adjustments to reconcile net income to net cash used
in operating activities: | |
| | | |
| | |
Depreciation
and amortization | |
| 1,768 | | |
| 372,852 | |
Bad
debt | |
| 6,660 | | |
| - | |
Change
in fair value of future equity obligations | |
| (154,635 | ) | |
| 154,635 | |
Interest
expense attributable to amortization of debt issuance cost | |
| 191,287 | | |
| 24,559 | |
Impairment
loss on software development costs | |
| 820,951 | | |
| 2,276,159 | |
Stock-based
compensation | |
| 152,251 | | |
| - | |
(Increase)
decrease in assets: | |
| | | |
| | |
Accounts
receivable | |
| (17,490 | ) | |
| (4,840 | ) |
Prepaid
and other assets | |
| 172,482 | | |
| (172,621 | ) |
Deferred
tax asset | |
| (100,000 | ) | |
| - | |
Increase
(decrease) in liabilities: | |
| | | |
| | |
Accounts
payable and accrued liabilities | |
| 746,482 | | |
| 378,040 | |
Deferred
revenue | |
| (22,476 | ) | |
| (7,719 | ) |
Due
to related parties | |
| (22,066 | ) | |
| - | |
Lease
liabilities | |
| (29,861 | ) | |
| 43,785 | |
Tenant
deposit | |
| - | | |
| 9,894 | |
| |
| | | |
| | |
Net
cash used in operating activities | |
| (4,928,461 | ) | |
| (5,729,483 | ) |
| |
| | | |
| | |
Cash
flows from investing activities | |
| | | |
| | |
Development
of internal software | |
| (833,480 | ) | |
| (1,073,898 | ) |
Purchase
of intellectual property | |
| (22,000 | ) | |
| - | |
Purchase
of property and equipment | |
| - | | |
| (12,380 | ) |
| |
| | | |
| | |
Net
cash used in investing activates | |
| (855,480 | ) | |
| (1,086,278 | ) |
| |
| | | |
| | |
Cash
flows from financing activities | |
| | | |
| | |
Proceeds
from issuance of convertible notes | |
| 1,230,800 | | |
| 6,305,000 | |
Payment
of debt issuance cost | |
| - | | |
| (519,566 | ) |
Proceeds
from loans | |
| 120,000 | | |
| | |
Proceeds
from SAFE agreements | |
| - | | |
| 1,980,000 | |
Proceeds
from member contributions | |
| - | | |
| 3,437,000 | |
Distribution
to member | |
| - | | |
| (750,000 | ) |
| |
| | | |
| | |
Net
cash provided by financing activities | |
| 1,350,800 | | |
| 10,452,434 | |
| |
| | | |
| | |
Net
increase (decrease) in cash and cash equivalents | |
| (4,433,141 | ) | |
| 3,636,673 | |
| |
| | | |
| | |
Cash
and cash equivalents, beginning of period | |
| 4,687,550 | | |
| 1,050,877 | |
| |
| | | |
| | |
Cash
and cash equivalents, end of period | |
$ | 254,409 | | |
$ | 4,687,550 | |
| |
| | | |
| | |
Supplemental
cash flow information | |
| | | |
| | |
Cash
paid for interest expense | |
$ | - | | |
$ | 695 | |
| |
| | | |
| | |
Supplemental
disclosure of non-cash financing activities: | |
| | | |
| | |
SAFEs
cancelation | |
$ | (1,980,000 | ) | |
$ | - | |
Issuance
of common stock in exchange for SAFEs cancelation | |
$ | 1,980,000 | | |
$ | - | |
The
accompanying notes are an integral part of these consolidated financial statements.
Signing
Day Sports, Inc.
Notes
to Consolidated Financial Statements
Note
1 - Principal Business Activity and Significant Accounting Policies
Principal
Business Activity
Signing
Day Sports, Inc. (formerly known as Signing Day Sports, LLC) (“Company”) was formed and began operations in January 2019
and provides a digital ecosystem to help high school athletes get discovered and recruited by college coaches across the United States
of America.
The
Company’s website and mobile phone application provides an opportunity for athletes to create a personal profile by uploading measurables,
videos of key drills, testing stats, academics and demographic information. Coaches can evaluate a prospect’s video, watch two
separate prospects side by side simultaneously, and perform other actions with the video to visually evaluate talent. Intangible assets
consist of development software, patented technology, customer lists, trademarks, software IP, and customer data in the form of verifiable
video uploads, player statistics, and academic records.
Principles
of Consolidation
The
accompanying consolidated financial statements (sometimes referred to herein as “financial statements”) include the accounts
of Signing Day Sports, Inc. and its subsidiaries (collectively, the “Company”). All significant intercompany balances
and transactions have been eliminated.
Going
Concern Considerations
Our
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. We sustained significant losses and negative cash flows from operations
and are dependent on debt and equity financing to fund operations. We incurred a net loss of approximately $6.6 million and $8.8 million
for the years ended December 31, 2022, and 2021, respectively. We had cash used in operating activities of approximately $4.9 million
and $5.7 million for the years ended December 31, 2022, and 2021, respectively, and have cumulative losses of approximately $18.1 million
and $11.5 million as of December 31, 2022, and 2021, respectively. These conditions raise substantial doubt about our ability to continue
as a going concern.
The
Company is continuing its path to profitability through increased business development, marketing and sales of the Company’s multiple
lines of subscriptions.
Failure
to successfully continue to grow operational revenues could harm our profitability and adversely affect our financial condition and results
of operations. We face all of the risks inherent in a new business, including the need for significant additional capital, management’s
potential underestimation of initial and ongoing costs, and potential delays and other problems in connection with establishing sales
channels.
We
are continuing our plan to further grow and expand operations and seek sources of capital to pay our contractual obligations as they
come due. Management believes that its current operating strategy will provide the opportunity for us to continue as a going concern
as long as we are able to obtain additional financing; however, there is no assurance this will occur. The accompanying financial statements
do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Basis
of Presentation
The
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Concentrations
of Credit Risk
The
Company maintains its cash account in several deposit accounts, the balances of which are periodically more than federally insured limits.
At December 31, 2022 and 2021, the uninsured amounts approximated $0 and $4,000,000, respectively.
Receivables
and Credit Policy
The
Company estimates an allowance for doubtful accounts based upon an evaluation of the status of receivables, historical experience, and
other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.
There were approximately $16,000 of open receivables at December 31, 2022 and $5,000 at December 31, 2021. At December 31, 2022 and 2021
the Company believes the accounts receivable are fully collectable and has no reserve established.
Payment
Terms
Payments
from individuals and organizations are required prior to providing access to the Company’s website and application. If not paid
in advance, payments are required from organizations on a monthly basis. If a payment is not made, access to the Company’s website
and application is suspended until the required payment is received.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend
the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired
or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in
income.
Depreciation
is provided using the straight-line method, based on useful lives of the assets which range from three to five years.
The
Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment
include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand,
competition, and other economic factors. Based on this assessment there was no impairment at December 31, 2022 and 2021.
Internally
Developed Software
Software
consists of an internally developed information system for use by the Company in matching athletes with qualified coaches. The Company
has capitalized costs incurred with development and upgrades of the information systems in accordance with applicable accounting standards.
Costs incurred up to and including the feasibility stage of development as well as maintenance costs are expensed as incurred. The Company
amortizes these capitalized costs on a straight-line basis over the estimated useful life of the asset of five years.
The
Company periodically performs reviews of the recoverability of such capitalized technology costs. At the time a determination is made
that capitalized amounts are not recoverable based on estimated cash flows to be generated from technology; any remaining capitalized
amounts are written off. During the years ended December 31, 2022, and 2021, the Company wrote off net capitalized software development
costs of $820,951 and $2,276,159 respectively. An impairment charge for this write-off is reflected in the operating expenses in the
accompanying statement of operations.
Intangible
Assets
Intangible
assets consist of development software, patented technology, customer lists, trademarks, software IP, and customer data in the form of
verifiable video uploads, player statistics, and academic records. Intangible assets are stated at cost less accumulated amortization.
For intangible assets that have finite lives, the assets are amortized using the straight-line method over the estimated useful lives
of the related assets. For intangible assets with indefinite lives, the assets are tested periodically for impairment.
Fair
Value Measurements
The
Company values its “Simple Agreement for Future Equity” Agreements (“SAFE Agreements”) under the provisions of
FASB ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value under U.S. GAAP, establishes a framework
for measuring fair value and enhances disclosures about fair value measurements. U.S. GAAP establishes a fair value hierarchy, which
required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
asset or liability’s fair value measurement level within the fair value hierarchy is based up the lowest level of any input that
is significant to the fair value measurement.
A
fair value hierarchy has been established, which prioritizes the valuation inputs into three broad levels. Level 1 inputs consist of
quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability.
Level 3 inputs are unobservable inputs related to the asset or liability.
The
SAFE Agreements are valued using market conditions to estimate the fair value of the agreements. These are classified within Level 3.
Income
Taxes
Income
taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of internally developed software and net operating loss and research and development
tax credit carry forwards for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The
Company converted to a C corporation in August of 2021. As a limited liability company for the 2020 year and through the date of conversion
in 2021, the Company’s taxable loss was allocated to members in accordance with their respective percentage of ownership. Therefore,
no provision for income taxes has been included in the financial statements for the period prior to the Company’s conversion to
a corporation.
The
Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual
is necessary for uncertain tax positions. As of December 31, 2022 and 2021, the unrecognized tax benefits accrual was zero. The Company
will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. As of December
31, 2022, the 2020 through 2022 tax years generally remain subject to examination by federal and state authorities.
Deferred
Revenue
Deferred
revenues are contract liabilities for collections on subscription agreements in excess of revenue recognized.
Revenue
Recognition
The
Company accounts for revenue under the guidance of FASB ASC 606, “Revenue from Contracts from Customers” (“ASC 606”).
ASC
606 prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of
revenue to be recognized. Under the ASC 606 guidance, an entity is required to perform the following five steps: (1) identify the
contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4)
allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity
satisfies a performance obligation.
Revenue
from performance obligations satisfied at a point in time consist of sales to individuals representing a one-month subscription and are
recognized at the end of the subscription.
Revenue
from performance obligations satisfied over time consists of the sale of subscription agreements to individual organizations or customers
that are more than one month in duration and are recognized on a monthly basis over the life of the subscription agreement.
Debt
Issuance Costs
Debt
issuance costs are amortized over the period the related obligation is outstanding using the straight-line method. The straight-line
method is a reasonable estimate of the effective interest method due to the relatively short maturities of the related debt. Debt issuance
costs are included within long-term debt on the balance sheet. Amortization of debt issuance costs is included in interest expense in
the accompanying financial statements. As of December 31, 2022 and 2021, unamortized debt issuance costs are $387,920 and $495,007, respectively.
Advertising
Costs
Advertising
and marketing costs are expensed as incurred. Such costs amounted to $1,842,666 and $1,104,939 for the years ended December 31, 2022
and 2021, respectively. Advertising costs are included in advertising and marketing expenses in the statements of operations.
Estimates
The
preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Contract
Costs
Incremental
costs of obtaining a contract are expensed as incurred as the amortization period of the asset that otherwise would have been recognized
is estimated to be one year or less.
Stock-Based
Compensation
The
Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires
the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately
expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based payments granted to
employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718
is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as
expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.
Basic
and Diluted Net Loss per Common Share
Basic
loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each
period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding
plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding
excludes common stock equivalents because their inclusion would be anti-dilutive. As of December 31, 2022, and 2021, 253,000 and 0 stock
options, respectively, were excluded from dilutive earnings per share as their effects were anti-dilutive.
Recent
Accounting Guidance
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to recognize leases
on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model
that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
Leases will be classified as finance or operating, with classification affecting the pattern and classification of the expense recognition
in the income statement. The Company has implemented the new standard and it does not have an impact on its assets, liabilities and results
of operations or cash flows.
Leases
At
the inception or modification of a contract, the Company determines whether a lease exists and classifies its leases as an operating
or finance lease at commencement. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset
for the lease term and lease liabilities represent their obligation to make lease payments arising from the lease.
As
most of the Company’s leases do not provide an implicit interest rate, the lease liability is calculated at lease commencement
as the present value of unpaid lease payments using the Company’s estimated incremental borrowing rate. The incremental borrowing
rate represents the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized
basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the
lease.
The
lease asset also reflects any prepaid rent, initial direct costs incurred and lease incentives received. The Company’s lease terms
may include optional extension periods when it is reasonably certain that those options will be exercised.
Leases
with an initial expected term of 12 months or less are not recorded in the Balance Sheet and the related lease expense is recognized
on a straight-line basis over the lease term. For certain classes of underlying assets, the Company has elected to not separate fixed
lease components from the fixed non-lease components. As of December 31, 2022 and 2021, there were no leases with an expected term greater
than 12 months.
Reclassifications
Certain
amounts in the 2021 consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications
had no effect on net income or equity.
Note
2 - Revenue
The
following table disaggregates the Company’s revenue based on the timing of satisfaction of performance obligations for the years
ended December 31, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
| |
Revenue recognized over time | |
$ | 33,229 | | |
$ | 340,984 | |
Revenue recognized at
a point in time | |
| 45,107 | | |
| - | |
| |
| | | |
| | |
Total
revenue from contracts with customers | |
$ | 78,336 | | |
$ | 340,984 | |
The beginning
and ending balances for deferred revenue were as follows for the years ended December 31, 2022 and 2021:
|
|
2022 |
|
|
|
January
1 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
66,549 |
|
|
$ |
44,073 |
|
| |
2021 | |
| |
January
1 | | |
December 31 | |
| |
| | |
| |
Deferred revenue | |
$ | 74,268 | | |
$ | 66,549 | |
The
Company recognized revenue of $66,549 in 2022 that was included in the deferred revenue balance as of December 31, 2021. The Company
expects to recognize the December 31, 2022 balance fully in the year ending December 31, 2023.
Note 3
- Property, Plant and Equipment
The Company’s
fixed assets include the following on December 31, 2022 and 2021:
| |
| | |
Accum. | | |
| |
| |
Cost
Basis | | |
Depreciation | | |
Net | |
| |
| 2022 | |
Office Furniture | |
$ | 12,380 | | |
$ | (2,078 | ) | |
$ | 10,302 | |
| |
| 2021 | |
Office Furniture | |
$ | 12,380 | | |
$ | (310 | ) | |
$ | 12,070 | |
Note 4
- Internally Developed Software
Internally
developed software asset consists of the following:
| |
2022 | |
| |
| | |
Accumulated | | |
| | |
| |
| |
| Cost | | |
Amortization | | |
| Impairment | | |
| Net | |
| |
| | | |
| | | |
| | | |
| | |
Internally developed software | |
$ | 820,951 | | |
$ | - | | |
$ | (820,951 | ) | |
$ | - | |
| |
2021 | |
| |
| | |
Accumulated | | |
| | |
| |
| |
| Cost | | |
Amortization | | |
| Impairment | | |
| Net | |
| |
| | | |
| | | |
| | | |
| | |
Internally developed software | |
$ | 2,769,984 | | |
$ | (493,825 | ) | |
$ | (2,276,159 | ) | |
$ | - | |
During
the years ended December 31, 2022 and 2021, the Company recognized impairment loss on its internally developed software amounting to
$820,951 and $2,276,159, respectively due to a decrease in projected revenues.
Amortization
expense for the years ended December 31, 2022 and 2021, was $0 and $372,542, respectively.
Note 5
- Intangible Assets
The Company’s
intangible assets include the following on December 31, 2022:
| |
| | |
Accumulated | | |
| |
| |
Cost | | |
Amortization | | |
Net | |
| |
| | |
| | |
| |
Intellectual Property | |
$ | 22,000 | | |
$ | - | | |
$ | 22,000 | |
Proprietary technology | |
$ | 18,700 | | |
$ | (6,171 | ) | |
$ | 12,529 | |
| |
| | | |
| | | |
| | |
Total
intangible assets | |
$ | 40,700 | | |
$ | (6,171 | ) | |
$ | 34,529 | |
Amortization
expense for the years ended December 31, 2022 and 2021 was $6,171 and $0, respectively.
Note 6
- Fair Value of Assets and Liabilities
There
are three general valuation techniques that may be used to measure fair value, as described below:
| 1. | Market
approach – Uses prices and other relevant information generated by market transactions
involving identical or comparable assets or liabilities. Prices may be indicated by pricing
guides, sale transactions, market trades, or other sources; |
| 2. | Cost
approach – Based on the amount that currently would be required to replace the service
capacity of an asset (replacement cost); and |
| 3. | Income
approach – Uses valuation techniques to convert future amounts to a single present
amount based on current market expectations about the future amounts (includes present value
techniques and option-pricing models). Net present value is an income approach where a stream
of expected cash flows is discounted at an appropriate market interest rate. |
The
fair value of the SAFE Agreements was determined using the market approach with an option pricing model discounted to present value.
Significant assumptions used in the option pricing model included current equity value of the Company, risk free rate, maturity and volatility
resulting in a future value of $0 and $2,134,635, as of December 31, 2022 and 2021, respectively. A discount rate of 11.8% was applied
to the future value to arrive at the estimated fair value. In 2022, the SAFEs were converted to common stock through agreements made
with all SAFE holders.
Liabilities
measured at fair value as of December 31, 2022 is as follows:
| |
| | |
Quoted Prices in | | |
Other Observable | | |
Unobservable | |
| |
| | |
Active Markets | | |
Inputs | | |
Inputs | |
| |
Total | | |
(Level1) | | |
(Level2) | | |
(Level3) | |
| |
| | | |
| | | |
| | | |
| | |
SAFE Agreements | |
$ | - | | |
$ | - | | |
| | | |
$ | - | |
Liabilities
measured at fair value as of December 31, 2021 is as follows:
| |
| | |
Quoted Prices in | | |
Other Observable | | |
Unobservable | |
| |
| | |
Active Markets | | |
Inputs | | |
Inputs | |
| |
Total | | |
(Level1) | | |
(Level2) | | |
(Level3) | |
| |
| | | |
| | | |
| | | |
| | |
SAFE Agreements | |
$ | 2,134,635 | | |
$ | - | | |
$ | - | | |
$ | 2,134,635 | |
The
following are transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities:
Transfers into Level 3 | |
| - | |
Transfers out of Level 3 | |
| - | |
Purchases | |
| - | |
Issuances | |
| 1,980,000 | |
Change in fair value | |
| 154,635 | |
| |
| | |
Balance at December 31, 2021 | |
$ | 2,134,635 | |
| |
| | |
Transfers into Level 3 | |
| - | |
Transfers out of Level 3 | |
| - | |
Purchases | |
| - | |
Issuances | |
| - | |
Conversion to stock | |
| (1,980,000 | ) |
Change in fair value | |
| (154,635 | ) |
| |
| | |
Balance at December 31, 2022 | |
$ | - | |
Note 7
- Convertible Notes Payable
Convertible
notes payable consists of:
| |
2022 | | |
2021 | |
9
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon initial public offering (IPO) or other “sale of control” as defined in the agreement.
If IPO or sale of control is not consummated by March 31, 2022, the Company has the option to repay notes at anytime prior to maturity
date of October 15, 2024 | |
| 3,300,000 | | |
| 3,300,000 | |
| |
| | | |
| | |
12
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. If IPO or sale of control
is not consummated by March 31, 2022 the company has the option to repay notes at anytime prior to maturity date of November 15,
2024 | |
| 1,205,000 | | |
| 1,205,000 | |
| |
| | | |
| | |
6
convertible notes payable, bear interest at 6%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. If IPO or sale of control
is not consummated by March 31, 2022 the company has the option to repay notes at anytime prior to maturity date of December 23,
2024 | |
| 1,800,000 | | |
| 1,800,000 | |
| |
| | | |
| | |
13
convertible notes payable, bear interest at 8%, no monthly payments, unsecured, notes automatically convert at 50% of fair value
(less any accrued interest) upon IPO or other “sale of control” as defined in the agreement. Notes may only be prepaid
by the Company with the written consent of the holder prior to the maturity date of August 8, 2023 | |
| 1,315,000 | | |
| | |
| |
| | | |
| | |
| |
| 7,620,000 | | |
| 6,305,000 | |
| |
| | | |
| | |
Less
unamortized debt issuance costs | |
| (387,920 | ) | |
| (495,007 | ) |
| |
| | | |
| | |
Long-term
debt, less unamortized debt issuance costs | |
$ | 7,232,080 | | |
$ | 5,809,993 | |
Future maturities
of convertible notes payable are as follows:
Years
Ending December 31, | |
Amount | |
2022 | |
| - | |
2023 | |
| 1,315,000 | |
2024 | |
| 6,305,000 | |
| |
| | |
Total | |
$ | 7,620,000 | |
Note
8 - SAFE Agreements
During
March 2021 through July 2021, the Company entered into 8 agreements consisting of a “Simple Agreement for Future Equity”
(SAFE agreements) totaling $1,980,000. The SAFE agreements provide a right to the holder to future equity in the Company in the form
of these notes payable.
If
the Company receives Equity Financing, the SAFE agreement will automatically convert into the number of Preferred Shares equal to the
Purchase Amount (as defined in the SAFE agreements) divided by the conversion price per share.
If
there is a Liquidity Event (as defined in the SAFE agreements), the holder of the SAFE Agreement will be automatically entitled to receive
a portion of the proceeds equal to the greater of (i) the Purchase Amount/Cash-out Amount or (ii) an amount equal to a percentage of
the proceeds to be received in a Liquidity Event with such percentage calculated by dividing the Purchase Amount by the Liquidity Event
Amount.
If
there is a Dissolution Event (as defined in the SAFE agreements), the holder of the SAFE agreement will automatically receive a portion
of the Proceeds equal to the Purchase Amount/Cash-out Amount, due and payable immediately prior to the consummation of the Dissolution
Event.
If
after eighteen months, there has been no Equity Financing, Liquidity Event, or Dissolution Event, the SAFE agreement will automatically
convert into the number of Common Shares equal to the Purchase Amount divided by the Valuation Discount Price Per Share resulting in
an approximate 20% discount.
As
of December 31, 2021, none of the above described events have occurred. In 2022, the SAFE Agreements were voluntarily canceled through
agreements with the SAFE holders and a total of 591,048 share of common stock were issued in exchange.
The
SAFE Agreements were not mandatorily redeemable, and they could require the Company to issue a variable number of shares. Management
of the Company determined that the SAFE Agreements contained a liquidity event provision that embodied an obligation indexed to the fair
value of the equity shares and could require the Company to settle the SAFE obligation by transferring assets or cash. The SAFE Agreements
represented a recurring measurement that is classified within Level 3, disclosed and defined in Note 5 of the financial statements of
the fair value hierarchy wherein fair value is estimated using significant unobservable inputs.
On
initial recognition, the Company measured the fair value of the liability at an amount equal to the aggregate proceeds of $1,980,000
that was received from investors in exchange for the SAFE agreements. As of December 31, 2022 and 2021, the Company estimated the fair
value to be $0 and $2,134,635. See Note 5 for Fair Value related disclosures.
The SAFE
Agreements are shown as long-term on the accompanying balance sheet in 2021.
The
Company elected to offer safe holders the option for voluntary conversion. At the time of offering the company proposed a $25 million
valuation offering to the current SAFE holders. All SAFE holders voluntarily converted into common stock in 2022.
Note
9 - Leases
The
Company leases office space under a long-term operating lease from a third party expiring on May 31, 2023. Monthly rent is $12,075
and includes annual escalations. Total rental expense to non-related parties in 2021 was $174,437. In December 2021, the Company
entered into an agreement to sublease their office space to an unrelated party under an operating lease agreement. The sublease ends
on May 31, 2023 and includes fixed rent of $9,894. As a result of the sublease, the Company incurred a loss on the transaction of
$43,785 during the year ended December 31, 2021, which is shown as lease liability in the accompanying balance sheet. The lease
liability will be amortized over the remainder of the lease.
In
November 2022, the company signed a 6-month short-term lease for office space expiring on April 30, 2023. Monthly rent is $7,491 per
month plus rental tax.
During
2021, the Company entered into a lease for office space with a related party with the lease commencing in January 2022. The office space
is owned by John Dorsey. The lease agreement requires monthly payments of approximately $20,800 plus tax, with an increase of three percent
every year on each anniversary date until January 2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411.
In
August 2022, the Company entered into a lease termination agreement whereby both parties agreed to terminate the lease and release each
other from all future obligations.
Total
rental expense to non-related parties in 2022 and 2021 was $158,621 and $174,437, respectively. Total rental expense to related
parties in 2022 and 2021 was $148,876 and $0, respectively.
As
of December 31, 2022, there are no future maturities of uncancelable leases with a term longer than one year.
Note
10 - Income Taxes
There
was no current tax expense for the year ended December 31, 2022 and 2021. Deferred tax income was $100,000 and $0 as of December 31,
2022 and 2021.
Deferred
tax assets consist of the following components as of December 31, 2022 and 2021:
| |
2022 | | |
2021 | |
Deferred Tax Asset (Liabilities) | |
| | |
| |
Net operating loss | |
$ | 2,040,000 | | |
$ | 800,000 | |
Internally developed software | |
| 470,000 | | |
| - | |
Furniture and fixtures | |
| (3,000 | ) | |
| (3,000 | ) |
R&D Tax Credit Carryforwards | |
| 160,000 | | |
| 60,000 | |
AZ Refundable R&D
Tax Credit | |
| 100,000 | | |
| - | |
| |
| | | |
| | |
Net
deferred tax assets before valuation allowance | |
$ | 2,767,000 | | |
$ | 857,000 | |
| |
| | | |
| | |
Less valuation allowance | |
| (2,667,000 | ) | |
| (857,000 | ) |
| |
| | | |
| | |
Net deferred tax assets | |
$ | 100,000 | | |
$ | - | |
The
Company has a valuation allowance against most of the amount of its net deferred tax assets due to the uncertainty of realization of
the deferred tax assets due to the operating loss history of the Company. The Company currently provides a valuation allowance against
deferred taxes when it is more likely than not that some portion, or all of its deferred tax assets will not be realized. The valuation
allowance could be reduced or eliminated based on future earnings and future estimates of taxable income.
The
Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to income from
continuing operations primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes
and tax-exempt income.
As
of December 31, 2022 and 2021, the Company had approximately $7,900,000 and $3,100,000, respectively, of federal net operating loss carryforwards
available to offset future taxable income. Under current tax law, the federal net operating losses generated do not expire and may be
carried forward indefinitely. As of December 31, 2022 and 2021, the Company has approximately $260,000 and $60,000, respectively, of
federal and state research and development credits. The 2022 Arizona credit of $100,000 is refundable, and the remaining federal credit
from 2022 will expire in 2042, and the 2021 credits expire in 2041.
Note
11 - Recapitalization
At
inception, the Company was organized as a limited liability company (LLC). During 2020, The LLC formed two wholly- owned subsidiaries,
Signing Day Sports Football, LLC (SDSF LLC) and Signing Day Sports Baseball, LLC (SDSB LLC).
Signing
Day Sports, LLC, an Arizona limited liability company (“SDS LLC – AZ”), was formed on January 21, 2019. SDS LLC –
AZ formed two wholly-owned subsidiaries, Signing Day Sports Football, LLC, an Arizona limited liability company (“SDSF LLC”),
and Signing Day Sports Baseball, LLC, an Arizona limited liability company (“SDSB LLC”), on September 29, 2020 and November
25, 2020, respectively.
On
June 5, 2020, a process to change SDS LLC – AZ into a Delaware corporation was initiated. On that date, a certificate of formation
for Signing Day Sports, LLC, a Delaware limited liability company (“SDS LLC – DE”), and a certificate of conversion
of SDS LLC – AZ into SDS LLC – DE, were filed with the Delaware Secretary of State. On September 9, 2021, a certificate of
incorporation for Signing Day Sports, Inc., a Delaware corporation (“SDS Inc. – DE” or the “Company”),
and a certificate of conversion of SDS LLC – DE into SDS Inc. – DE were filed with the Delaware Secretary of State. From
September 9, 2021 to July 11, 2022, SDS Inc. – DE operated as the successor entity to SDS LLC – AZ, and SDS LLC – AZ
continued to be registered as an active entity with the Arizona Corporation Commission while its conversion into SDS LLC – DE pended.
On
July 11, 2022, an Agreement and Plan of Merger was entered into between SDS LLC – AZ, SDSF LLC, SDSB LLC, and SDS Inc. –
DE (the “Merger Agreement”). On the same date, pursuant to the Merger Agreement, a certificate of merger was filed with the
Delaware Secretary of State and a statement of merger was filed with the Arizona Secretary of State effecting the merger of SDS LLC –
AZ, SDSF LLC, and SDSB LLC with and into SDS Inc. – DE, and SDS Inc. – DE succeeded to the rights, property, obligations,
and liabilities of each of SDS LLC – AZ, SDSF LLC, and SDSB LLC. In anticipation of the Merger Agreement and its consummation,
in April 2022 and May 2022, SDS LLC – AZ, SDS Inc. – DE, and each of the members or stockholders of SDS LLC – AZ, SDSF
LLC, SDSB LLC, and SDS Inc. – DE, entered into Settlement Agreement and Releases (collectively, the “Settlement Agreements”),
which provided, among other things, for the mutual general release of all claims by the parties against and relating to SDS LLC –
AZ, SDSF LLC, SDSB LLC, and SDS Inc. – DE, and confirmed the owners and related amounts of all outstanding shares of common stock
of SDS Inc. represented by the capitalization table exhibit to the Settlement Agreements.
SDS
Inc. – DE has 150,000,000 shares authorized. No shares were formally issued as of December 31, 2021. On July 11, 2022, it was agreed
that all previous members in SDS LLC -AZ owned 7,495,104 common shares of SDS Inc. – DE at the date of the merger.
The
accompanying balance sheet and statement of stockholders’ and members’ equity (deficit) retrospectively present the shares
as if they were issued as of December 31, 2021.
Note
12 - Stockholder’s Deficit
Common
Stock
The
Company is authorized to issue 150,000,000 shares of $0.0001 par value common stock as of December 31, 2022 and 2021, respectively. The
Company has 8,086,152 and 7,495,104 shares issued and outstanding as of December 31, 2022 and 2021, respectively.
During
2021, 7,495,104 shares were issued as part of the recapitalization from an LLC to a Corporation. See note 11. In 2022, 591,048 shares
of common stock were issued in exchange for the cancelation of the SAFE agreements. See note 8.
Reverse
Stock Split
On
April 14, 2023 (the “Effective Date”),
the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware. Upon the filing and effectiveness,
April 14, 2023, pursuant to the Delaware General Corporation Law of this Certificate of Amendment to the Certificate of Incorporation
of the Corporation, each five (5) shares of Common Stock issued and outstanding immediately prior to the Effective Date shall, automatically
and without any action on the part of the respective holder thereof, be combined and converted into one (1) share of Common Stock (the
“Reverse Stock Split”).
The
Certificate of Amendment effected a 1-for-5 Reverse Stock Split on the Effective Date and was approved by shareholders on April 4, 2023,
and the Board of Directors on April 11, 2023. Accordingly, all share and per share amounts for
all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable,
to reflect this reverse stock split.
Equity
Incentive Plan
In
August 2022, the Board of Directors adopted the Company’s 2022 Equity Incentive Plan (the “2022 Plan”), effective
as of August 31, 2022. Awards that may be granted under the 2022 Plan include: (a) Incentive Stock Options, (b) Non-qualified Stock
Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance Share Awards, and (f) Performance Compensation
Awards. The persons eligible to receive Awards are the Employees, Consultants and Directors of the Company and its Affiliates and
such other individuals designated by the Committee who are reasonably expected to become Employees, Consultants and Directors after
the receipt of Awards. The purpose of the 2022 Plan is to attract and retain the types of Employees, Consultants and Directors who
will contribute to the Company’s long-term success; (b) provide incentives that align the interests of Employees, Consultants
and Directors with those of the stockholders of the Company; and (c) promote the success of the Company’s business. The 2022
Plan shall be administered by the Committee or, in the Board’s sole discretion, by the Board. Subject to the terms of the Plan
and the provisions of Section 409A of the Code (if applicable), the Committee’s charter and Applicable Laws, and in addition
to other express powers and authorization conferred by the Plan. The Board reserved 750,000 shares of common stock issuable upon the
grant of awards. Stock options comprise all of the awards granted since the 2022 Plan’s inception. As of December 31, 2022,
there were 488,000 shares available for grant under the 2022 Plan and the Company had granted 262,000 stock options to purchase
common stock with an exercise price of $3.10 that expire ten years from the date of grant.
A
summary of information related to stock options for the year ended December 31, 2022 is as follows:
The
summary of activity under the plan as of December 31, 2022, and changes during the year then ended is as follows:
| |
| | |
Weighted | | |
| |
| |
| | |
Average | | |
Intrinsic | |
| |
Options | | |
Exercise Price | | |
Value | |
Outstanding at December 31, 2021 | |
| - | | |
$ | - | | |
| | |
Granted | |
| 262,000 | | |
| 3.10 | | |
| | |
Exercised | |
| - | | |
| - | | |
| | |
Forfeited or expired | |
| - | | |
| - | | |
| | |
| |
| | | |
| | | |
| | |
Outstanding at December 31, 2022 | |
| 262,000 | | |
$ | 3.10 | | |
$ | 42,402 | |
| |
| | | |
| | | |
| | |
Exercisable at December 31, 2022 | |
| 92,390 | | |
$ | 3.10 | | |
$ | 21,848 | |
| |
Year Ended | |
| |
December 31, | |
| |
2022 | |
Weighted average grant-date fair
value of options granted during year | |
$ | 1.74 | |
Weighted average duration (years) to expiration
of outstanding options at year-end | |
| 9.73 | |
The
following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the
grant-date fair value of stock options granted:
| |
Year Ended | |
| |
December 31, | |
| |
2022 | |
Risk-free interest rate | |
| 3.88 | % |
Expected term (in years) | |
| 5.42 | |
Expected volatility | |
| 50 | % |
Expected dividend yield | |
$ | - | |
The
total grant-date fair value of the options granted during the year ended December 31, 2022, was $440,726. Stock-based compensation expense
of $152,251 was recognized for the year ended December 31, 2022. Total unrecognized compensation cost related to non-vested stock option
awards amounted to $288,475 as of December 31, 2022, which will be recognized over a weighted average period of 1.1 years.
Note
13 - Commitments and Contingencies
Legal
The
Company may be a party to various legal actions arising from the normal course of business. In management’s opinion, the Company
has adequate legal defenses and/or insurance coverage and does not believe the outcome of such legal actions will materially affect the
Company’s operation and/or financial position.
Betterdays
Media, Inc. v. Signing Day Sports, LLC, Case No. 2:21-cv-07442-DMG-JDE (United States District Court for the Central District of
California, September 17, 2021)
The
plaintiff, Betterdays Media, Inc. commenced this case in the Superior Court of California for Los Angeles County. Thereafter, the defendant,
SDS LLC – AZ, removed the case to U.S. District Court for the Central District of California on September 17, 2021. The plaintiff’s
complaint in the case alleges that it entered into a contract with the defendant pursuant to which the plaintiff was to perform film
production work on a sports documentary for the defendant and that the defendant breached that contract by failing to pay the full amount
owed under the contract to the plaintiff. The plaintiff claimed damages in the amount of $138,062.97 plus interest. In its answer to
the complaint, SDS LLC – AZ denied the plaintiff’s allegations. On February 1, 2022, the parties filed a joint notice stating
that they had agreed to settle the case, were preparing a written settlement agreement and stipulation of dismissal, and that by February
28, 2022 they would file such stipulated dismissal or a report why such stipulated dismissal was not filed. On February 4, 2022, the
court entered an order providing that, by March 1, 2022, the parties were to file either (1) a stipulation and proposed order for dismissal
of the action or judgment, or (2) a motion to reopen if settlement has not been consummated and that upon the failure to timely comply
with this order, the action would be deemed to be dismissed as of March 2, 2022. That was the last docket entry in the case. Therefore,
pursuant to that order, the case was deemed dismissed as neither a stipulation and proposed order of dismissal nor a motion to reopen
was filed by March 1, 2022.
Claim
of John Dorsey
On
or about November 29, 2022, John Dorsey, a former Chief Executive Officer and director of the Company, through his counsel, sent the
Company a letter demanding full payment on the Alleged Loan in connection with the Loan Dispute. Under the January 2023 Dorsey Settlement
Agreement, Mr. Dorsey agreed to a discharge of the Alleged Loan and waiver and release of claims relating to the Alleged Loan and Loan
Dispute and covenant not to sue on the basis of such claims or otherwise commence any action or proceeding that would be inconsistent
with the release of such claims. The Company agreed to pay Mr. Dorsey $10,000 and issue a promissory note to Mr. Dorsey in the principal
amount of $40,000 payable on the earlier of ten business days following the successful closing of an initial public offering of the Company’s
common stock that generates at least $1 million in net proceeds to the Company or July 1, 2023.
Collaborative
Arrangements
The
company has entered into collaborative arrangements with various parties for the cross promotion of technologies and services within
certain geographical areas. These arrangements do not commit the Company or the counterpart to any financial obligation. If these arrangements
result in a formal project, the Company and the counterparties will receive certain equity consideration in the project or be given first
right of refusal to provide their products or services to the projects, as defined by the respective agreements. To date, these arrangements
have not resulted in any formal projects.
Note
14 - Related Party Transactions
See
leases note 9 for related party disclosure.
On
April 10, 2023, the Company issued Richard Symington, our President and Chief Marketing Officer and a director, an 8% unsecured promissory
note in the amount of $250,000 and a warrant to purchase 100,000 shares of common stock at an exercise price of $2.50 per share in a
private placement. The promissory note bears interest at 8% annually and will mature on the earlier to occur of March 17, 2025 or a Liquidity
Event. If a Liquidity Event occurs before March 17, 2025, the warrant will be automatically exercised as to the unexercised portion of
the warrant, the outstanding balance due under the 8% unsecured promissory note will be deemed repaid in the amount of the unexercised
portion of the warrant from the automatic exercise of the unexercised portion of the warrant, and any remaining balance outstanding under
the promissory note must be repaid in cash. If a Liquidity Event does not occur before March 17, 2025, then both principal and interest
outstanding under the note must be repaid in cash. The warrant may be voluntarily exercised for cash prior to the maturity date of the
promissory note or, as indicated above, will be automatically exercised for shares of common stock upon the consummation of a Liquidity
Event. The warrant has a five-year term. Mr. Symington also entered into a subscription agreement which provided certain registration
rights with respect to the shares underlying the warrant.
Under
the terms of the Repurchase Agreement, on March 31, 2023, we paid an aggregate purchase price of $800,000 for 600,000 shares of common
stock formerly held by Dennis Gile, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and
director of the Company, at approximately $1.33 per share. Pursuant to the Repurchase Agreement, the Dorsey/Gile Settlement Payment was
made to John Dorsey as part of the settlement of the Dorsey/Gile Lawsuit under the Dorsey/Gile Settlement Agreement. Pursuant to the
Repurchase Agreement, the balance of the aggregate purchase price was paid to the attorneys for Mr. Gile. Pursuant to the Repurchase
Agreement, Mr. Gile agreed to resign his position as Chairman and every other director and officer position he held with the Company
effective as of March 21, 2023. Prior to such date, on March 20, 2023, Mr. Gile delivered notice of resignation from such positions,
which stated that it was effective March 19, 2023. Pursuant to the Repurchase Agreement, Mr. Gile will not receive any severance payments
in connection with any other agreement with the Company as a result of his resignation. The Repurchase was also conditioned on the Company’s
prior review of and consent to the Dorsey/Gile Settlement Agreement prior to its execution, and receipt of the CFO Certificate. Under
the Repurchase Agreement, the Dorsey/Gile Settlement Agreement was required to fully resolve, settle and dismiss the Gile/Dorsey Lawsuit
and contain a general release of claims by all the plaintiffs in the Dorsey/Gile Lawsuit in favor of Mr. Gile, the Company, the Company’s
affiliates, stockholders, and certain other Company releasees. Under the Repurchase Agreement, Mr. Gile agreed to indemnify the Company
for claims arising out of based upon the Repurchase Agreement. Pursuant to the Repurchase Agreement, a copy of the Dorsey/Gile Settlement
Agreement was reviewed and consented to by the Company and entered into as of March 20, 2023. Under the Dorsey/Gile Settlement Agreement,
between Mr. Gile, Mr. Dorsey, and Dorsey LLC, Mr. Gile agreed to pay the Dorsey/Gile Settlement Payment, transfer 40,000 shares of the
Company to Mr. Dorsey. Mr. Gile, Mr. Dorsey and Dorsey LLC agreed to mutual releases of all claims relating to the Dorsey/Gile Lawsuit
and to dismiss the Dorsey/Gile Lawsuit. Although the Dorsey/Gile Settlement Agreement did not contain a release of the Company and did
not contain releases by the plaintiffs of Mr. Gile other than with respect to the Lawsuit, the Company waived any related requirements
under the Repurchase Agreement in light of the expected execution of the Mutual Release Agreement. The CFO Certificate was received as
of March 21, 2023. The repurchased shares were cancelled as of March 31, 2023. The transfer of 40,000 shares by Mr. Gile to Mr. Dorsey
occurred on April 4, 2023, after waiver of the board of directors of the repurchase rights and purchase rights provided for under the
Shareholder Agreement by resolutions adopted on March 24, 2023.
Under
the Mutual Release Agreement, as of March 29, 2023, Mr. Dorsey agreed to a general release of claims against and covenant not to sue
the Company, the Company’s affiliates, stockholders, and certain other Company releasees, and the Company agreed to a general release
of claims against and covenant not to sue Mr. Dorsey, Mr. Dorsey’s affiliates, and certain other releasees, subject to payment
of the Dorsey/Gile Settlement Payment, which, as indicated above, was made on March 31, 2023. The releases of claims and covenants not
to sue under the Mutual Release Agreement do not apply to breach of the Dorsey/Gile Settlement Agreement or to the January 2023 Dorsey
Settlement Agreement.
Under
our Settlement Agreement with Dennis Gile, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman,
and director of the Company, dated as of May 12, 2022, the parties agreed, among other things, to a general release and discharge of
claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit
to the agreement, including without limitation, claims relating to Mr. Gile’s direct or indirect ownership of shares of SDS Inc.
– DE’s capital stock, or Mr. Gile’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS
LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release
any rights that any party or Mr. Gile may have under the terms of that certain Severance General Waiver and Release Agreement between
Mr. Gile and the Company, dated March 22, 2022, including the releases of any and all claims against the Company and certain related
parties as contained therein, Mr. Gile’s agreement to be terminated effective on January 1, 2022 and receive a severance payment
of $53,500 pursuant to Section 1 of the Severance Agreement, paid in March 2022, all of which terms were to remain in force notwithstanding
the provisions of the Settlement Agreement. Further, Mr. Gile irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and
completely forever released and waived their rights to any claim, distributions, payments, or other amounts that Mr. Gile believed should
have been paid or were owed to Mr. Gile by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party
also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably,
unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had
with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past,
present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth
on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Gile owned 2,816,377
shares of common stock pursuant to the Settlement Agreement. Mr. Gile also irrevocably covenanted that he would not sue us or the other
released parties in respect of any of the matters released and discharged. Notwithstanding the Severance Agreement referenced above,
Mr. Gile has not had a written employment agreement with the Company, has not been terminated, and has not received a salary since 2021,
but has continued to receive standard employee benefits on a monthly basis.
Under
our Settlement Agreement with Dorsey LLC, John Dorsey, in his individual capacity, and who was formerly Chief Executive Officer and a
director of the Company, and his spouse, Elena Dorsey, to the extent of such spouse’s community property interest, if any (together,
“Dorsey”), dated as of April 25, 2022, the parties agreed, among other things, (1) that Dorsey had held 959,940 shares of
SDS Inc. – DE’s common stock at that time, (2) that prior to the anticipated redomestication of SDS LLC – AZ to Delaware
as a Delaware limited liability company and conversion to a Delaware corporation, Dorsey was a member of SDS LLC – AZ and was a
party to SDS LLC – AZ’s Fourth Amended Limited Liability Company Operating Agreement dated July 16, 2021 (the “SDS
LLC – AZ Operating Agreement”), (3) that the SDS LLC – AZ Operating Agreement provided Dorsey, among other things,
certain anti-dilution protections whereby SDS LLC – AZ would have been required to issue additional equity to Dorsey if SDS LLC
– AZ were to have issued additional equity which would have the effect of reducing Dorsey’s ownership below 11% of SDS LLC
– AZ’s outstanding equity (the “Dorsey Anti-Dilution Provision”), (4) that on April 25, 2022, Dorsey LLC would
receive a total of 350,000 shares of common stock of SDS Inc. – DE in exchange for Dorsey’s cancellation, waiver, and release
of all of Dorsey’s rights under the Dorsey Anti-Dilution Provision in the SDS LLC – AZ Operating Agreement, (5) to a general
release and discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders
as listed on an exhibit to the agreement, including without limitation, claims relating to the Dorsey Anti-Dilution Provision, Dorsey’s
direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Dorsey’s direct or indirect ownership of
membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing
in the Settlement Agreement was intended to release any rights that any party or Dorsey may have under the terms of that certain Offer
of Employment between John Dorsey and SDS LLC – AZ, dated January 13, 2022, or that certain Simple Agreement for Future Equity
and/or Convertible Note, as applicable. As of the date of this prospectus, the Company has no agreements with Dorsey otherwise relating
to, and has not issued to Dorsey, any simple agreement for future equity or convertible note. Further, Dorsey irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments,
or other amounts that Dorsey believed should have been paid or were owed to Dorsey by SDS LLC – AZ, SDS LLC – DE, SDSF LLC,
SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization
of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Dorsey LLC owned 1,309,940 shares of common stock pursuant to the Settlement Agreement. Dorsey also irrevocably covenanted
that they would not sue us or the other released parties in respect of any of the matters released and discharged. Mr. Dorsey is deemed
to beneficially own the shares of common stock owned by Dorsey LLC and has sole voting and dispositive powers over its shares.
On
or about November 29, 2022, John Dorsey, a former Chief Executive Officer and director of the Company, through his counsel, sent the
Company a letter demanding full payment on the Alleged Loan in connection with the Loan Dispute. Under the January 2023 Dorsey Settlement
Agreement, Mr. Dorsey agreed to a discharge of the Alleged Loan and waiver and release of claims relating to the Alleged Loan and Loan
Dispute and covenant not to sue on the basis of such claims or otherwise commence any action or proceeding that would be inconsistent
with the release of such claims. The Company agreed to pay Mr. Dorsey $10,000 and issue a promissory note to Mr. Dorsey in the principal
amount of $40,000 payable on the earlier of ten business days following the successful closing of an initial public offering of the Company’s
common stock that generates at least $1 million in net proceeds to the Company or July 1, 2023.
Under
our Settlement Agreement with Noah (Jed) Smith, a former director and a beneficial owner of more than 5% of the outstanding common stock
of the Company, and his spouse, Glory Smith, to the extent of such spouse’s community property interest, if any (together, “Smith”),
dated as of May 13, 2022, the parties agreed, among other things, (1) that Dennis Gile, the founder of SDS LLC – AZ, our largest
stockholder, and a former Chief Executive Officer, President, Secretary, and Chairman of the Company, agreed and contracted to fulfill
certain obligations to Smith, including, but not limited to, granting a profits interest that was intended to be a membership interest
in SDS LLC – AZ as well as a percentage of future profits from the operations or sale of SDS LLC – AZ, pursuant to that certain
Contribution and Profit-Sharing Agreement between Mr. Gile and Smith, dated April 5, 2019, as amended by that certain First Amendment
to Contribution and Profit-Sharing Agreement dated December 9, 2019, and that certain Second Amendment to Contribution and Profit-Sharing
Agreement dated August 21, 2020, all attached as an exhibit to the Settlement Agreement (collectively, the “Smith Contribution
and Profit-Sharing Agreement”), (2) that Mr. Smith held 300,000 shares of common stock in SDS Inc. – DE in exchange for Smith’s
previous contributions to SDS LLC – AZ, (3) that on May 13, 2022, Mr. Smith would receive an additional 100,000 shares of common
stock of SDS Inc. – DE in exchange for the termination of Smith’s rights under the Smith Contribution and Profit-Sharing
Agreement, (4) that following such receipt of such additional shares, Mr. Smith would have a total of 400,000 shares of common stock,
and (5) to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties,
and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Smith Contribution
and Profit-Sharing Agreement, Smith’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Smith’s
direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable,
provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or Smith may have under
that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, the Company
has no agreements with Smith otherwise relating to, and has not issued to Smith, any simple agreement for future equity or convertible
note. Further, Smith irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived
their rights to any claim, distributions, payments, or other amounts that Smith believed should have been paid or were owed to Smith
by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure
there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly,
fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in
SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and
affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Smith owned 400,000 shares of common stock pursuant
to the Settlement Agreement. Smith also irrevocably covenanted that they would not sue us or the other released parties in respect of
any of the matters released and discharged.
Under
our Settlement Agreement with Virginia Byrd, an individual, and Byrd Enterprises of Arizona, Inc., an Arizona corporation (“Byrd
Enterprises”), dated as of May 13, 2022 (together, “Byrd”), the parties agreed, among other things, to a general release
and discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as
listed on an exhibit to the agreement, including without limitation, claims relating to Byrd’s direct or indirect ownership of
shares of SDS Inc. – DE’s capital stock, or Byrd’s direct or indirect ownership of membership interests of SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was
intended to release any rights that any party or Byrd may have under that certain Simple Agreement for Future Equity and/or Convertible
Note, as applicable. As of the date of this prospectus, the Company has no agreements with Byrd otherwise relating to, and has not issued
to Byrd, any simple agreement for future equity or convertible note. Further, Byrd irrevocably, unconditionally, voluntarily, knowingly,
fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that
Byrd believed should have been paid or were owed to Byrd by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. –
DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE,
irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they
may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE,
whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond
that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Byrd
Enterprises owned 767,785 shares of common stock pursuant to the Settlement Agreement. Byrd also irrevocably covenanted that they would
not sue us or the other released parties in respect of any of the matters released and discharged.
On
November 15, 2021, the Company issued a 6% convertible unsecured promissory note in the amount of $565,000 to Zone Right in a private
placement. Glen Kim, a director of the Company and the managing member of Zone Right, is deemed to beneficially own the shares of common
stock owned by Zone Right and has sole voting and dispositive powers over its shares. The convertible note bears interest at 6% annually
and matures on November 15, 2024. The convertible note contains provisions for optional and mandatory conversion and conversion price
adjustments. In the event that the Company’s initial public offering occurs prior to such convertible note’s maturity date
or optional conversion, 282,500 shares of common stock will be issuable upon the automatic conversion of such convertible note, based
on the assumed initial public offering price of $4.00 per share, which is the low point of the price range set forth on the cover page
of this prospectus. The purchaser also entered into a subscription agreement and investor rights and lockup agreement which provided
information and inspection rights, registration rights, lock-up provisions, participation rights in subsequent securities offerings and
private placements, and typical “drag along” and “tag along” rights.
Under
our Settlement Agreement with Zone Right, Mr. Kim, a director of the Company, and his spouse, Jessica Lee, to the extent of such spouse’s
community property interest, if any, dated as of April 26, 2022 (the “Zone Right Parties”), the parties agreed, among other
things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties,
and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Zone Right Parties’
direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or the Zone Right Parties’ direct or indirect
ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however,
that nothing in the Settlement Agreement was intended to release any rights that any party or the Zone Right Parties may have under that
certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, other than as otherwise
disclosed above, the Company has no agreements with the Zone Right Parties otherwise relating to, and has not issued to the Zone Right
Parties, any Simple Agreement for Future Equity or convertible note. Further, the Zone Right Parties irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that the Zone Right Parties believed should have been paid or were owed to the Zone Right Parties by SDS LLC – AZ, SDS LLC –
DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding
the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever
release and waive any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any
interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement.
The parties therefore agreed that Zone Right owned 483,833 shares of common stock pursuant to the Settlement Agreement. The Zone Right
Parties also irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released
and discharged. Glen Kim is deemed to beneficially own the shares of common stock owned by Zone Right and has sole voting and dispositive
powers over its shares.
Under
a lease agreement dated as of October 7, 2021 and an addendum dated the same date, we leased our former corporate offices consisting
of approximately 7,800 square feet for a term of five years beginning January 1, 2022 and ending December 31, 2026 for a monthly rent
of $20,800 plus tax and certain operating expenses, with an increase of 3% at the beginning of every calendar year following the first
year of the term of the lease agreement through January 2026. As of December 31, 2021, a security deposit was paid in the amount of $23,411.
The office space was owned by John Dorsey, a former chief executive officer and director of the Company. On August 31, 2022, we entered
into a Lease Termination Agreement in which both parties agreed to terminate the lease and release each other from all future obligations.
The total approximate dollar value of this transaction was $420,992 plus tax and certain operating expenses. The approximate dollar value
of the interest of Mr. Dorsey in this transaction was $420,992.
On
August 7, 2021, SDS LLC – AZ agreed to issue Clayton Adams, a former director and a beneficial owner of more than 5% of the common
stock of the Company, 4.3% of its membership interests in a private placement for total proceeds of $250,000 under a membership interest
purchase agreement. The agreement stated that SDS LLC – AZ intended to convert into a corporation in connection with a going public
transaction by way of an initial public offering or reverse merger (“Going Public Transaction”), and that the membership
interest would be converted into or exchanged for shares of common stock in connection with the Public Transaction. The agreement indicates
that the number of shares of common stock that Mr. Adams would hold upon an initial public offering would be 363,274 shares of common
stock. Under the agreement, SDS LLC – AZ reserved the right to reduce Mr. Adams’ membership interest from the pre-Public
Transaction valuation of our most recent SAFE round of $42,000,000. The parties also agreed that, notwithstanding the foregoing, the
membership interest would not be adjusted based on the final capital structure following a Public Transaction.
Under
our Settlement Agreement with Clayton Adams, a former director and a beneficial owner of more than 5% of the common stock of the Company,
dated as of May 3, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers
and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including
without limitation, claims relating to Mr. Adams’ direct or indirect ownership of shares of SDS Inc. – DE’s capital
stock, or Mr. Adams’ direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC,
or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party
or Mr. Adams may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of
this prospectus, the Company has no agreements with Mr. Adams otherwise relating to, and has not issued to Mr. Adams, any simple agreement
for future equity or convertible note. Further, Mr. Adams irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that Mr. Adams believed should have
been paid or were owed to Mr. Adams by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party
also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably,
unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had
with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past,
present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth
on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Adams owned 363,274
shares of common stock pursuant to the Settlement Agreement. Mr. Adams also irrevocably covenanted that they would not sue us or the
other released parties in respect of any of the matters released and discharged.
On
July 21, 2022, the date that Clayton Adams, a former director and a beneficial owner of more than 5% of the common stock of the Company,
was appointed as a member of our board of directors, Mr. Adams agreed to provide $100,000 in financing to the Company. The Company has
not borrowed any funds from Mr. Adams and does not expect that it will need to do so as of the date of this prospectus. Mr. Adams resigned
from his position on the board of directors effective April 27, 2023.
On
August 9, 2021, SDS LLC – AZ agreed to issue Matthew Atkinson, a former director and a beneficial owner of more than five percent
(5%) of the issued and outstanding shares of the Company, 4.3% of its membership interests in a private placement for total proceeds
of $250,000 under a membership interest purchase agreement. The agreement stated that SDS LLC – AZ intended to convert into a corporation
in connection with a going public transaction by way of an initial public offering or reverse merger (“Going Public Transaction”),
and that the membership interest would be converted into or exchanged for shares of common stock in connection with the Public Transaction.
The agreement indicates that the number of shares of common stock that Mr. Atkinson would hold upon an initial public offering would
363,274 shares of common stock. Under the agreement, SDS LLC – AZ reserved the right to reduce Mr. Atkinson’s membership
interest from the pre-Public Transaction valuation of the Company’s most recent SAFE round of $42,000,000. The parties also agreed
that, notwithstanding the foregoing, the membership interest would not be adjusted based on the final capital structure following a Public
Transaction.
Under
our Settlement Agreement with Mr. Atkinson and his spouse, Penny Atkinson, to the extent of such spouse’s community property interest,
if any (together, “Atkinson”), dated as of May 13, 2022, the parties agreed, among other things, to a general release and
discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed
on an exhibit to the agreement, including without limitation, claims relating to Atkinson’s direct or indirect ownership of shares
of SDS Inc. – DE’s capital stock, or Atkinson’s direct or indirect ownership of membership interests of SDS LLC –
AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended
to release any rights that any party or Atkinson may have under that certain Simple Agreement for Future Equity and/or Convertible Note,
as applicable. As of the date of this prospectus, the Company has no agreements with Atkinson otherwise relating to, and has not issued
to Atkinson, any simple agreement for future equity or convertible note. Further, Atkinson irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that Atkinson believed should have been paid or were owed to Atkinson by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of
SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Mr. Atkinson owned 383,274 shares of common stock pursuant to the Settlement Agreement. Atkinson also irrevocably covenanted
that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Under
our Settlement Agreement with 35’sNextChapters, LLC (“35’sNextChapters”), dated as of May 13, 2022, the parties
agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates
and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to
35’sNextChapters’ direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or 35’sNextChapters’
direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable,
provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or 35’sNextChapters
may have under the terms of that certain Invitation to Join the Board of Directors between Ronald Saslow and the Company or that certain
Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this prospectus, the Company has no agreements
with 35’sNextChapters otherwise relating to, and has not issued to 35’sNextChapters, any convertible note or Invitation to
Join the Board of Directors between Ronald Saslow and the Company. Further, 35’sNextChapters irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that 35’sNextChapters believed should have been paid or were owed to 35’sNextChapters by SDS LLC – AZ, SDS LLC –
DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding
the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever
release and waive any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any
interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement.
The parties therefore agreed that 35’sNextChapters owned 150,000 shares of common stock pursuant to the Settlement Agreement. 35’sNextChapters
also irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Ronald Saslow, a former director of the Company, as Manager of 35’sNextChapters, is deemed to beneficially own the shares of common
stock owned by 35’sNextChapters and has sole voting and dispositive powers over its shares.
In
July 2021, we issued a SAFE to 35’snextchapters, LLC, whose Manager, Ronald Saslow, is a former director of the Company, and is
deemed to beneficially own the securities and interests in securities owned by 35’sNextChapters and has sole voting and dispositive
powers over its securities. In October 2022, we entered into a cancellation and exchange agreement with 35’snextchapters, LLC in
which we agreed to cancel its SAFE in exchange for the issuance of 74,627 shares of common stock. The number of shares was equal to the
purchase amount under the SAFE divided by approximately $3.35, based on a $25 million valuation for the Company.
In
April 2021, we issued a SAFE to The Nelson Revocable Living Trust (the “Nelson Trust”), one of whose co-trustees is Daniel
D. Nelson, our Chief Executive Officer, Chairman, and a director of the Company, in exchange for a payment of $100,000. In October 2022,
we entered into a cancellation and exchange agreement with the Nelson Trust in which we agreed to cancel its SAFE in exchange for the
issuance of 29,851 shares of common stock. The number of shares was equal to the purchase amount under the SAFE divided by approximately
$3.35, based on a $25 million valuation for the Company.
On
October 15, 2021, the Company issued a 6% convertible unsecured promissory note in a private placement in the amount of $1,500,000 to
the Nelson Trust, whose co-trustees are Daniel D. Nelson, our Chief Executive Officer, Chairman, and a director of the Company, and Jodi
B. Nelson. The convertible note bears interest at 6% annually and matures on October 15, 2024. The convertible note contains provisions
for optional and mandatory conversion and conversion price adjustments. In the event that the Company’s initial public offering
occurs prior to such convertible note’s maturity date or optional conversion, 750,000 shares of common stock will be issuable upon
the automatic conversion of such convertible note, based on the assumed initial public offering price of $4.00 per share, which is the
low point of the price range set forth on the cover page of this prospectus. The purchaser also entered into a subscription agreement
and investor rights and lockup agreement which provided information and inspection rights, registration rights, lock-up provisions, participation
rights in subsequent securities offerings and private placements, and typical “drag along” and “tag along” rights.
In
April 2022, Nelson Financial Services Inc. became the insurance agent providing group benefits for the Company. Total dollar benefits
provided to the Company under the group benefits plan in 2022 were approximately $48,374. Total dollar payments to Nelson Financial Services
Inc. in 2022 under the group benefits plan were approximately $2,790. As Chief Executive Officer and sole owner of Nelson Financial Services
Inc., the approximate dollar value of Mr. Nelson’s interest in this transaction was approximately $2,790.
Note
15 - Restatement
The
Company has restated its previously issued financial statements to appropriately reflect the December 31, 2021 internally developed software
and impairment loss on the statement of operations for the year ended December 31, 2021, as well as to properly reflect the impact of
the conversion of the Company from a limited liability company to a corporation on the statement of stockholders’ and members’
equity (deficit) for the year ended December 31, 2021.
The
statement of stockholders’ and member’s equity (deficit) also reflects an opening balance reclassification of accumulated
deficit to total members’ equity.
The
following is a summary of the effects of the restatement in the Company’s December 31, 2021 Balance Sheet:
| |
As
previously
reported | | |
Adjustment | | |
As
restated | |
Internally developed software,
net | |
$ | 2,276,159 | | |
$ | (2,276,159 | ) | |
$ | - | |
Total assets | |
| 7,192,354 | | |
| (2,276,159 | ) | |
| 4,916,195 | |
Additional paid-in capital | |
| 7,870,793 | | |
| (6,628,524 | ) | |
| 1,242,269 | |
Accumulated deficit | |
| (9,159,367 | ) | |
| 4,352,365 | | |
| (4,807,002 | ) |
Total stockholders’ (deficit) | |
| (1,284,826 | ) | |
| (2,276,159 | ) | |
| (3,560,985 | ) |
Total liabilities and stockholders’
(deficit) | |
| 7,192,354 | | |
| (2,276,159 | ) | |
| 4,916,195 | |
The
following is a summary of the effects of the restatement in the Company’s December 31, 2021 Statement of Operations:
| |
As
previously
reported | | |
Adjustment | | |
As
restated | |
Impairment loss | |
$ | - | | |
$ | 2,276,159 | | |
$ | 2,276,159 | |
Net loss | |
| 6,528,068 | | |
| 2,276,159 | | |
| 8,804,227 | |
The
following is a summary of the effects of the restatement in the Company’s December 31, 2021, Statement of Cash Flows:
| |
As
previously
reported | | |
Adjustment | | |
As
restated | |
Net loss | |
$ | 6,528,068 | | |
$ | 2,276,159 | | |
$ | 8,804,227 | |
Impairment loss | |
| - | | |
| 2,276,159 | | |
| 2,276,159 | |
Note
16 - Subsequent Events
Subsequent
to December 31, 2022, the Company issued two 8% convertible unsecured promissory notes and accompanying warrants to accredited investors
under subscription agreements for aggregate loans of $150,000. The convertible notes bear interest at 8% annually, and are due August
8, 2023 unless converted in accordance with their terms.
Subsequent
to December 31, 2022, a grant of 90,000 shares of common stock to an executive officer under the Company’s Equity Incentive Plan.
Subsequent
to December 31, 2022, an issuance of 15,000 shares of common stock as partial payment for legal services occurred.
In
January 2023, the Company entered into a settlement agreement with its former Chief Executive Officer whereby it agreed to pay $10,000
and issue a promissory note in the amount of $40,000. The note bears no interest, and is payable on the earlier of (a) ten business days
after the successful initial public offering of the Company’s stock that generates at least $1 million in net proceeds to the Company,
or (b) July 1, 2023.
In
March 2023 and April 2023 we completed one private placement, and in May 2023 we conducted a subsequent private placement in which we
entered into subscription agreements with a number of accredited investors, pursuant to which we issued 8% unsecured promissory notes
in the aggregate principal amount of $2,350,000, which bear interest at the annual rate of 8%, and accompanying warrants to purchase
an aggregate of 940,000 shares of common stock exercisable at $2.50 per share. The warrants may be voluntarily exercised for cash
prior to the maturity date of the promissory notes or will be automatically exercised as described below. The amount outstanding under
the 8% unsecured promissory notes must be repaid upon the earlier to occur of the consummation of a Liquidity Event or the second anniversary
of the initial closing date of the respective private placement (March 17, 2025 as to $1,500,000 principal and May 2, 2025 as to $850,000
principal). If a Liquidity Event occurs before the second anniversary of the initial closing date of the applicable private placement,
the warrants will be automatically exercised as to the unexercised portion of the warrants, the outstanding balance under the 8% unsecured
promissory notes will be deemed repaid in the amount of the exercise price for the automatic exercise of the unexercised portion of the
related warrants, with any remaining balance owed on the promissory notes to be repaid in cash. If a Liquidity Event does not occur before
the second anniversary of the initial closing date of the applicable private placement, then both principal and interest outstanding
under the notes must be repaid in cash. The Company agreed to register the resale all of the shares of common stock that such warrants
may or shall be exercised to purchase with the shares being registered for sale in the registration statement of which this prospectus
forms a part. The Company must generally keep the registration statement effective for a period as shall be required to permit the investors
to complete the offer and sale of their shares. The Company and the investors also provided customary mutual indemnification relating
to any damages arising from such registration.
Boustead
has acted as placement agent in these private placements. Pursuant to our engagement letter agreement with Boustead, in addition to a
commission equal to 7% of the gross proceeds raised in the private placements, a non-accountable expense allowance equal to 1% of the
gross proceeds raised in the private placements, and payment of certain other expenses, we agreed to issue Boustead five-year warrants
to purchase a number of shares of common stock equal to 7% of the common stock underlying the warrants accompanying the 8% unsecured
promissory notes at an exercise price equal to the exercise price as defined in such warrants. Under the engagement letter with Boustead,
its placement agent’s warrants must be registered for resale with the Company’s initial public offering. However, Boustead
has informally deferred these registration rights with respect to the registration statement for the initial public offering.
Under
the subscription agreements with the investors in the first of these two private placements, the Company was required to use the first
$450,000 of the net proceeds from the private placement to expand its current operations, including its technology and intellectual property
portfolio, and to fund the costs of its initial public offering. The Company was required to use the next $800,000 of the net proceeds
from the private placement to repurchase up to 600,000 shares of common stock that were held by Dennis Gile, our largest stockholder
and a former officer and director of the Company, at a price equal to approximately $1.35 per share. The repurchase was required to be
consummated only to the extent that it does not impair the Company’s capital within the meaning of Section 160 of the DGCL or the
Company’s ability to pay down its debts as they become due. The Company was required to enter into an agreement with Mr. Gile providing
that Mr. Gile will use the proceeds of the repurchase to settle an existing lawsuit filed against Mr. Gile by John Dorsey, a former officer
and director of the Company, subject to a full release of Mr. Gile and the Company, and that Mr. Gile will resign from the board of directors
of the Company and from any officer position with the Company upon the repurchase. The Company was required to use any remaining net
proceeds from the private placement, which consisted of $250,000 less placement agent fees and expenses, for working capital and other
general corporate purposes. Subsequently, the Company used the net proceeds as required.
On
March 31, 2023, under the terms of a Repurchase and Resignation Agreement, dated March 21, 2023, with Dennis Gile (the “Repurchase
Agreement”), we paid an aggregate purchase price of $800,000 for the repurchase (the “Repurchase”) of 600,000 shares
of common stock from Dennis Gile, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director
of the Company, at approximately $1.33 per share. Pursuant to the Repurchase Agreement, $695,000 of the $800,000 payment was made to
the attorneys for John Dorsey, a former officer and director of the Company (the “Dorsey/Gile Settlement Payment”), as part
of the settlement of a private lawsuit under a settlement agreement between Mr. Gile and Mr. Dorsey (the “Dorsey/Gile Lawsuit”)
between these individuals and Dorsey LLC (the “Dorsey/Gile Settlement Agreement”). Pursuant to the Repurchase Agreement,
the balance of the aggregate purchase price was paid to the attorneys for Mr. Gile. Pursuant to the Repurchase Agreement, Mr. Gile agreed
to resign his position as Chairman and every other director and officer position he held with the Company effective as of March 21, 2023.
Prior to such date, on March 20, 2023, Mr. Gile delivered notice of resignation from such positions, which stated that it was effective
March 19, 2023. Pursuant to the Repurchase Agreement, Mr. Gile will not receive any severance payments in connection with any other agreement
with the Company as a result of his resignation. The Repurchase was also conditioned on the Company’s prior review of and consent
to the Dorsey/Gile Settlement Agreement prior to its execution, and receipt of a certificate from the Chief Financial Officer of the
Company that the Repurchase will not impair the Company’s capital within the meaning of Section 160 of the DGCL or the Company’s
ability to pay down its debts as they become due (the “CFO Certificate”). Under the Repurchase Agreement, the Dorsey/Gile
Settlement Agreement was required to fully resolve, settle and dismiss the Gile/Dorsey Lawsuit and contain a general release of claims
by all the plaintiffs in the Dorsey/Gile Lawsuit in favor of Mr. Gile, the Company, the Company’s affiliates, stockholders, and
certain other Company releasees. Under the Repurchase Agreement, Mr. Gile agreed to indemnify the Company for claims arising out of based
upon the Repurchase Agreement. Pursuant to the Repurchase Agreement, a copy of the Dorsey/Gile Settlement Agreement was reviewed and
consented to by the Company and entered into as of March 20, 2023. Under the Dorsey/Gile Settlement Agreement, between Mr. Gile, Mr.
Dorsey, and Dorsey LLC, Mr. Gile agreed to pay the Dorsey/Gile Settlement Payment, transfer 40,000 shares of the Company to Mr. Dorsey.
Mr. Gile, Mr. Dorsey and Dorsey LLC agreed to mutual releases of all claims relating to the Dorsey/Gile Lawsuit and to dismiss the Dorsey/Gile
Lawsuit. Although the Dorsey/Gile Settlement Agreement did not contain a release of the Company and did not contain releases by the plaintiffs
of Mr. Gile other than with respect to the Lawsuit, the Company waived any related requirements under the Repurchase Agreement in light
of the expected execution of the Mutual Release Agreement (as defined below). The CFO Certificate was received as of March 21, 2023.
The repurchased shares were cancelled as of March 31, 2023. The transfer of 40,000 shares by Mr. Gile to Mr. Dorsey occurred on April
4, 2023, after waiver of the board of directors of the repurchase rights and purchase rights provided for under the Shareholder Agreement
by resolutions adopted on March 24, 2023.
Effective
March 29, 2023, a Confidential Mutual General Release and Covenant Not to Sue Agreement was entered into between the Company and Mr.
Dorsey (the “Mutual Release Agreement”). Under the Mutual Release Agreement, Mr. Dorsey agreed to a general release of claims
against and covenant not to sue the Company, the Company’s affiliates, stockholders, and certain other Company releasees, and the
Company agreed to a general release of claims against and covenant not to sue Mr. Dorsey, Mr. Dorsey’s affiliates, and certain
other releasees, subject to payment of the Dorsey/Gile Settlement Payment, which, as indicated above, was made on March 31, 2023. The
releases of claims and covenants not to sue under the Mutual Release Agreement do not apply to breach of the Dorsey/Gile Settlement Agreement
or to the January 2023 Dorsey Settlement Agreement.
In
March 2023, we granted incentive stock options to certain employees to purchase a total of 53,800 shares of common stock. The options
have an exercise price equal to $3.10 per share, and are subject to various vesting conditions. The options will expire in March 2033.
In April 2023, we granted an incentive stock option to an employee, officer and director to purchase a total of 100,000 shares of common
stock with an exercise price equal to $2.50 per share, which is subject to certain vesting conditions. In April 2023, we also granted
a non-statutory stock option to a director to purchase a total of 3,000 shares of common stock with an exercise price equal to $3.10
per share, which is subject to certain vesting conditions. In May 2023, we granted a non-statutory stock option to a director to
purchase a total of 24,000 shares of common stock with an exercise price equal to $2.50 per share.
Immediately
after the consummation of the initial public offering, we intend to file a Registration Statement on Form S-8 with the SEC to register
the potential exercise of these options.
On
May 1, 2023, the Company entered into a lease agreement with M4 Perimeter, LLC for a period of 39 months from the commencement date of
May 4, 2023. The term of the current lease shall expire on May 3, 2023.
Base
Monthly Rent. From and after the Extension Term Commencement Date, the Base Monthly Rent schedule is hereby amended as follows:
Months 1 – 12 |
$7,359.00 per month, plus applicable
rental taxes** |
|
|
Months 13 – 24 |
$7,580.00 per month, plus applicable rental taxes |
|
|
Months 25 – 36 |
$7,808.00 per month, plus applicable rental taxes |
|
|
Months 37 – 39 |
$8,042.00 per month, plus applicable rental taxes |
** | Base Monthly
Rent for Months 1 – 3 shall be 100% abated |
See
Note 12 for reverse stock split subsequent event.
Signing Day Sports, Inc.
Up to 4,661,102
Shares of Common Stock
Prospectus
, 2024
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Unless the context indicates otherwise, “we,”
“us,” “our,” “Signing Day Sports,” “the Company,” “our company” and similar
references in this “Part II. Information Not Required in the Prospectus” refer to the consolidated operations
of Signing Day Sports, Inc., a Delaware corporation.
Item 13. Other Expenses of Issuance
and Distribution
The following table sets forth the costs and
expenses, other than underwriting discounts, commissions and non-accountable expense allowance, payable by us in connection with the
sale of shares of the Company’s common stock, $0.0001 par value per share (“common stock”), being registered. All amounts,
other than the registration fee of the Securities and Exchange Commission (“SEC”), are estimates. We will pay all these expenses.
| |
Amount | |
SEC registration fee | |
$ | 495.34 |
Accounting fees and expenses | |
| 30,000 | |
Legal fees and expenses | |
| 150,000 | |
Transfer agent fees and expenses | |
| 5,000 | |
Printing and related fees | |
| 2,000 | |
Total | |
$ | 187,495.34 |
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation
Law (“DGCL”) provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation,
or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise
in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to
be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal
action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other
adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Our
Amended and Restated Certificate of Incorporation authorizes the Company
to indemnify, and advance expenses to, to the fullest extent permitted by law, any person who was or is a party to or is threatened to
be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that the person is or was a director, officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
Our Second Amended and Restated Bylaws require
that we indemnify our directors and executive officers to the fullest extent permitted by law, provided that we may modify the extent
of such indemnification by individual contracts with directors and executive officers, and also provided that we are not required
to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i)
such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by our board of directors, (iii) such
indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the DGCL or any
other applicable law, or (iv) such indemnification is required to be made under the indemnification rights enforcement provision of the
Second Amended and Restated Bylaws. Our obligation, if any, to indemnify any person pursuant to our Second Amended and Restated Bylaws
who was or is serving at its request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust,
enterprise, or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise, or nonprofit entity.
Our
Second Amended and Restated Bylaws also provide for advancement of expenses to any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that the person is or was a director or executive officer of the Company, or is or was serving at the request of
the Company as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor, all expenses actually and reasonably incurred by any director
or executive officer in defending such proceeding, upon receipt of an undertaking by or on behalf of such person to repay all amounts
advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such person
is not entitled to be indemnified for such expenses. Notwithstanding the foregoing, generally no advance shall be made by the Company
to an executive officer of the Company (except by reason of the fact that such executive officer is or was a director of the Company)
in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly
made (i) by a majority vote of a quorum consisting of directors who were not parties to the proceeding, even if not a quorum, or
(ii) by a committee of such directors designated by a majority of such directors, even though less than a quorum, or (iii) if there
are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making
party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the Company’s interest. The Company’s obligation, if any, to
indemnify any person pursuant to the Second Amended and Restated Bylaws
who was or is serving at its request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust,
enterprise, or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise, or nonprofit entity. Our Second
Amended and Restated Bylaws also permit the Company to indemnity its other officers, employees and other agents as set forth in
the DGCL. The board of directors has the power to delegate the determination of whether indemnification shall be given to any such person
except executive officers to such officers or other persons as the board of directors shall determine.
We have also separately entered into an indemnification agreement with each of our directors and executive officers. Each indemnification
agreement provides for indemnification to the fullest extent permitted by law, including: (i) all expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by a director or executive officer, or on their behalf, in connection
with any proceeding other than proceedings by or in the right of the Company or any claim, issue or matter therein, if the director or
executive officer acted in good faith and in a manner the director or executive officer reasonably believed to be in or not opposed to
the best interests of the Company, and with respect to any criminal proceeding, had no reasonable cause to believe the director or executive
officer’s conduct was unlawful; (ii) all expenses actually and reasonably incurred by a director or executive officer, or on their
behalf, in connection with a proceeding by or in the right of the Company if the director or executive officer acted in good faith and
in a manner the director or executive officer reasonably believed to be in or not opposed to the best interests of the Company, provided
that if applicable law so provides, no indemnification against such expenses shall be made in respect of any claim, issue or matter in
such proceeding as to which the director or executive officer shall have been adjudged to be liable to the Company unless and to the
extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made; (iii) to the extent
that a director or executive officer is, by reason of the director or executive officer’s director or executive officer status,
a party to and is successful, on the merits or otherwise, in any proceeding, including by dismissal of such proceeding with or without
prejudice, then the director or executive officer shall be indemnified to the maximum extent permitted by law, as such may be amended
from time to time, against all expenses actually and reasonably incurred by the director or executive officer or on the director or executive
officer’s behalf in connection therewith; and (iv) all expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by a director or executive officer or on a director or executive officer’s behalf if, by reason of the
director or executive officer’s status as a director or executive officer, the director or executive officer is, or is threatened
to be made, a party to or participant in any proceeding (including a proceeding by or in the right of the Company), including, without
limitation, all liability arising out of the negligence or active or passive wrongdoing of the director or executive officer, except
where the payment is finally determined (under the procedures, and subject to the presumptions, set forth in the indemnification agreements)
to be unlawful. The Company shall also advance all such expenses incurred by or on behalf of each director or executive officer in connection
with any of the above proceedings by reason of the director or executive officer’s director or executive officer status within
30 days after the receipt by the Company of a statement or statements from the director or executive officer requesting such advance
or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the director or executive officer and shall include or be preceded or accompanied by a written undertaking
by or on behalf of the director or executive officer to repay any expenses advanced if it shall ultimately be determined that the director
or executive officer is not entitled to be indemnified against such expenses. Any advances and undertakings to repay shall be unsecured
and interest free. The indemnification agreements also provide for payments by the Company for the entire amount of any judgment or settlement
of any action, suit or proceeding in which it is liable or would be liable if joined in such action, subject to the other terms and provisions
of the indemnification agreements, and certain other indemnification and payment obligations. The indemnification agreements also provide
that if we maintain a directors’ and officers’ liability insurance policy, that each director and executive officer will
be covered by the policy to the maximum extent of the coverage available for any of the Company’s directors or executive officers.
We have obtained standard directors and officers
liability insurance under which coverage is provided (a) to our directors and officers against loss rising from claims made by reason
of breach of duty or other wrongful act, and (b) to us with respect to payments which we may make to such officers and directors
pursuant to the indemnification agreements described above or otherwise as a matter of law.
The underwriting agreement, filed as Exhibit 1.1
to this registration statement, provides for indemnification, under certain circumstances, by the underwriter of us and our officers
and directors for certain liabilities arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers or persons controlling
us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities
During the past three years, we issued or agreed
to issue the following securities, which issuances were not, and are not expected to be, registered under the Securities Act. Unless
otherwise noted, the share and per share information in this “Part II. Information Not Required in the Prospectus – Item
15. Recent Sales of Unregistered Securities” have been adjusted to give effect to the one-for-five (1-for-5) reverse stock
split of the outstanding common stock which became effective on April 14, 2023.
Settlement Agreements with Stockholders
Under our Settlement Agreement with Dennis Gile,
our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company, dated as of
May 12, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors,
certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation,
claims relating to Mr. Gile’s direct or indirect ownership of shares of the capital stock of Signing Day Sports, Inc., a Delaware
corporation (“SDS Inc. – DE”), or Mr. Gile’s direct or indirect ownership of membership interests of Signing
Day Sports, LLC, an Arizona limited liability company (“SDS LLC – AZ”), Signing Day Sports, LLC, a Delaware limited
liability company (“SDS LLC – DE”), Signing Day Sports Football, LLC, an Arizona limited liability company (“SDSF
LLC”), or Signing Day Sports Baseball, LLC, an Arizona limited liability company (“SDSB LLC”), as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Mr. Gile may have under the terms
of that certain Severance General Waiver and Release Agreement between Mr. Gile and the Company, dated March 22, 2022 (the “Severance
Agreement”), including the releases of any and all claims against the Company and certain related parties as contained therein,
Mr. Gile’s agreement to be terminated effective on January 1, 2022 and receive a severance payment of $53,500 pursuant to Section
1 of the Severance Agreement, paid in March 2022, all of which terms were to remain in force notwithstanding the provisions of the Settlement
Agreement. Further, Mr. Gile irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and
waived their rights to any claim, distributions, payments, or other amounts that Mr. Gile believed should have been paid or were owed
to Mr. Gile by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to
make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests
in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent,
and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Gile owned 2,816,377 shares of common stock pursuant
to the Settlement Agreement. Mr. Gile also irrevocably covenanted that he would not sue us or the other released parties in respect of
any of the matters released and discharged.
Under our Settlement Agreement with Dorsey Family
Holdings, LLC, an Arizona limited liability company (“Dorsey LLC”), John Dorsey, in his individual capacity, formerly Chief
Executive Officer and a director of the Company, and his spouse, Elena Dorsey, to the extent of such spouse’s community property
interest, if any (together, “Dorsey”), dated as of April 25, 2022, the parties agreed, among other things, (1) that Dorsey
had held 959,940 shares of SDS Inc. – DE’s common stock at that time, (2) that prior to the anticipated redomestication of
SDS LLC – AZ to Delaware as a Delaware limited liability company and conversion to a Delaware corporation, Dorsey was a member
of SDS LLC – AZ and was a party to SDS LLC – AZ’s Fourth Amended Limited Liability Company Operating Agreement dated
July 16, 2021 (the “SDS LLC – AZ Operating Agreement”), (3) that the SDS LLC – AZ Operating Agreement provided
Dorsey, among other things, certain anti-dilution protections whereby SDS LLC – AZ would have been required to issue additional
equity to Dorsey if SDS LLC – AZ were to have issued additional equity which would have the effect of reducing Dorsey’s ownership
below 11% of SDS LLC – AZ’s outstanding equity (the “Dorsey Anti-Dilution Provision”), (4) that on April 25,
2022, Dorsey LLC would receive a total of 350,000 shares of common stock of SDS Inc. – DE in exchange for Dorsey’s cancellation,
waiver, and release of all of Dorsey’s rights under the Dorsey Anti-Dilution Provision in the SDS LLC – AZ Operating Agreement,
(5) to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties,
and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Dorsey Anti-Dilution
Provision, Dorsey’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Dorsey’s direct
or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Dorsey may have under the terms
of that certain Offer of Employment between John Dorsey and SDS LLC – AZ, dated January 13, 2022, or that certain Simple Agreement
for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company has no agreements
with Dorsey otherwise relating to, and has not issued to Dorsey, any simple agreement for future equity or convertible note. Further,
Dorsey irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived their rights
to any claim, distributions, payments, or other amounts that Dorsey believed should have been paid or were owed to Dorsey by SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a
clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully,
finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed
that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an
exhibit to the Settlement Agreement. The parties therefore agreed that Dorsey LLC owned 1,309,940 shares of common stock pursuant to
the Settlement Agreement. Dorsey also irrevocably covenanted that they would not sue us or the other released parties in respect of any
of the matters released and discharged. Mr. Dorsey is deemed to beneficially own the shares of common stock owned by Dorsey LLC and has
sole voting and dispositive power over its shares.
Under our Settlement Agreement with Joshua A.
Donaldson Revocable Trust and Joshua Donaldson, an individual (together, “Donaldson”), dated as of May 17, 2022, the parties
agreed, among other things, (1) that Donaldson had held 210,000 shares of SDS Inc. – DE’s common stock at that time, (2)
that prior to the anticipated redomestication of SDS LLC – AZ to Delaware as a Delaware limited liability company and conversion
to a Delaware corporation, Donaldson was a member of SDS LLC – AZ and was a party to the SDS LLC – AZ Operating Agreement,
(3) that the SDS LLC – AZ Operating Agreement provided Donaldson, among other things, certain anti-dilution protections whereby
SDS LLC – AZ would have been required to issue additional equity to Donaldson if SDS LLC – AZ were to have issued additional
equity which would have the effect of reducing Donaldson’s ownership below 3.5% of SDS LLC – AZ’s outstanding equity
(the “Donaldson Anti-Dilution Provision”), (4) that on April 25, 2022, Donaldson would receive a total of 60,000 shares of
common stock of SDS Inc. – DE in exchange for Donaldson’s cancellation, waiver, and release of all of Donaldson’s rights
under the Donaldson Anti-Dilution Provision in the SDS LLC – AZ Operating Agreement, (5) we and Donaldson agreed that the Celebrity
Endorsement / Licensing Agreement between SDSB LLC and JDRAINMAN20 INC., a Florida limited liability company, dated March 1, 2021 (the
“Endorsement Agreement”), remains in full force and effect, that Donaldson confirmed that Donaldson received 1% ownership
in SDS LLC – AZ in consideration for the licenses granted under the Endorsement Agreement, which 1% interest converted into 60,000
shares, or 1% of the outstanding shares of SDS Inc. – DE at the time of the conversion of SDS LLC – DE into SDS Inc. –
DE, (6) to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties,
and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Donaldson Anti-Dilution
Provision, Donaldson’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Donaldson’s
direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable,
provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or Donaldson may have under
the terms of the Endorsement Agreement. Further, Donaldson irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and
completely forever released and waived their rights to any claim, distributions, payments, or other amounts that Donaldson believed should
have been paid or were owed to Donaldson by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each
party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably,
unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had
with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past,
present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth
on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Joshua Donaldson, Trustee
of the Joshua A. Donaldson Revocable Trust, owned 270,000 shares of common stock pursuant to the Settlement Agreement. Donaldson also
irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Noah (Jed)
Smith, a former director and a former beneficial owner of more than 5% of the common stock of the Company, and his spouse, Glory Smith,
to the extent of such spouse’s community property interest, if any (together, “Smith”), dated as of May 13, 2022, the
parties agreed, among other things, (1) that Dennis Gile, the founder of SDS LLC – AZ, our largest stockholder, and a former Chief
Executive Officer, President, Secretary, Chairman, and director of the Company, agreed and contracted to fulfill certain obligations
to Smith, including, but not limited to, granting a profits interest that was intended to be a membership interest in SDS LLC –
AZ as well as a percentage of future profits from the operations or sale of SDS LLC – AZ, pursuant to that certain Contribution
and Profit-Sharing Agreement between Mr. Gile and Smith, dated April 5, 2019, as amended by that certain First Amendment to Contribution
and Profit-Sharing Agreement dated December 9, 2019, and that certain Second Amendment to Contribution and Profit-Sharing Agreement dated
August 21, 2020, all attached as an exhibit to the Settlement Agreement (collectively, the “Smith Contribution and Profit-Sharing
Agreement”), (2) that Mr. Smith held 300,000 shares of common stock in SDS Inc. – DE in exchange for Smith’s previous
contributions to SDS LLC – AZ, (3) that on May 13, 2022, Mr. Smith would receive an additional 100,000 shares of common stock of
SDS Inc. – DE in exchange for the termination of Smith’s rights under the Smith Contribution and Profit-Sharing Agreement,
(4) that following such receipt of such additional shares, Mr. Smith would have a total of 400,000 shares of common stock, and (5) to
a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our
stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Smith Contribution and Profit-Sharing
Agreement, Smith’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Smith’s direct
or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Smith may have under that certain
Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company
has no agreements with Smith otherwise relating to, and has not issued to Smith, any simple agreement for future equity or convertible
note. Further, Smith irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived
their rights to any claim, distributions, payments, or other amounts that Smith believed should have been paid or were owed to Smith
by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure
there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly,
fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in
SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and
affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Smith owned 400,000 shares of common stock pursuant
to the Settlement Agreement. Smith also irrevocably covenanted that they would not sue us or the other released parties in respect of
any of the matters released and discharged.
Under our Settlement Agreement with Midwestern
Interactive, LLC (“Midwestern”), dated as of May 2, 2022, the parties agreed, among other things, (1) that Dennis Gile, the
founder of SDS LLC – AZ, our largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director
of the Company, agreed and contracted to fulfill certain obligations to Midwestern, including, but not limited to, granting a profits
interest that was intended to be a membership interest in SDS LLC – AZ as well as a percentage of future profits from the operations
or sale of SDS LLC – AZ, in exchange for Midwestern’s contribution of $250,000 in-kind investment, pursuant to the terms
of that certain Contribution and Profit-Sharing Agreement between Mr. Gile and Midwestern dated August 23, 2019, attached as an exhibit
to the Settlement Agreement (the “Midwestern Contribution and Profit-Sharing Agreement”), (2) that (i) the only outstanding
shares of capital stock of SDS Inc. – DE that Midwestern owned were as set forth on the capitalization table attached as an exhibit
to the Settlement Agreement, (ii) such shares were issued to Midwestern pursuant to the Midwestern Contribution and Profit-Sharing Agreement,
and (iii) as a result of the issuance of such shares, Midwestern’s rights under the Midwestern Contribution and Profit-Sharing
Agreement were thereby terminated and the Midwestern Contribution and Profit-Sharing Agreement was of no further force or effect, and
(3) to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties,
and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the Midwestern Contribution
and Profit-Sharing Agreement, Midwestern’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock,
or Midwestern’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB
LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or
Midwestern may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this
registration statement, the Company has no agreements with Midwestern otherwise relating to, and has not issued to Midwestern, any simple
agreement for future equity or convertible note. Further, Midwestern irrevocably, unconditionally, voluntarily, knowingly, fully, finally,
and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that Midwestern believed
should have been paid or were owed to Midwestern by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE.
Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably,
unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had
with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past,
present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth
on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Midwestern owned 80,000
shares of common stock pursuant to the Settlement Agreement. Midwestern also irrevocably covenanted that they would not sue us or the
other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Virginia
Byrd, an individual, and Byrd Enterprises of Arizona, Inc., an Arizona corporation, dated as of May 13, 2022 (together, “Byrd”),
the parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain
other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims
relating to Byrd’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Byrd’s direct
or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Byrd may have under that certain
Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company
has no agreements with Byrd otherwise relating to, and has not issued to Byrd, any simple agreement for future equity or convertible
note. Further, Byrd irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived
their rights to any claim, distributions, payments, or other amounts that Byrd believed should have been paid or were owed to Byrd by
SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there
was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly,
fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in
SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and
affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Byrd Enterprises of Arizona, Inc. owned 767,785 shares of
common stock pursuant to the Settlement Agreement. Byrd also irrevocably covenanted that they would not sue us or the other released
parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Zone Right,
LLC, a California limited liability company (“Zone Right”), Glen Kim, a director of the Company, and his spouse, Jessica
Lee, to the extent of such spouse’s community property interest, if any, dated as of April 26, 2022 (the “Zone Right Parties”),
the parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain
other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims
relating to the Zone Right Parties’ direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or the
Zone Right Parties’ direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or
SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party
or the Zone Right Parties may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of
the date of this registration statement, other than as otherwise disclosed in this registration statement, the Company has no agreements
with the Zone Right Parties otherwise relating to, and has not issued to the Zone Right Parties, any Simple Agreement for Future Equity
or convertible note. Further, the Zone Right Parties irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that the Zone Right Parties believed
should have been paid or were owed to the Zone Right Parties by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc.
– DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. –
DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that
they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. –
DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond
that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Zone
Right owned 483,833 shares of common stock pursuant to the Settlement Agreement. The Zone Right Parties also irrevocably covenanted that
they would not sue us or the other released parties in respect of any of the matters released and discharged. Glen Kim is deemed to beneficially
own the shares of common stock owned by Zone Right and has sole voting and dispositive power over its shares.
Under our Settlement Agreement with Clayton Adams,
a former director and a former beneficial owner of more than 5% of the common stock of the Company, dated as of May 3, 2022, the parties
agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates
and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to
Mr. Adams’ direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Mr. Adams’ direct or indirect
ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however,
that nothing in the Settlement Agreement was intended to release any rights that any party or Mr. Adams may have under that certain Simple
Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company has no
agreements with Mr. Adams otherwise relating to, and has not issued to Mr. Adams, any simple agreement for future equity or convertible
note. Further, Mr. Adams irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived
their rights to any claim, distributions, payments, or other amounts that Mr. Adams believed should have been paid or were owed to Mr.
Adams by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make
sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests
in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent,
and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Adams owned 363,274 shares of common stock pursuant
to the Settlement Agreement. Mr. Adams also irrevocably covenanted that he would not sue us or the other released parties in respect
of any of the matters released and discharged.
Under our Settlement Agreement with Matthew Atkinson,
a former director and a former beneficial owner of more than 5% of the common stock of the Company, and his spouse, Penny Atkinson, to
the extent of such spouse’s community property interest, if any (together, “Atkinson”), dated as of May 13, 2022, the
parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain other
affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating
to Atkinson’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Atkinson’s direct or
indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or Atkinson may have under that certain
Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company
has no agreements with Atkinson otherwise relating to, and has not issued to Atkinson, any simple agreement for future equity or convertible
note. Further, Atkinson irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived
their rights to any claim, distributions, payments, or other amounts that Atkinson believed should have been paid or were owed to Atkinson
by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure
there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly,
fully, finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in
SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and
affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached
as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Atkinson owned 383,274 shares of common stock pursuant
to the Settlement Agreement. Atkinson also irrevocably covenanted that they would not sue us or the other released parties in respect
of any of the matters released and discharged.
Under our Settlement Agreement with Bayston Family
Limited Partnership, Brett Bayston, an individual, and his/her spouse, Shari L. Bayston, to the extent of such spouse’s community
property interest, if any (together, “Bayston”), dated as of April 26, 2022, the parties agreed, among other things, to a
general release and discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our
stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to Bayston’s direct or indirect
ownership of shares of SDS Inc. – DE’s capital stock, or Bayston’s direct or indirect ownership of membership interests
of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement
was intended to release any rights that any party or Bayston may have under that certain Simple Agreement for Future Equity and/or Convertible
Note, as applicable. As of the date of this registration statement, the Company has no agreements with Bayston otherwise relating to,
and has not issued to Bayston, any simple agreement for future equity or convertible note. Further, Bayston irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments,
or other amounts that Bayston believed should have been paid or were owed to Bayston by SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization
of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Bayston Family Limited Partnership owned 150,000 shares of common stock pursuant to the Settlement Agreement. Bayston also
irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with DeWayne L.
Corvin and his/her spouse, Becky Corvin, to the extent of such spouse’s community property interest, if any (together, “Corvin”),
dated as of May 4, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers
and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including
without limitation, claims relating to Corvin’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock,
or Corvin’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC,
as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or Corvin
may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration
statement, the Company has no agreements with Corvin otherwise relating to, and has not issued to Corvin, any simple agreement for future
equity or convertible note. Further, Corvin irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever
released and waived their rights to any claim, distributions, payments, or other amounts that Corvin believed should have been paid or
were owed to Corvin by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in
order to make sure there was a clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that they may have had with respect to
ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future,
or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization
table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr. Corvin owned 11,976 shares of common
stock pursuant to the Settlement Agreement. Corvin also irrevocably covenanted that they would not sue us or the other released parties
in respect of any of the matters released and discharged.
Under our Settlement Agreement with 35’sNextChapters,
LLC (“35’sNextChapters”), dated as of May 13, 2022, the parties agreed, among other things, to a general release and
discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed
on an exhibit to the agreement, including without limitation, claims relating to 35’sNextChapters’ direct or indirect ownership
of shares of SDS Inc. – DE’s capital stock, or 35’sNextChapters’ direct or indirect ownership of membership interests
of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement
was intended to release any rights that any party or 35’sNextChapters may have under the terms of that certain Invitation to Join
the Board of Directors between Ronald Saslow and the Company or that certain Simple Agreement for Future Equity and/or Convertible Note,
as applicable. As of the date of this registration statement, the Company has no agreements with 35’sNextChapters otherwise relating
to, and has not issued to 35’sNextChapters, any convertible note or Invitation to Join the Board of Directors between Ronald Saslow
and the Company. Further, 35’sNextChapters irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely
forever released and waived their rights to any claim, distributions, payments, or other amounts that 35’sNextChapters believed
should have been paid or were owed to 35’sNextChapters by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc.
– DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. –
DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that
they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. –
DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond
that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that 35’sNextChapters
owned 150,000 shares of common stock pursuant to the Settlement Agreement. 35’sNextChapters also irrevocably covenanted that they
would not sue us or the other released parties in respect of any of the matters released and discharged. Ronald Saslow, a former director
of the Company, as Manager of 35’sNextChapters, is deemed to beneficially own the shares of common stock owned by 35’sNextChapters
and has sole voting and dispositive power over its shares.
Under our Settlement Agreement with William Greene,
dated as of May 1, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers
and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including
without limitation, claims relating to Mr. Greene’s direct or indirect ownership of shares of SDS Inc. – DE’s capital
stock, or Mr. Greene’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC,
or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party
or Mr. Greene may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of
this registration statement, the Company has no agreements with Mr. Greene otherwise relating to, and has not issued to Mr. Greene, any
simple agreement for future equity or convertible note. Further, Mr. Greene irrevocably, unconditionally, voluntarily, knowingly, fully,
finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that Mr. Greene
believed should have been paid or were owed to Mr. Greene by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc.
– DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc. –
DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims that
they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. –
DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. – DE beyond
that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed that Mr.
Greene owned 15,000 shares of common stock pursuant to the Settlement Agreement. Mr. Greene also irrevocably covenanted that he would
not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Herbert and
Sandra Irvine, as Joint Tenants with Right of Survivorship (“Irvine”), dated as of May 3, 2022, the parties agreed, among
other things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates and related
parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to Irvine’s
direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or Irvine’s direct or indirect ownership of
membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing
in the Settlement Agreement was intended to release any rights that any party or Irvine may have under that certain Simple Agreement
for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement, the Company has no agreements
with Irvine otherwise relating to, and has not issued to Irvine, any simple agreement for future equity or convertible note. Further,
Irvine irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely forever released and waived their rights
to any claim, distributions, payments, or other amounts that Irvine believed should have been paid or were owed to Irvine by SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a
clear understanding regarding the capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully,
finally, and completely to forever release and waive any claims that they may have had with respect to ownership interests in SDS LLC
– AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed
that he, she, or it did not own any interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an
exhibit to the Settlement Agreement. The parties therefore agreed that Irvine owned 17,964 shares of common stock pursuant to the Settlement
Agreement. Irvine also irrevocably covenanted that Irvine would not sue us or the other released parties in respect of any of the matters
released and discharged.
Under our Settlement Agreement with Jonathan
Byrd, an individual, and his/her spouse, Abigail R. Byrd, to the extent of such spouse’s community property interest, if any (together,
the “Byrds”), dated as of May 13, 2022, the parties agreed, among other things, to a general release and discharge of claims
against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to
the agreement, including without limitation, claims relating to the Byrds’ direct or indirect ownership of shares of SDS Inc. –
DE’s capital stock, or the Byrds’ direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC –
DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights
that any party or the Byrds may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As
of the date of this registration statement, the Company has no agreements with the Byrds otherwise relating to, and has not issued to
the Byrds, any simple agreement for future equity or convertible note. Further, the Byrds irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that the Byrds believed should have been paid or were owed to the Byrds by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of
SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Jonathan Byrd owned 7,408 shares of common stock pursuant to the Settlement Agreement. The Byrds also irrevocably covenanted
that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Jeffrey L.
Smith, Trustee of the Jeffrey L. Smith Living Trust (the “Smith Trust”), dated as of April 27, 2022, the parties agreed,
among other things, to a general release and discharge of claims against us, our officers and directors, certain other affiliates and
related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating to the
Smith Trust’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or the Smith Trust’s direct
or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided,
however, that nothing in the Settlement Agreement was intended to release any rights that any party or the Smith Trust may have under
that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration statement,
the Company has no agreements with the Smith Trust otherwise relating to, and has not issued to the Smith Trust, any simple agreement
for future equity or convertible note. Further, the Smith Trust irrevocably, unconditionally, voluntarily, knowingly, fully, finally,
and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that the Smith Trust
believed should have been paid or were owed to the Smith Trust by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS
Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of SDS Inc.
– DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive any claims
that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC, or SDS Inc.
– DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS Inc. –
DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore agreed
that the Smith Trust owned 37,037 shares of common stock pursuant to the Settlement Agreement. The Smith Trust also irrevocably covenanted
that it would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Shawn Olson
and Jill Olson (the “Olsons”), dated as of April 29, 2022, the parties agreed, among other things, to a general release and
discharge of claims against us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed
on an exhibit to the agreement, including without limitation, claims relating to the Olsons’ direct or indirect ownership of shares
of SDS Inc. – DE’s capital stock, or the Olsons’ direct or indirect ownership of membership interests of SDS LLC –
AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended
to release any rights that any party or the Olsons may have under that certain Simple Agreement for Future Equity and/or Convertible
Note, as applicable. As of the date of this registration statement, the Company has no agreements with the Olsons otherwise relating
to, and has not issued to the Olsons, any simple agreement for future equity or convertible note. Further, the Olsons irrevocably, unconditionally,
voluntarily, knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments,
or other amounts that the Olsons believed should have been paid or were owed to the Olsons by SDS LLC – AZ, SDS LLC – DE,
SDSF LLC, SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the
capitalization of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever
release and waive any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, SDSB LLC, or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any
interests in SDS Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement.
The parties therefore agreed that the Olsons owned 59,702 shares of common stock pursuant to the Settlement Agreement. The Olsons also
irrevocably covenanted that they would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with John and
Valerie Russell, as Trustees of the Valerie P. Russell Revocable Trust (the “Russell Trust”), dated as of May 3, 2022, the
parties agreed, among other things, to a general release and discharge of claims against us, our officers and directors, certain other
affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including without limitation, claims relating
to the Russell Trust’s direct or indirect ownership of shares of SDS Inc. – DE’s capital stock, or the Russell Trust’s
direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF LLC, or SDSB LLC, as applicable,
provided, however, that nothing in the Settlement Agreement was intended to release any rights that any party or the Russell Trust may
have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As of the date of this registration
statement, the Company has no agreements with the Russell Trust otherwise relating to, and has not issued to the Russell Trust, any simple
agreement for future equity or convertible note. Further, the Russell Trust irrevocably, unconditionally, voluntarily, knowingly, fully,
finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts that the Russell
Trust believed should have been paid or were owed to the Russell Trust by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization of
SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that the Russell Trust owned 5,988 shares of common stock pursuant to the Settlement Agreement. The Russell Trust also irrevocably
covenanted that it would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Spencer Bayston,
an individual, dated as of April 26, 2022, the parties agreed, among other things, to a general release and discharge of claims against
us, our officers and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement,
including without limitation, claims relating to Mr. Bayston’s direct or indirect ownership of shares of SDS Inc. – DE’s
capital stock, or Mr. Bayston’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE,
SDSF LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights
that any party or Mr. Bayston may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable.
As of the date of this registration statement, the Company has no agreements with Mr. Bayston otherwise relating to, and has not issued
to Mr. Bayston, any simple agreement for future equity or convertible note. Further, Mr. Bayston irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that Mr. Bayston believed should have been paid or were owed to Mr. Bayston by SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB
LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization
of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Mr. Bayston owned 120,000 shares of common stock pursuant to the Settlement Agreement. Mr. Bayston also irrevocably covenanted
that he would not sue us or the other released parties in respect of any of the matters released and discharged.
Under our Settlement Agreement with Deene Beauchamp,
dated as of May 3, 2022, the parties agreed, among other things, to a general release and discharge of claims against us, our officers
and directors, certain other affiliates and related parties, and our stockholders as listed on an exhibit to the agreement, including
without limitation, claims relating to Mr. Beauchamp’s direct or indirect ownership of shares of SDS Inc. – DE’s capital
stock, or Mr. Beauchamp’s direct or indirect ownership of membership interests of SDS LLC – AZ, SDS LLC – DE, SDSF
LLC, or SDSB LLC, as applicable, provided, however, that nothing in the Settlement Agreement was intended to release any rights that
any party or Mr. Beauchamp may have under that certain Simple Agreement for Future Equity and/or Convertible Note, as applicable. As
of the date of this registration statement, the Company has no agreements with Mr. Beauchamp otherwise relating to, and has not issued
to Mr. Beauchamp, any simple agreement for future equity or convertible note. Further, Mr. Beauchamp irrevocably, unconditionally, voluntarily,
knowingly, fully, finally, and completely forever released and waived their rights to any claim, distributions, payments, or other amounts
that Mr. Beauchamp believed should have been paid or were owed to Mr. Beauchamp by SDS LLC – AZ, SDS LLC – DE, SDSF LLC,
SDSB LLC, or SDS Inc. – DE. Each party also agreed, in order to make sure there was a clear understanding regarding the capitalization
of SDS Inc. – DE, irrevocably, unconditionally, voluntarily, knowingly, fully, finally, and completely to forever release and waive
any claims that they may have had with respect to ownership interests in SDS LLC – AZ, SDS LLC – DE, SDSF LLC, SDSB LLC,
or SDS Inc. – DE, whether past, present, future, or contingent, and affirmed that he, she, or it did not own any interests in SDS
Inc. – DE beyond that set forth on the capitalization table attached as an exhibit to the Settlement Agreement. The parties therefore
agreed that Mr. Beauchamp owned 5,988 shares of common stock pursuant to the Settlement Agreement. Mr. Beauchamp also irrevocably covenanted
that he would not sue us or the other released parties in respect of any of the matters released and discharged.
SAFEs Private Placement
From March 2021 to July 2021, we raised an aggregate
of $1,980,000 from investors in exchange for securities called Simple Agreements for Future Equity (collectively, the “SAFEs”).
For a description of the terms of the SAFEs, see the section entitled “Description of Securities – SAFEs” of
this registration statement.
SAFE Cancellations and Exchanges
From September 22, 2022 to October 11, 2022,
we entered into cancellation and exchange agreements with the holders of the SAFEs. Under these agreements, each SAFE holder agreed to
cancel and exchange the holder’s SAFE for a number of shares of common stock equal to the purchase amount under the SAFE divided
by approximately $3.35, based on a $25 million valuation for the Company. As a result, SAFEs that were purchased in the aggregate amount
of $1,980,000 were cancelled and exchanged for a total of 591,048 shares of common stock.
6% Convertible Unsecured Promissory Notes
Private Placement
From October 2021 to December 2021, we conducted
a private placement of 6% convertible unsecured promissory notes due three years from the date of execution and entered into related
subscription agreements and investor rights and lockup agreements with a number of accredited investors. Pursuant to the agreements,
we issued 27 convertible notes for aggregate loans of $6,305,000. In accordance with a settlement notice issued on November 13, 2023
by the Company to the holders of the 6% convertible unsecured promissory notes to address possible claims with respect to the increase
of the outstanding principal under the convertible notes to 110% of the outstanding principal amount, the holders of the 6% convertible
unsecured promissory notes, the Company issued a settlement notice to the holders of the 6% convertible unsecured promissory notes undertaking
to effect conversions as if 110% of the principal being converted was being converted. The convertible notes incurred interest at 6%
annually.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on NYSE American LLC (the “NYSE
American”), and in accordance with the settlement notice referred to above, on November 16, 2023, the outstanding principal under
the convertible notes automatically converted into 2,774,200 shares of common stock at a conversion price equal to 50% of the price of
the common stock in the initial public offering, $5.00 per share, pursuant to the adjustment provisions under the convertible notes.
Upon automatic conversion, any interest accrued under the convertible notes was waived in accordance with their terms.
The Company issued 2,446,200 of the 2,774,200
total shares of common stock upon conversion of the convertible notes to the 27 holders of the converted convertible notes. 328,000 of
the shares of common stock issued upon conversion of the convertible notes were registered for resale upon issuance pursuant to the Registration
Statement on Form S-1 (File No. 333-271951), as amended, initially filed with the SEC on May 15, 2023, and declared effective by
the SEC on November 13, 2023 (the “IPO Registration Statement”), and may be sold by means of the final prospectus, dated
November 13, 2023, filed with the SEC on November 15, 2023 pursuant to Rule 424(b)(3) of the Securities Act (the “Final Resale
Prospectus”). For a further description of the terms applicable to these convertible notes, see the section entitled “Description
of Securities – 6% Convertible Unsecured Promissory Notes” of the prospectus contained in this registration statement.
8% Convertible Unsecured Promissory Notes
and Warrants Private Placement
From August 2022 to January 2023, we conducted
a private placement of the Company’s 8% convertible unsecured promissory notes and respective warrants under subscription agreements
with a number of accredited investors. Pursuant to the agreements, we issued 15 convertible notes and respective warrants for aggregate
loans of $1,465,000. The convertible notes incurred interest at 8% annually, and were initially due to mature on August 8, 2023 unless
converted in accordance with their terms. On August 7, 2023, an agreement was signed with the holders of the majority of the outstanding
balance under these convertible notes. The agreement amended the maturity date of all of these convertible notes to August 8, 2025. Pursuant
to the agreement, a provision in the convertible notes providing for an increase of the outstanding balance under the convertible notes
to 120% of the original principal amount upon non-repayment by the maturity date was accelerated, and the outstanding balance under the
convertible notes was increased in aggregate to $1,758,000. The agreement also provided for the immediate conversion of the additional
amount of the outstanding balance under the convertible notes into 146,500 shares of common stock at $2.00 per share instead of the applicable
optional conversion price, approximately $3.29 per share at the time of the conversion, not including any accrued but unpaid interest,
which was waived with respect to the converted outstanding balance. As a result, the 8% convertible unsecured promissory notes’
aggregate underlying principal was $1,465,000 both before and after such increase of the outstanding balance and conversion of such increase.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the outstanding principal under the convertible notes automatically converted into 586,000 shares of common stock at a conversion
price equal to 50% of the price of the common stock in the initial public offering, $5.00 per share, pursuant to the adjustment provisions
under the convertible notes. Upon automatic conversion, any interest accrued under the convertible notes was waived in accordance with
their terms.
The Company issued 532,500 of the 732,500 total
shares of common stock issued upon conversion of the convertible notes to 15 holders of the converted convertible notes. 328,000 of the
shares of common stock issued upon conversion of the convertible notes were registered for resale upon issuance pursuant to the IPO Registration
Statement, and may be resold by means of the Final Resale Prospectus. For a further description of the terms applicable to these convertible
notes and warrants, see “Description of Securities – 8% Convertible Unsecured Promissory Notes” and “Description
of Securities – Warrants – Investor Warrants – Warrants Issued With 8% Unsecured Promissory Notes”, respectively.
8% Unsecured Promissory Notes and Warrants
Private Placements
In March 2023 and April 2023 we conducted one
private placement, and in May 2023 we completed a subsequent private placement, in which we issued 8% unsecured promissory notes and
respective warrants to a number of accredited investors under subscription agreements. Pursuant to the agreements, we issued promissory
notes for aggregate loans of $2,350,000, which incurred interest at the annual rate of 8%, and respective warrants to purchase an aggregate
of 940,000 shares of common stock exercisable at $2.50 per share.
In connection with the closing of the initial
public offering of the Company’s common stock and listing of the common stock for trading on the NYSE American, on November 16,
2023, the warrants issued with the promissory notes were automatically exercised to purchase a total of 940,000 shares of common stock
for $2.50 per share of common stock, and the principal balance under the promissory notes became immediately due and was deemed repaid
in the amount of the aggregate exercise price for the automatic exercise of the unexercised portion of the warrants. All 940,000 of the
shares of common stock issued upon automatic exercise of the warrants were registered for resale upon issuance pursuant to the IPO Registration
Statement, and may be resold by means of the Final Resale Prospectus. Any remaining balance outstanding under the promissory notes was
required to be repaid in cash within three business days of the closing of the initial public offering. For a further description of
the private placements and the terms applicable to these notes and warrants, see “Description of Securities – 8% Unsecured
Promissory Notes”, and “Description of Securities – Warrants – Investor Warrants – Warrants Issued
With 8% Unsecured Promissory Notes”.
15% OID Promissory Notes
On August 2, 2023, August 18, 2023, September
11, 2023, and September 22, 2023, the Company issued 15% original issue discount (“15% OID”) promissory notes for total principal
of $352,942 to certain accredited investors in a private placement for gross proceeds of $300,000. The principal under the 15% OID promissory
notes accrue 5% interest annually, and principal and interest under the notes must be repaid by December 31, 2023. The notes may be prepaid
without a premium or penalty.
On November 20, 2023, the Company repaid the
aggregate balance of $117,648 under two 15% OID promissory notes, and on November 29, 2023, the Company repaid the balance of $117,647
under one 15% OID promissory note. On December 29, 2023, the Company repaid the balance of $117,647 under the last outstanding 15% OID
promissory note.
Placement Agent’s Warrants for Private
Placements
Under the Company’s engagement letter agreement
with Boustead Securities, LLC, a registered broker-dealer (“Boustead”), as amended (the “Boustead Engagement Letter”),
Boustead acted as placement agent in our private placements of the convertible promissory notes, promissory notes, 15% OID promissory
notes and warrants described above. Pursuant to the Boustead Engagement Letter, in addition to a commission equal to 7% of the gross
proceeds raised in the private placements, a non-accountable expense allowance equal to 1% of the gross proceeds raised in the private
placements, and payment of certain other expenses, we agreed to issue Boustead five-year warrants to purchase a number of shares of common
stock in an amount equal to 7% of the common stock underlying the securities sold in the private placements at an exercise price equal
to 135% of the public offering price of the shares of common stock in the Company’s initial public offering. Accordingly, a warrant
to purchase common stock was issued in October 2023 in connection with our private placement of 6% convertible unsecured promissory notes,
exercisable to purchase 7% of the original principal amount of the Company’s 6% convertible unsecured promissory notes divided
by the convertible notes’ applicable conversion price, at an exercise price equal to 135% of the public offering price of the shares
of common stock in the Company’s initial public offering. A warrant to purchase shares of common stock was also issued to Boustead
in October 2023 in connection with our private placements of 8% unsecured promissory notes and respective investor warrants. The warrant
may be exercised to purchase an aggregate of 7% of the common stock underlying the warrants that were issued to the initial 8% unsecured
promissory note holders at an exercise price equal to 135% of the public offering price of the shares of common stock in the Company’s
initial public offering. Each of the placement agent’s warrants will terminate five years after issuance.
Boustead waived its fees and expenses with respect
to our private placement of 15% OID promissory notes. Boustead also waived its rights to warrants to purchase shares of common stock
in connection with our private placement of 8% convertible unsecured promissory notes and respective investor warrants. In addition,
under the Boustead Engagement Letter, Boustead’s placement agent’s warrants have “piggyback” registration rights.
However, Boustead waived these registration rights with respect to the IPO Registration Statement and any registration statements relating
to this offering.
Tumim Stone Capital
Committed Equity Financing Facility
On January 5, 2024 (the “Closing Date”),
the Company entered into a Common Stock Purchase Agreement, dated as of January 5, 2024 (the “Purchase Agreement”), with
Tumim Stone Capital LLC (“Tumim”), providing for a committed equity financing facility (a “CEFF”), pursuant to
which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, Tumim has committed to purchase,
at the Company’s direction in its sole discretion, up to an aggregate of $25,000,000 of the Company’s common stock, subject
to certain limitations set forth in the Purchase Agreement, from time to time during the term of the Purchase Agreement. Concurrently
with the execution of the Purchase Agreement, the Company and Tumim also entered into a Registration Rights Agreement, dated as of January
5, 2024 (the “Registration Rights Agreement”), pursuant to which the Company agreed to file with the SEC one or more registration
statements to register under the Securities Act, the offer and resale by Tumim of all of the shares of common stock that may be issued
and sold by the Company to Tumim from time to time under the Purchase Agreement.
Sales of common stock by the Company to Tumim
under the Purchase Agreement, if any, may occur, from time to time at the Company’s sole discretion, over a period commencing upon
the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement (the “Commencement,”
and the date on which the Commencement occurs, the “Commencement Date”), including that the initial registration statement
we are required to file with the SEC pursuant to the Registration Rights Agreement, which is this registration statement, is declared
effective by the SEC, and ending on the first day of the month next following the 24-month anniversary of the Closing Date, unless the
Purchase Agreement is terminated earlier under its terms.
From and after the Commencement Date, the Company
will have the right, but not the obligation, from time to time at the Company’s sole discretion, to direct Tumim to purchase amounts
of common stock that are specified by the Company to Tumim in writing, subject to certain maximum amounts calculated pursuant to the
Purchase Agreement (each such purchase, a “VWAP Purchase”). The purchase price per share to be paid by Tumim for shares of
common stock that the Company may elect to sell to Tumim will be equal to 95% of the lowest daily volume-weighted average price (the
“VWAP”) of the common stock during the three consecutive trading days immediately following the date that the purchase notice
with respect to the particular VWAP Purchase (each, a “VWAP Purchase Notice”) is timely delivered from the Company to Tumim,
provided that (i) the Company may not deliver more than one VWAP Purchase Notice to Tumim on any single trading day, (ii) at least three
trading days have elapsed since the trading day on which the most recent VWAP Purchase Notice was delivered by the Company to Tumim,
(iii) the closing sale price of the common stock on such date is not lower than $0.15, as adjusted for stock splits and similar transactions,
and (iv) all shares of common stock subject to all prior VWAP Purchases by Tumim under the Purchase Agreement have been received by Tumim
electronically as set forth in the Purchase Agreement. The maximum number of shares of common stock that may be required to be purchased
pursuant to a VWAP Purchase Notice will be equal to the lowest of: (i) 100% of the average daily trading volume in the common stock for
the five consecutive trading day period ending on (and including) the trading day immediately preceding the applicable day Tumim receives
a VWAP Purchase Notice; (ii) the product obtained by multiplying (A) the daily trading volume in the common stock on the applicable day
Tumim receives a VWAP Purchase Notice and (B) 0.30; and (iii) the quotient obtained by dividing (A) $2,000,000 by (B) the VWAP of the
common stock on the trading day immediately preceding the applicable day Tumim receives a VWAP Purchase Notice. There are no upper limits
on the price per share that Tumim must pay for shares of common stock the Company directs Tumim to purchase in a VWAP Purchase under
the Purchase Agreement. The purchase price per share of common stock that the Company directs Tumim to purchase in a VWAP Purchase under
the Purchase Agreement will be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse
stock split or other similar transaction during the period used to determine the purchase price to be paid by Tumim for such shares in
such VWAP Purchase.
Tumim has no right to require the Company to
sell any shares of common stock to Tumim, but Tumim is obligated to make purchases of common stock as directed by the Company, subject
to the satisfaction of conditions set forth in the Purchase Agreement at Commencement and thereafter at each time that the Company may
direct Tumim to purchase shares of common stock under the Purchase Agreement. Actual sales of common stock by the Company to Tumim under
the Purchase Agreement, if any, will depend on a variety of factors to be determined by the Company in its sole discretion from time
to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the
appropriate sources of funding for the Company and its operations.
The Company may not issue or sell any shares
of its common stock to Tumim under the Purchase Agreement which, when aggregated with all other shares of common stock then beneficially
owned by Tumim and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Rule 13d-3 promulgated thereunder), would result in Tumim beneficially owning more than 4.99% of the outstanding shares
of the common stock (the “Beneficial Ownership Limit”).
Under the applicable rules of the NYSE American,
in no event may the Company issue to Tumim under the Purchase Agreement more than 2,648,385 shares of common stock, which number of shares
represents 19.99% of the shares of the common stock outstanding immediately prior to the execution of the Purchase Agreement (the “Exchange
Cap”), unless the Company obtains stockholder approval to issue shares of common stock in excess of the Exchange Cap in accordance
with applicable NYSE American listing rules (the “Stockholder Approval”). The Exchange Cap will not be applicable to limit
the number of shares of common stock that the Company may sell to Tumim in any VWAP Purchase that the Company effects pursuant to the
Purchase Agreement (if any), to the extent the purchase price per share paid by Tumim for the shares of common stock in such VWAP Purchase
is equal to or greater than the greater of book or market value of the common stock (calculated in accordance with the applicable listing
rules of the NYSE American) at the time the Company delivers the VWAP Purchase Notice for such VWAP Purchase to Tumim, adjusted
as required by the NYSE American to take into account the Company’s payment of the Commitment Fee (as defined below) to Tumim and
the amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection with the CEFF, each as described
in more detail below, and otherwise as may be necessary to ensure compliance with the applicable rules of the NYSE American. In any event,
the Purchase Agreement specifically provides that the Company may not issue or sell any shares of common stock under the Purchase Agreement
if such issuance or sale would breach any applicable rules or regulations of NYSE American.
Pursuant to the Purchase Agreement, the Company
is obligated to convene a special meeting of its stockholders at the earliest reasonably practical date, but in no event later than 120
days after the date of the Purchase Agreement for the purpose of obtaining the Stockholder Approval, and to use its reasonable best efforts
to obtain the Stockholder Approval at such stockholder meeting. Accordingly, as set forth in the definitive proxy materials the Company
has filed with the SEC on December 29, 2023 and on January 2, 2024, the Company has scheduled a special stockholders’ meeting to
be held on February 27, 2024 (the “Special Stockholders’ Meeting”) for the purpose of, among other things, obtaining
the Stockholder Approval. If the Company does not obtain the Stockholder Approval at the Special Stockholders’ Meeting on February
27, 2024, the Purchase Agreement requires the Company to convene another stockholders’ meeting at least every three months after
February 27, 2024 for the purpose of obtaining the Stockholder Approval, until the earlier of (i) the date on which the Stockholder Approval
is finally obtained and (ii) the termination of the Purchase Agreement.
The net proceeds from
sales, if any, under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares
of its common stock to Tumim. The Company expects that any proceeds received by the Company from such sales to Tumim will be used for
working capital and general corporate purposes.
There are no restrictions on future financings,
rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement,
other than a prohibition (with certain limited exceptions) on the Company entering into specified “Variable Rate Transactions”
(as such term is defined in the Purchase Agreement). Such transactions include, among others, the issuance of convertible securities
with a conversion or exercise price that is based upon or varies with the trading price of the common stock after the date of issuance,
or the Company effecting or entering into an agreement to effect an “equity line of credit,” an “at the market offering”
or other similar continuous offering with a third party, in which the Company may offer, issue or sell common stock or any securities
exercisable, exchangeable or convertible into common stock at future determined prices. Such restrictions shall remain in effect for
a period commencing on the Closing Date and ending on the earlier of (i) the first day of the month next following the 24-month anniversary
of the Closing Date and (ii) the six-month anniversary of the effective date of the termination of the Purchase Agreement pursuant to
its terms. During the term of the Purchase Agreement, Tumim covenanted not to enter into or effect, in any manner whatsoever, directly
or indirectly, any short sales of the common stock or hedging transaction which establishes a net short position with respect to the
common stock.
As consideration for Tumim’s commitment to purchase shares of
common stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, on the date of the initial
filing with the SEC of this registration statement, the Company was required to issue to Tumim a number of shares of common stock valued
at $500,000 in the aggregate, subject to the Beneficial Ownership Limit (the “Commitment Shares”). The per share value of
the Commitment Shares was required to be calculated by dividing (i) $500,000 (the “Commitment Fee”), by (ii) the average of
the daily VWAPs during the five consecutive trading day period ending on (and including) the trading day immediately prior to the date
of the initial filing of this registration statement. If any shares that were otherwise required to be issued as Commitment Shares were
not permitted to be issued due to the Beneficial Ownership Limit, the Company was required to pay to Tumim in cash the amount equal to
the product of (i) the number of shares that may not be issued as Commitment Shares due to the Beneficial Ownership Limit and (ii) the
average of the daily VWAPs during the five consecutive trading day period ending on (and including) the trading day immediately prior
to the date of the initial filing of this registration statement. Accordingly, on the date of the initial filing with the SEC of this
registration statement, the Company issued the Commitment Shares to Tumim, which were valued at $470,360.45 in the aggregate, based on
the average of the daily VWAPs during the five consecutive trading day period ending on (and including) the trading day immediately prior
to the date of the initial filing of this registration statement, which constituted approximately 4.99% of the outstanding shares of common
stock, and, due to the Beneficial Ownership Limit and pursuant to the terms and conditions of the Purchase Agreement summarized above,
we paid Tumim $29,639.55 in cash, which equaled the number of the Commitment Shares that would have been issued but for the application
of the Beneficial Ownership Limit, multiplied by the average of the daily VWAPs during the five consecutive trading day period ending
on (and including) the trading day immediately prior to the date of the initial filing of this registration statement. In the event that
the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement does not occur by
February 15, 2024, the Company will be required to pay Tumim $500,000 less the amount of the Commitment Fee previously paid in cash upon
the return and cancellation of the Commitment Shares. In addition, as required under the Purchase Agreement, the Company has reimbursed
Tumim for the reasonable legal fees and disbursements of Tumim’s legal counsel in the amount of $75,000.
The Purchase Agreement will automatically terminate
upon the earliest of (i) the first day of the month next following the 24-month anniversary of the Closing Date, (ii) Tumim’s purchase
of shares of common stock having an aggregate purchase price equal to $25,000,000 under the Purchase Agreement, or (iii) the occurrence
of certain other events set forth in the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time
after Commencement upon five trading days’ prior written notice to Tumim, subject to certain conditions and the survival of certain
provisions of the Purchase Agreement and the Registration Rights Agreement. Tumim may terminate the Purchase Agreement upon five trading
days’ prior written notice after the occurrence of certain events, including if the Commencement shall not have occurred on or
prior to February 15, 2024, upon the occurrence of a Material Adverse Effect (as defined in the Purchase Agreement) or upon the occurrence
of certain other events. Neither the Company nor Tumim may assign or transfer their respective rights and obligations under the Purchase
Agreement, and no provision of the Purchase Agreement or the Registration Rights Agreement may be modified or waived by the Company or
Tumim.
In the event that the initial satisfaction of
all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement does not occur by February 15, 2024, and Tumim
terminates the Purchase Agreement as a result, the Company will be required to issue to Tumim warrants to purchase 750,000 shares as
a break-up fee (the “Penny Warrants”). The Penny Warrants will have an exercise price of $0.01 per share, subject to full-ratchet
price protection with a floor price equal to the par value of the Company’s common stock, and customary antidilution protection.
The Penny Warrants will have a term of five years. In addition, the Company will be required to file a registration statement on Form
S-1 covering the resale by Tumim of all of the shares of common stock that may be issued upon exercise of the Penny Warrants, which must
be declared effective by the SEC by the earlier of the 45th calendar day after the date that such registration statement is filed if
subject to review by the SEC, and the 5th calendar day after the date that such registration statement is filed if the Company is notified
that it will not be reviewed by the SEC. The Company will be required to maintain the effectiveness of the registration statement until
the later of the date that the Penny Warrants are terminated and all shares that were purchased by exercise of the Penny Warrants are
sold.
The Purchase Agreement and the Registration Rights
Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations,
warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely
for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
Under the Boustead Engagement Letter, Boustead is acting as the placement
agent in connection with the transactions contemplated by the Purchase Agreement. We agreed to issue Boustead 49,193 shares of common
stock immediately after we issued the Commitment Shares to Tumim on January 26, 2024, equal to 7.0% of the number of Commitment Shares
that would have been issued but for the application of the Beneficial Ownership Limit, as a fee pursuant to the Boustead Engagement Letter.
Under the Boustead Engagement Letter, the Company is also required to issue to Boustead warrants to purchase a number of shares equal
to 7.0% of the shares of common stock issued to Tumim pursuant to purchases under the Purchase Agreement, with an exercise price equal
to the applicable purchase price per share, or, in the event that the Penny Warrants are required to be issued pursuant to the Purchase
Agreement, warrants to purchase 52,500 shares of common stock, with the same exercise price terms as the Penny Warrants. The warrants
that will be issued to Boustead will be exercisable for a period of five years from the date of issuance and contain cashless exercise
provisions. Boustead also has certain registration rights with respect to these warrants, which Boustead has waived with respect to this
registration statement. Boustead and its affiliates are not in any manner related to Tumim or any of Tumim’s affiliates. Boustead’s
compensation under the Boustead Engagement Letter in connection with the Purchase Agreement is subject to reduction or adjustment to the
extent that such compensation is determined to be in excess of or otherwise noncompliant with applicable rules of the Financial Industry
Regulatory Authority, Inc.
Restricted Stock and Option Grants
We have made the following grants of options
to purchase common stock and restricted stock to employees, officers, and directors under the Signing Day Sports, Inc. 2022 Equity Incentive
Plan (the “Plan”) prior to the filing of Registration Statements on Form S-8 with the SEC on November 16, 2023 which registered
the offer and sale, or reoffer and resale, of shares of common stock that are issuable or were issued under the Plan:
Dennis Gile, our largest stockholder and a former
Chief Executive Officer, President, Secretary, Chairman, and director of the Company, was granted options to purchase a total of 35,000
shares of common stock on September 28, 2022. The options may be exercised at $3.10 per share. The options are subject to certain vesting
conditions. Effective March 19, 2023, Mr. Gile resigned from all positions as an officer or director of the Company. Under the terms
of his option agreements, the portion of Mr. Gile’s stock options that had vested prior to Mr. Gile’s resignation, relating
to 29,000 shares, terminated unexercised as of June 19, 2023.
David O’Hara, our Chief Operating Officer
and Secretary, was granted options to purchase a total of 60,000 shares of common stock on September 9, 2022 and September 28, 2022.
The options may be exercised at $3.10 per share. The options are subject to certain vesting conditions.
Daniel D. Nelson, our Chief Executive Officer
and Chairman, and a director of the Company, was granted options to purchase a total of 35,000 shares of common stock on September 28,
2022. The options may be exercised at $3.10 per share. The options are subject to certain vesting conditions.
Noah (Jed) Smith, a former director and a former
beneficial owner of more than 5% of the common stock of the Company of the Company, was granted an option to purchase 5,000 shares of
common stock on September 28, 2022. The option may be exercised at $3.10 per share. Effective April 27, 2023, Mr. Smith resigned from
his position as a director of the Company. Under the terms of his option agreement, Mr. Smith’s stock option terminated unexercised
as of July 27, 2023.
Clayton Adams, a former director and a former
beneficial owner of more than 5% of the common stock of the Company, was granted options to purchase a total of 30,000 shares of common
stock on September 28, 2022. The options may be exercised at $3.10 per share. The options are subject to certain vesting conditions.
Effective April 27, 2023, Mr. Adams resigned from his position as a director of the Company. Under the terms of his option agreements,
the portion of Mr. Adams’ stock options that had vested prior to Mr. Adams’ resignation, relating to 20,000 shares, terminated
unexercised as of July 27, 2023.
Glen Kim, a director of the Company, was granted
an option to purchase 5,000 shares of common stock on September 28, 2022. The option may be exercised at $3.10 per share.
Martin Lanphere, a former director of the Company,
was granted an option to purchase 27,000 shares of common stock for $3.10 per share, subject to certain vesting conditions, on September
28, 2022. Mr. Lanphere was also granted an option to purchase 3,000 shares of common stock for $2.50 per share on April 18, 2023.
Roger Mason Jr., a director of the Company, was
granted an option to purchase 24,000 shares of common stock on September 9, 2022. The option may be exercised at $3.10 per share. The
option is subject to certain vesting conditions.
Richard Symington, while serving as our President
and Chief Marketing Officer and a director of the Company, was granted an option to purchase 100,000 shares of common stock on April
5, 2023. The option may be exercised at $2.50 per share. The option is subject to certain vesting conditions. Mr. Symington resigned
from each of these positions on May 26, 2023. Under a consulting agreement with Mr. Symington in which Mr. Symington agreed to provide
certain services to the Company starting 14 days following the Company’s initial public offering, the Company agreed not to terminate
the option pending the beginning of such services, subject to termination of the consulting agreement at any time. On November 22, 2023,
the Company appointed Mr. Symington President and Chief Technology Officer and terminated the consulting agreement prior to services
provided for. Mr. Symington was appointed as a director of the Company as of December 19, 2023. The Company considers the stock option
to be outstanding and exercisable subject to its vesting conditions.
David O’Hara, our Chief Operating Officer
and Secretary, was granted 90,000 shares of restricted stock on March 14, 2023. The restricted stock is subject to certain vesting conditions.
Greg Economou, a director of the Company, was
granted an option to purchase 24,000 shares of common stock on May 9, 2023. The option may be exercised at $2.50 per share. The option
is subject to certain vesting conditions.
Certain non-executive employees were granted
options to purchase a total of 56,000 shares of common stock in September 2022. The options had an exercise price of $3.10 per share.
A portion of the options were granted subject to certain vesting conditions. Subsequently, four of the employees were terminated. The
former employees’ options were formerly exercisable to purchase 49,000 shares of common stock. The former employees did not exercise
the options within the options’ exercise period as to the vested portion of the options, resulting in the full termination of these
options without exercise.
On March 14, 2023, options to purchase a total
of 53,800 shares of common stock were granted under the Plan to certain employees. The options may be exercised at $3.10 per share. A
portion of the options is subject to certain vesting conditions. Subsequently, one of the employees resigned prior to the vesting of
a portion of the former employee’s option to purchase 13,800 shares of common stock after vesting; the unvested portion of the
option, as to 10,350 shares of common stock, terminated immediately and the vested portion of the option, as to 3,450 shares of common
stock, terminated as of July 20, 2023. On April 19, 2023, stock options to purchase a total of 51,000 shares of common stock were granted
under the Plan to certain employees. The options may be exercised at $2.50 per share. The options are subject to certain vesting conditions.
On May 3, 2023, stock options to purchase a total of 35,000 shares of common stock that were granted under the Plan to certain employees
on April 19, 2023 were amended and restated to grant a total of 100,000 shares of common stock. The options were granted with an exercise
price of $2.50 per share. The options are subject to certain vesting conditions. Subsequently, one of the employees that received the
amended and restated stock options terminated their employment and their stock option for 50,000 shares of common stock terminated unexercised.
The foregoing grants of options to purchase common
stock and restricted stock were made in reliance upon the exemption provided by Section 4(a)(2) of the Securities Act for the offer and
sale of securities not involving a public offering and/or Rule 701 under the Securities Act for the offer and sale of securities pursuant
to a written compensatory plan or written contract relating to compensation.
Service Provider Agreements
Under agreements entered into with certain service
providers effective as of November 28, 2022, in exchange for services, we agreed to issue the number of shares of common stock equal
to the number of shares derived by dividing the total of $53,500 by the public offering price of the securities in the initial public
offering to the service providers upon the completion of the Company’s initial public offering, if completed by November 15, 2023;
otherwise we agreed to issue the number of shares of common stock derived by divided $53,500 by the Fair Market Value (as defined in
the agreements) of the common stock. Pursuant to the agreements, each service provider was also required to enter into related restricted
stock award agreements and an accredited investor questionnaire prior to the issuances of shares of common stock.
On November 16, 2023,
in connection with the closing of the Company’s initial public offering, the Company issued a total of 10,700 shares of common
stock to two service providers under the agreements with such service providers. As the final price of the initial public offering was
determined to be $5.00 per share on November 13, 2023, the Company determined that the initial public offering had been completed as
of November 15, 2023 for purposes of such service provider agreements. The shares of common stock were issued in exchange for services
and no cash payments.
Each of the service
providers entered into a restricted stock award agreement with the Company which provided that the service provider will not directly
or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase
of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing
transactions with respect to, any of the granted shares without the prior written consent of the Company or its managing underwriter,
for up to 12 months following the initial public offering plus such additional period as may reasonably be requested by the Company or
such underwriter to accommodate regulatory restrictions.
General
Unless otherwise stated above, the sales of securities
described above were made or will be made in reliance upon exemptions provided by Section 4(a)(2) of the Securities Act and/or Rule
506(b) of Regulation D thereunder for the offer and sale of securities not involving a public offering.
Item 16. Exhibits.
(a) Exhibits.
Exhibit No. |
|
Description |
1.1 |
|
Underwriting Agreement, dated November 13, 2023, by and between Signing Day Sports, Inc. and Boustead
Securities, LLC (as representative of the underwriters named therein) (incorporated by reference to Exhibit 1.1 to the Current Report
on Form 8-K filed on November 17, 2023) |
2.1 |
|
Agreement and Plan of Merger of Signing Day Sports, LLC, Signing Day Sports Baseball, LLC, and Signing
Day Sports Football, LLC, with and into Signing Day Sports, Inc. (incorporated by reference to Exhibit 2.1 to the Registration Statement
on Form S-1 filed on May 15, 2023) |
3.1 |
|
Amended and Restated Certificate of Incorporation of Signing Day Sports, Inc. (incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form S-1 filed on May 15, 2023) |
3.2 |
|
Second Amended and Restated Bylaws of Signing Day Sports, Inc. (incorporated by reference to Exhibit
3.2 to the Registration Statement on Form S-1 filed on May 15, 2023) |
3.3 |
|
Amendment No. 1 to the Second Amended and Restated Bylaws of Signing Day Sports, Inc. (incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 8, 2023) |
4.1 |
|
Representative’s Warrant issued to Boustead Securities, LLC, dated November 16, 2023 (incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on November 17, 2023) |
4.2 |
|
Warrant to Purchase Common Stock issued to Boustead Securities, LLC, dated as of December 23, 2021
(incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-1 filed on May 15, 2023) |
4.3 |
|
Form of Warrant to Purchase Equity Securities issued with 8% Convertible Unsecured Note (incorporated
by reference to Exhibit 4.6 to the Registration Statement on Form S-1 filed on May 15, 2023) |
4.4 |
|
Form of 8% Unsecured Promissory Note (incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-1 filed on May 15, 2023) |
4.5 |
|
Form of Warrants to Purchase Common Stock issued to Boustead Securities, LLC, in connection with
issuances of 8% Unsecured Promissory Notes and respective warrants (incorporated by reference to Exhibit 4.10 to the Registration
Statement on Form S-1 filed on May 15, 2023) |
4.6 |
|
Form of 15% Original Issue Discount Promissory Note (incorporated by reference to Exhibit 4.11 to
the Registration Statement on Form S-1/A filed on August 31, 2023) |
5.1 |
|
Opinion of Bevilacqua PLLC |
10.1 |
|
Marketing Agreement between Texas High School Coaches Association and Signing Day Sports, LLC, dated
June 22, 2021 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.2 |
|
Marketing Agreement between Arizona Football Coaches Association and Signing Day Sports, dated May
23, 2022 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.3 |
|
Client Service Agreement between Tilson HR, Inc. and Signing Day Sports, dated June 18, 2020 (incorporated
by reference to Exhibit 10.5 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.4 |
|
Order for Services between Signing Day Sports, Inc. and Paycor Services, dated May 23, 2022 (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.5 |
|
Form of Subscription Agreement for 6% Convertible Unsecured Promissory Notes (incorporated by reference
to Exhibit 10.33 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.6 |
|
Form of Investor Rights and Lock-Up Agreement (incorporated by reference to Exhibit 10.34 to the
Registration Statement on Form S-1 filed on May 15, 2023) |
10.7 |
|
Form of Subscription Agreement for 8% Convertible Unsecured Promissory Notes and Warrants (incorporated
by reference to Exhibit 10.35 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.8 |
|
Form of Subscription Agreement for 8% Unsecured Promissory Notes and Warrants (incorporated by reference
to Exhibit 10.57 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.9 |
|
Sponsorship Agreement between Goat Farm Sports and Signing Day Sports, Inc., dated September 9, 2022
(incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.10 |
|
Collaboration and Revenue-Sharing Agreement between Signing Day Sports, Inc. and Louisville Slugger
Hitting Science Center LLC, dated as of October 31, 2022 (incorporated by reference to Exhibit 10.37 to the Registration Statement
on Form S-1 filed on May 15, 2023) |
10.11 |
|
Standard Form Office Lease, dated November 1, 2022, and Addendum to Lease, executed November 2, 2022,
between M4 Perimeter, LLC and Signing Day Sports, Inc. (incorporated by reference to Exhibit 10.49 to the Registration Statement
on Form S-1 filed on May 15, 2023) |
10.12† |
|
Form of Independent Director Agreement between Signing Day Sports, Inc. and each independent director
(incorporated by reference to Exhibit 10.51 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.13† |
|
Form of Indemnification Agreement between Signing Day Sports, Inc. and each officer or director (incorporated
by reference to Exhibit 10.52 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.14† |
|
Signing Day Sports, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.53 to
the Registration Statement on Form S-1 filed on May 15, 2023) |
10.15† |
|
Form of Stock Option Agreement for Signing Day Sports, Inc. 2022 Equity Incentive Plan (incorporated
by reference to Exhibit 10.54 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.16† |
|
Form of Restricted Stock Award Agreement for Signing Day Sports, Inc. 2022 Equity Incentive Plan
(incorporated by reference to Exhibit 10.55 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.17† |
|
Form of Restricted Stock Unit Award Agreement for Signing Day Sports, Inc. 2022 Equity Incentive
Plan (incorporated by reference to Exhibit 10.56 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.18 |
|
First Amendment to Lease, dated April 1, 2023, between M4 PERIMETER, LLC and Signing Day Sports,
Inc. (incorporated by reference to Exhibit 10.60 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.19† |
|
Employee Confidential Information and Inventions Assignment Agreement, dated April 3, 2023, between
Signing Day Sports, Inc. and David O’Hara (incorporated by reference to Exhibit 10.61 to the Registration Statement on Form
S-1 filed on May 15, 2023) |
10.20† |
|
Executive Employment Agreement, dated April 5, 2023, between Signing Day Sports, Inc. and Richard
Symington (incorporated by reference to Exhibit 10.62 to the Registration Statement on Form S-1 filed on May 15, 2023) |
10.21 |
|
Work for Hire Agreement – Acknowledgement and Assignment between Signing Day Sports
and Midwestern Interactive, LLC, dated December 21, 2022 (incorporated by reference to Exhibit 10.64 to the Registration Statement
on Form S-1/A filed on June 30, 2023) |
10.22 |
|
Strategic Alliance Agreement, dated as of October 20, 2023, between Signing Day Sports, Inc. and
SAJE Enterprises LLC (DBA Elite Development Program Soccer) (incorporated by reference to Exhibit 10.66 to the Registration Statement
on Form S-1/A filed on October 24, 2023) |
10.23† |
|
Executive Employment Agreement, dated as of November 22, 2023, between Signing Day Sports, Inc. and
Richard Symington (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 29, 2023) |
10.24† |
|
Employee Confidential Information and Inventions Assignment Agreement, dated November 27, 2023, between
Signing Day Sports, Inc. and Richard Symington (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
on November 29, 2023) |
10.25† |
|
Executive Employment Agreement, dated as of November 22, 2023, between Signing Day Sports, Inc. and
Daniel D. Nelson (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on November 29, 2023) |
10.26† |
|
Employee Confidential Information and Inventions Assignment Agreement, dated November 22, 2023, between
Signing Day Sports, Inc. and Daniel D. Nelson (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed
on November 29, 2023) |
10.27† |
|
Executive Employment Agreement, dated as of November 22, 2023, between Signing Day Sports, Inc. and
David O’Hara (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed on November 29, 2023) |
10.28† |
|
Settlement Agreement and Release, dated as of December 12, 2023, between Signing Day Sports, Inc.
and Midwestern Interactive, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 15,
2023) |
10.29 |
|
Business Loan Agreement, dated December 11, 2023, between Signing Day Sports, Inc. and Commerce Bank
of Arizona (incorporated by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
10.30 |
|
Promissory Note issued by Commerce Bank of Arizona to Signing Day Sports, Inc., dated December 11, 2023 (incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
10.31 |
|
Assignment of Deposit Account, dated December 11, 2023, between Signing Day Sports, Inc. and Commerce
Bank of Arizona (incorporated by reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
10.32 |
|
Common Stock Purchase Agreement, dated January 5, 2024, between Signing Day Sports, Inc. and Tumim
Stone Capital LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on January 8, 2024) |
10.33 |
|
Registration Rights Agreement, dated January 5, 2024, between Signing Day Sports, Inc. and Tumim
Stone Capital LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on January 8, 2024) |
16.1 |
|
Letter from Marcum LLP to the Securities and Exchange Commission dated June 30, 2023 (incorporated
by reference to Exhibit 16.1 to the Registration Statement on Form S-1/A filed on June 30, 2023) |
23.1 |
|
Consent of BARTON CPA |
23.2 |
|
Consent of Marcum LLP |
23.3 |
|
Consent of Bevilacqua PLLC (included in Exhibit 5.1) |
23.4 |
|
Consent of Scalar, LLC (incorporated by reference to Exhibit 23.4 to the Registration Statement on
Form S-1/A filed on August 1, 2023) |
24.1 |
|
Power of Attorney (included on the signature page of this registration statement) |
99.1 |
|
Audit Committee Charter (incorporated by reference to Exhibit 99.1 to the Registration Statement
on Form S-1 filed on May 15, 2023) |
99.2 |
|
Compensation Committee Charter (incorporated by reference to Exhibit 99.2 to the Registration Statement
on Form S-1 filed on May 15, 2023) |
99.3 |
|
Nominating and Corporate Governance Committee Charter (incorporated by reference to Exhibit 99.3
to the Registration Statement on Form S-1 filed on May 15, 2023) |
99.4 |
|
Code of Ethics and Business Conduct (incorporated by reference to Exhibit 14.1 to the Registration
Statement on Form S-1 filed on May 15, 2023) |
99.5 |
|
Signing Day Sports, Inc. Insider Trading Policy |
99.6 |
|
Signing Day Sports, Inc. Clawback Policy |
99.7 |
|
Disclosure Controls and Procedures Committee Charter |
107 |
|
Calculation of Filing Fee Table |
| † | Executive compensation plan or arrangement. |
| (b) | Financial Statement Schedules. |
All financial statement schedules are omitted
because the information called for is not required or is shown either in the financial statements or in the notes thereto.
Item 17. Undertakings
| (a) | The undersigned registrant hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: |
|
(i) |
To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the “Securities Act”); |
|
(ii) |
To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in this registration statement; notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and |
|
(iii) |
To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement or any material change to such information in this registration
statement. |
| (2) | That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the
Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to
be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no
statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use. |
| (5) | That, for the purpose of determining liability of the registrant under
the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes
that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser
by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating
to the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating
to the offering containing material information about the undersigned registrant or its securities provided by or
on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made
by the undersigned registrant to the purchaser. |
| (b) | Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of such issue. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale,
State of Arizona, on January 26, 2024.
|
Signing Day Sports, Inc. |
|
|
|
By: |
/s/ Daniel D. Nelson |
|
|
Daniel D. Nelson |
|
|
Chief Executive Officer |
POWER OF ATTORNEY
Each person whose signature appears below constitutes
and appoints each of Daniel D. Nelson and Damon Rich as his or her true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution, for him or her and his or her name, place and stead, in any and all capacities, to sign any or all amendments (including
pre- and post-effective amendments) to this registration statement, any subsequent registration statement for the same offering which
may be filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and pre- or post-effective amendments
thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the foregoing, as fully to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Daniel D. Nelson |
|
Chief Executive Officer
(principal executive officer), |
|
January 26, 2024 |
Daniel D. Nelson |
|
Chairman, and Director |
|
|
|
|
|
|
|
/s/ Damon Rich |
|
Interim Chief Financial
Officer (principal financial |
|
January 26, 2024 |
Damon Rich |
|
officer and principal accounting officer) |
|
|
|
|
|
|
|
/s/ Richard Symington |
|
President, Chief Technology Officer, and Director |
|
January 26,
2024 |
Richard Symington |
|
|
|
|
|
|
|
|
|
/s/ Greg Economou |
|
Director |
|
January 26, 2024 |
Greg Economou |
|
|
|
|
|
|
|
|
|
/s/ Glen Kim |
|
Director |
|
January 26, 2024 |
Glen Kim |
|
|
|
|
|
|
|
|
|
/s/ Roger Mason Jr. |
|
Director |
|
January 26, 2024 |
Roger Mason Jr. |
|
|
|
|
II-23
Exhibit 5.1
E: lou@bevilacquapllc.com
T: 202.869.0888
W: bevilacquapllc.com
January 26, 2024
Signing Day Sports, Inc.
8355 East Hartford Rd., Suite 100
Scottsdale, AZ 85255
Re: Securities Being Registered Under
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Signing Day Sports,
Inc., a Delaware corporation (the “Company”), in connection with a Registration Statement on Form S-1 (the “Registration
Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) under the Securities
Act of 1933, as amended (the “Securities Act”), relating to the registration under the Securities Act of the offer
and resale of up to 4,661,102 shares (the “Shares”) of the Company’s common stock, $0.0001 par value per share
(the “Common Stock”), to be sold by the selling stockholder named in the Registration Statement (the “Selling
Stockholder”).
In connection with the furnishing of this opinion,
we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents:
| (a) | the Registration Statement; |
| (b) | the Common Stock Purchase Agreement, dated January 5, 2024, between Signing Day Sports, Inc. and the Selling
Stockholder, filed as Exhibit 10.32 to the Registration Statement (the “Purchase Agreement”); |
| (c) | the Registration Rights Agreement, dated January 5, 2024, between Signing Day Sports, Inc. and the Selling
Stockholder, filed as Exhibit 10.33 to the Registration Statement; |
| (d) | the Amended and Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Registration
Statement; |
| (e) | the Second Amended and Restated Bylaws of the Company, filed as Exhibit 3.2 to the Registration Statement;
and |
| (f) | Amendment No. 1 to the Second Amended and Restated Bylaws of Signing Day Sports, Inc., filed as Exhibit
3.3 to the Registration Statement. |
We also have examined originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates of public officials, certificates
of officers or other representatives of the Company and others, and such other documents, certificates, and records as we have deemed
necessary or appropriate as a basis for the opinions set forth herein.
In rendering the opinions expressed herein, we
have, without independent inquiry or investigation, assumed (i) the legal capacity of all natural persons executing documents, (ii) the
genuineness of all signatures, (iii) the authenticity, accuracy and completeness of all documents submitted to us as originals and the
conformity to authentic original documents submitted to us as certified, conformed or reproduced copies. We have relied upon the accuracy
and completeness of the information, factual matters, representations, and warranties contained in such documents. We have also assumed
that the persons identified as officers of the Company are actually serving in such capacity and that the Registration Statement will
be declared effective by the Commission. In our examination of documents, we have assumed that the parties thereto (other than the Company)
had the power, corporate or other, to enter into and perform all obligations thereunder and the due authorization of all parties other
than the Company by all requisite action, corporate or other, the execution and delivery by all parties other than the Company of the
documents, and the validity and binding effect thereof on such parties other than the Company.
1050 Connecticut Ave., NW, Suite 500
Washington, DC 20036
PG. 2 |
|
January 26, 2024 |
Based upon our examination mentioned above, subject
to the assumptions stated and relying on statements of fact contained in the documents that we have examined, we are of the opinion that
the issuance of the Shares has been duly authorized and upon issuance in accordance with the terms of the Purchase Agreement, the Shares
will be validly issued, fully paid, and nonassessable.
Notwithstanding anything in this letter which
might be construed to the contrary, our opinion expressed herein is limited to the laws of the State of New York and the General Corporation
Law of the State of Delaware. We express no opinion with respect to the applicability to, or the effect on, the subject transactions of
the laws of any other jurisdiction or as to any matters of municipal law or the laws of any local agencies. The opinion expressed herein
is based upon the law of the State of New York and the General Corporation Law of the State of Delaware in effect on the date hereof and
as of the effective date of the Registration Statement, and we assume no obligation to revise or supplement this opinion after the effective
date of the Registration Statement should such law be changed by legislative action, judicial decision, or otherwise. Except as expressly
set forth in our opinion above: (i) we express no opinion as to whether the laws of any other jurisdiction are applicable to the subject
matter hereof and (ii) we express no opinion as to compliance with any other federal or state law, rule or regulation relating to securities,
or to the sale or issuance thereof.
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the reference to our firm appearing under the caption “Legal Matters” in
the prospectus that forms a part of the Registration Statement. In giving this consent, we do not hereby admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder.
|
Very truly yours, |
|
|
|
/s/ BEVILACQUA PLLC |
Exhibit 23.1
Certified Public Accountants
and Advisors
A PCAOB Registered Firm
713-489-5635 bartoncpafirm.com Cypress, Texas
Consent of Independent Registered Public Accounting
Firm
We consent to the use, in
this Registration Statement on Form S-1, of our report dated April 27, 2023, with respect to our audit of the financial statements of
Signing Day Sports, Inc. as of December 31, 2022, and for the year then ended, which includes an explanatory paragraph regarding substantial
doubt about its ability to continue as a going concern. We also consent to the reference to us under the heading “Experts”
in such Registration Statement.
Very truly yours,
/s/ BARTON CPA
BARTON CPA
Cypress, Texas
January 26, 2024
Exhibit 23.2
Independent
Registered Public Accounting Firm’s Consent
We consent to the inclusion in this Registration
Statement of Signing Day Sports, Inc. (the “Company”) on Form S-1, of our report dated January 24, 2023, which includes an
explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audit of the consolidated
financial statements of the Company as of December 31, 2021 and for the year then ended, which report appears in the Prospectus, which
is part of this Registration Statement. We resigned as auditors on March 6, 2023 and, accordingly, we have not performed any audit or
review procedures with respect to any financial statements appearing in such Prospectus for the periods after December 31, 2021. We also
consent to the reference to our Firm under the heading “Experts” in such Prospectus, which is part of this Registration Statement.
/s/ Marcum llp
Marcum llp
Saddle Brook, NJ
January 26, 2024
Exhibit 99.5
SIGNING DAY SPORTS,
INC.
INSIDER TRADING POLICY
This Insider Trading
Policy (this “Policy”) states the policy with respect to transactions in the securities of Signing Day Sports, Inc.
(the “Company”), and the handling of confidential information about the Company and the companies with which the Company
engages in transactions or does business. The Company’s Board of Directors has adopted this Policy to promote compliance with U.S.
federal, state and foreign securities laws that prohibit certain persons who are aware of material nonpublic information about a company
from (i) engaging in transactions in the securities of that company, or (ii) providing material nonpublic information to other persons
who may engage in transactions on the basis of that information. References to “you” or “your” refer to any person
to whom this Policy applies.
| 2. | PERSONS SUBJECT TO THE POLICY |
This Policy applies
to all members of the Company’s Board of Directors (collectively, “directors” and each, a “director”),
officers and key employees of the Company and its subsidiaries. A “key employee” is an individual that has been designated
as such by the Administrator due to their position in the Company and possible access to material nonpublic information. Key employees
generally include senior employees in human resources, accounting and finance functions, but may include other employees as designated
by the Administrator. The Company may also determine that other persons should be subject to this Policy, such as contractors or consultants
who have access to material nonpublic information about the Company. With respect to any person covered by this Policy, this Policy also
applies to that person’s family members, other members of that person’s household, and entities controlled by that person,
as described below under “Transactions by Family Members and Others” and “Transactions by Entities That You Influence
or Control.”
| 3. | TRANSACTIONS SUBJECT TO THE POLICY |
This Policy applies
to transactions in the Company’s securities (collectively, “Company Securities”), including the Company’s
common stock, restricted stock, options to purchase common stock, or any other type of security the Company may issue, including (but
not limited to) preferred stock, convertible debentures and warrants. In addition, this Policy applies to derivative securities that are
not issued by the Company but which relate to Company Securities, such as exchange-traded put or call options or swaps. Transactions subject
to this Policy include purchases, sales and bona fide gifts of Company Securities. This Policy similarly applies to transactions in or
relating to the securities of certain other companies with which the Company engages in transactions or does business.
| 4. | INDIVIDUAL RESPONSIBILITY |
Persons subject
to this Policy have ethical and legal obligations to maintain the confidentiality of information about the Company and to not engage
in transactions in Company Securities while in possession of material nonpublic information. Persons subject to this policy must not
engage in illegal trading and must avoid the appearance of improper trading. Each individual is responsible for making sure that he,
she or they complies with this Policy, and that any family member, household member or related entity whose transactions are subject
to this Policy, as discussed below, also comply with this Policy. In all cases, the responsibility for determining whether an individual
is in possession of material nonpublic information rests with that individual, and any action on the part of the Company, the Administrator
(as defined below) or any other employee, officer or directorpursuant to this Policy (or otherwise) does not in any way constitute legal
advice or insulate an individual from liability under applicable securities laws.You could be subject to severe legal penalties and disciplinary
action by the Company for any conduct prohibited by this Policy or applicable securities laws, as described below under “Consequences
of Violations.”
| 5. | ADMINISTRATION OF THE POLICY |
The “Administrator”
of this Policy is the Company’s Chief Operating Officer or such other individual designated by the Company’s Board of Directors
from time to time. All determinations and interpretations by the Administrator are final and not subject to further review.
| 6. | PRINCIPAL STATEMENT OF POLICY |
(a) Trading
in Company Securities and Disclosure of Nonpublic Information. No director, officer or key employee of the Company (or any other person
designated by this Policy or by the Administrator as subject to this Policy) who is aware of material nonpublic information relating to
the Company may, directly or indirectly through family members or other persons or entities:
(i) engage
in transactions in Company Securities, except as otherwise specified in this Policy under the heading “Limited Exceptions”;
(ii)
recommend that others engage in transactions in any Company Securities;
(iii) disclose
material nonpublic information to persons within the Company whose jobs do not require them to have that information, or to persons outside
of the Company, including, but not limited to, family, friends, business associates, investors and consultants, except as required in
the performance of regular corporate duties and only to the extent appropriate confidentiality protections are effective and the disclosure
conforms to Company policies; or
(iv)
assist anyone engaged in the above activities.
(b) Trading
in Securities of Other Companies. No director, officer or key employee of the Company (or any other person designated by this Policy
or by the Administrator as subject to this Policy) who, in the course of working for the Company, learns of material nonpublic information
about a company with which the Company does or intends to do business, including a distributor, customer, supplier, vendor, or service
provider of the Company, or otherwise involved in a potential transaction or business relationship with the Company, may engage in transactions
in that company’s securities until the information becomes public or is no longer material.
(c) No
Exceptions. There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable
for independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not excluded from this
Policy. The securities laws do not recognize any mitigating circumstances, and, in any event, even the appearance of an improper transaction
must be avoided to preserve the Company’s reputation for adhering to the highest standards of conduct.
| 7. | DEFINITION OF MATERIAL NONPUBLIC INFORMATION |
(a) Material
Information. Information is considered “material” if a reasonable investor would consider that information important
in making a decision to buy, hold or sell securities. Any information that could be expected to impact the Company’s
stock price, whether it is positive or negative, is considered material. There is no bright-line standard for assessing
materiality; rather, materiality is based on an assessment of all of the facts and circumstances, and is often evaluated by
enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information,
some examples of information that ordinarily would be regarded as material are:
| ● | operating or financial results or projections, including earnings
guidance; |
| ● | changes to previously announced earnings guidance, or downgrades
of the decision to suspend earnings guidance; |
| ● | analyst upgrades or downgrades of the Company or one of its
securities; |
| ● | corporate transactions, such as mergers, acquisitions, joint
ventures or restructurings; |
| ● | significant related party transactions; |
| ● | dividend, share repurchase or recapitalization matters; |
| ● | debt or equity financing matters; |
| ● | major marketing changes; |
| ● | gain or loss of a significant customer or supplier; |
| ● | a change in the Board of Directors or senior management; |
| ● | a change in auditors or notification that the auditor’s
reports may no longer be relied upon; |
| ● | a significant cybersecurity incident, such as a data breach,
or any other significant disruption in the Company’s operations or loss, potential loss, breach or unauthorized access of its property
or assets, whether at its facilities or through its information technology infrastructure; |
| ● | impending bankruptcy or the existence of severe liquidity
problems; |
| ● | litigation or regulatory proceedings and investigations; |
| ● | the imposition of a ban or restriction on trading in Company
Securities or other securities; |
| ● | intellectual property and other proprietary information; and |
| ● | significant corporate developments, including with respect
to research and development activities. |
(b) Nonpublic
Information. Information is considered “nonpublic” if that information has not been broadly disclosed to the marketplace,
such as by press release or a filing with the U.S. Securities and Exchange Commission (the “SEC”), and/or the investing
public has not had time to fully absorb that information. Nonpublic information may include:
| ● | information available to a select group of persons subject
to confidentiality obligations to the Company; |
| ● | undisclosed facts that are the subject of rumors, even if
the rumors are widely circulated; and |
| ● | information that has been entrusted to the Company on a confidential
basis. |
As a general rule,
information should not be considered fully absorbed by the investing public until the second full business day after the day on which
the information is released. If, for example, the Company makes an announcement at 9:00 a.m. Eastern Time on Monday, a person subject
to this Policy should not engage in transactions in Company Securities until the market opens on Wednesday. If such an announcement were
made at 6:00 p.m. Eastern Time on Monday, the person subject to this Policy should not engage in transactions in Company Securities until
the market opens on Thursday. Depending on the particular circumstances, the Company may determine that a longer or shorter period should
apply.
| 8. | TRANSACTIONS BY FAMILY MEMBERS AND OTHERS |
This Policy
applies to your family members who reside with you (including a spouse, a child, a child away at college, stepchildren,
grandchildren, parents, stepparents, grandparents, siblings and in-laws), anyone else who lives in your household and any family
members who do not live in your household but whose transactions in Company Securities are directed by you or are subject to your
influence or control, such as parents or children who consult with you before they engage in transactions in Company Securities
(collectively, “Family Members”). You are responsible for the transactions of your Family Members and therefore
should make them aware of the need to confer with you before they engage in transactions in Company Securities, and you should treat
all such transactions for the purposes of this Policy and applicable securities laws as if the transactions were for your own
account. This Policy does not, however, apply to personal securities transactions of Family Members where the transaction decision
is made by a third party not controlled by, influenced by or related to you or your Family Members.
| 9. | TRANSACTIONS BY ENTITIES THAT YOU INFLUENCE OR CONTROL |
This Policy applies
to any entities that you influence or control, including any corporations, partnerships or trusts (collectively, “Controlled
Entities”), and transactions by these Controlled Entities should be treated for the purposes of this Policy and applicable securities
laws as if they were for your own account.
This Policy does
not apply in the case of the following transactions (although these transactions may nevertheless be subject to the requirements of Section
16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), applicable to directors and officers (as
defined by Rule 16a-l under the Exchange Act (“Rule 16a-1”)):
(a) Stock
Option Exercises. This Policy does not apply generally to the exercise of an employee stock option, including a cashless exercise
solely through the Company or the exercise of a tax withholding right through the Company to satisfy tax withholding requirements. However,
this Policy does apply to any sale of stock received upon exercise of an option, including any deemed sale caused by an election to make
a cashless exercise through a broker, or any other market sale for the purpose of generating the cash necessary to pay the option exercise
price.
(b) Restricted
Stock Awards. This Policy does not apply to the vesting of restricted stock, or the exercise of a tax withholding right pursuant to
which you elect to have the Company withhold shares of stock to satisfy tax withholding requirements upon the vesting of any restricted
stock. The Policy does apply, however, to any market sale of restricted stock.
(c) 401(k)
Plan. This Policy does not apply to purchases of Company Securities in a 401(k) plan resulting from periodic contribution of money
to the plan pursuant to payroll deduction election. This Policy does apply, however, to certain elections you may make under a 401(k)
plan, including: (i) an election to increase or decrease the percentage of periodic contributions that will be allocated to any Company
Securities fund; (ii) an election to make an intra-plan transfer of an existing account balance into or out of any Company Securities
fund; (iii) an election to borrow money against a 401(k) plan account if the loan will result in a liquidation of some or all of any Company
Securities fund balance; and (iv) an election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to
any Company Securities fund. It should be noted that sales of Company Securities from a 401(k) account are also subject to Rule 144, and
therefore affiliates should ensure that a Form 144 is filed when required.
(d) Employee
Stock Purchase Plan. This Policy does not apply to purchases of Company Securities in an employee stock purchase plan resulting from
periodic contribution of money to the plan pursuant to the election made at the time of enrollment in the plan. This Policy also does
not apply to purchases of Company Securities resulting from lump sum contributions to such plan, provided that it is elected to participate
by lump sum payment at the beginning of the applicable enrollment period. This Policy does apply, however, to an election to participate
in such plan for any enrollment period, and to sales of Company Securities purchased pursuant to the plan.
(e) Dividend
Reinvestment Plan. This Policy does not apply to purchases of Company Securities under a dividend reinvestment plan resulting from
reinvestment of dividends paid on Company Securities. This Policy does apply, however, to voluntary purchases of Company Securities resulting
from additional contributions chosen to make to a dividend reinvestment plan, and to an election to participate in the plan or increase
the level of participation in the plan. This Policy also applies to the sale of any Company Securities purchased pursuant to such plan.
(f) Other
Similar Transactions. Any other purchase of Company Securities from the Company or sales of Company Securities to the Company are
not subject to this Policy.
(g) Rule 10b5-1
Plans. Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”) provides a defense from insider trading liability
under Rule 10b-5 under the Exchange Act (“Rule 10b-5”). In order to be eligible to rely on this defense, a person
subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company Securities that meets certain conditions
specified in the Rule (a “Rule 10b5-1 Plan”). If the plan meets the requirements of Rule 10b5-1, Company
Securities may be traded without regard to certain insider trading restrictions. To comply with this Policy, a Rule 10b5-1 Plan must
be approved by the Administrator and meet the requirements of Rule 10b5-1 and the Company’s “Guidelines for Rule 10b5-1
Plans,” which are set forth in Appendix 10(b) to this Policy. In general, to ensure that a Rule 10b5-1 Plan is entered
into at a time when the person entering into the plan is not aware of material nonpublic information, it must be entered into during
an Open Trading Window. Once the Rule 10b5-1 Plan is adopted, the person must not exercise any influence over the amount of
securities to be traded, the price at which they are to be traded or the date of the trade. The Rule 10b5-1 Plan must either specify
the amount, pricing and timing of transactions in advance or delegate discretion on these matters to an independent third party. The
Rule 10b5-1 Plan must include a cooling-off period before trading can commence that, for directors or officers, ends on the later of
90 days after the adoption of the Rule 10b5-1 Plan or two business days following the disclosure of the Company’s financial
results in an SEC periodic report for the fiscal quarter in which the Rule 10b5-1 Plan was adopted (but in any event, the required
cooling-off period is subject to a maximum of 120 days after adoption of the Rule 10b5-1 Plan), and for persons other than directors
or officers, 30 days following the adoption or modification of a Rule 10b5-1 Plan. A person may not enter into overlapping Rule
10b5-1 Plans (subject to certain exceptions) and may only enter into one single-trade Rule 10b5-1 Plan during any 12-month period
(subject to certain exceptions). Directors and officers must include a representation in their Rule 10b5-1 Plan certifying that: (i)
they are not aware of any material nonpublic information; and (ii) they are adopting the plan in good faith and not as part of a
plan or scheme to evade the prohibitions in Rule 10b-5. All persons entering into a Rule 10b5-1 Plan must act in good faith with
respect to that plan. Any Rule 10b5-1 Plan must be submitted for approval at least five business days prior to the entry into the
Rule 10b5-1 Plan. No further pre-approval of transactions conducted pursuantto the Rule 10b5-1 Plan will be required.
| 11. | SPECIAL AND PROHIBITED TRANSACTIONS |
The Company has
determined that there is a heightened legal risk and/or the appearance of improper or inappropriate conduct if the persons subject to
this Policy engage in certain types of transactions. Therefore, it is the Company’s policy that any persons covered by this Policy
may not engage in any of the following transactions, or should otherwise consider the Company’s preferences as described below:
(a)
Short-Term Trading. Short-term trading of Company Securities may be distracting to the person and may unduly focus the person on
the Company’s short-term stock market performance instead of the Company’s long-term business objectives. For these
reasons, all persons subject to this Policy who purchase Company Securities in the open market are discouraged from selling any
Company Securities of the same class during the six months following the purchase (or vice versa). Furthermore, such short-term
trading by directors or officers (as defined by Rule 16a-1) may result in short-swing profit liability under Section 16(b) of the
Exchange Act.
(b) Short
Sales. Short sales of Company Securities (i.e., the sale of a security that the seller does not own) may evidence an expectation on
the part of the seller that the securities will decline in value, and therefore have the potential to signal to the market that the seller
lacks confidence in the Company’s prospects. In addition, short sales may reduce a seller’s incentive to seek to improve the
Company’s performance. For these reasons, short sales of Company Securities are prohibited. Furthermore, Section 16(c) of the Exchange
Act prohibits directors and officers (as defined by Rule 16a-1) from engaging in short sales. Short sales arising from certain types of
hedging transactions are subject to the paragraph below captioned “Hedging Transactions.”
(c) Publicly-Traded
Options. Given the relatively short term of publicly-traded options, transactions in options may create the appearance that a director,
officer or key employee is trading based on material nonpublic information and focus that director’s, officer’s or employee’s
attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly, transactions in put options,
call options or other derivative securities, on an exchange or in any other organized market, are prohibited by this Policy. Option positions
arising from certain types of hedging transactions are governed by the paragraph below captioned “Hedging Transactions.”
(d) Hedging
Transactions. Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through
the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. Such hedging transactions
may permit a director, officer or key employee to continue to own Company Securities obtained through employee benefit plans or otherwise,
but without the full risks and rewards of ownership. When that occurs, the director, officer or key employee may no longer have the same
objectives as the Company’s other stockholders. Therefore, directors, officers and key employees are prohibited from engaging in
any such transactions.
(e) Margin
Accounts and Pledged Securities. Securities held in a margin account as collateral for a margin loan may be sold by the broker without
the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral
for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a time
when the pledgor is aware of material nonpublic information or otherwise is not permitted to engage in transactions in Company Securities,
directors, officers and key employees are prohibited from holding Company Securities in a margin account or otherwise pledging Company
Securities as collateral for a loan unless the arrangement is specifically approved in advance by the Administrator. Any person seeking
an exception must submit a request for approval to the Administrator at least two weeks prior to the transaction. Pledges of Company Securities
arising from certain types of hedging transactions are governed by the paragraph above captioned “Hedging Transactions.”
(f) Standing
and Limit Orders. Standing and limit orders (except standing and limit orders under approved Rule 10b5-1 Plans, as described above)
create heightened risks for insider trading violations similar to the use of margin accounts. There is no control over the timing of purchases
or sales that result from standing instructions to a broker, and as a result the broker could execute a transaction when a director, officer
or key employee is in possession of material nonpublic information. The Company therefore discourages placing standing or limit orders
on Company Securities. If a person subject to this Policy determines that they must use a standing order or limit order, the order should
be limited to short duration and should otherwise comply with the restrictions and procedures outlined below under the heading “Additional
Procedures.”
The Company has
established additional procedures in order to assist the Company in the administration of this Policy, to facilitate compliance with laws
prohibiting insider trading while in possession of material nonpublic information, and to avoid the appearance of any impropriety. These
additional procedures are applicable only to those individuals described below.
(a) Pre-Clearance
Procedures. All directors, officers and key employees of the Company and its subsidiaries, as well as the Family Members and Controlled
Entities of such persons (“Restricted Persons”), may not engage in any transaction in Company Securities
without first obtaining pre-clearance of the transaction from the Administrator. The list of Restricted Persons is updated periodically
by the Administrator. You will be notified by the Administrator if you are considered a Restricted Person for purposes of this Policy.
Restricted Persons should submit a request for pre-clearance to the Administrator at least two business days in advance of the proposed
transaction. The Administrator is under no obligation to approve a transaction submitted for pre-clearance and may determine not
to permit the transaction. If the Administrator wishes to transact in Company Securities, the Administrator should submit any request
for pre-clearance to the Chief Executive Officer or such other individual designated by the Company’s Board of Directors from time
to time. If a Restricted Person seeks pre-clearance and permission to engage in the transaction is denied, then he, she or they should
refrain from initiating any transaction in Company Securities and should not inform any other person of the restriction.
When a request for
pre-clearance is made, the requestor should carefully consider whether he, she or they may be aware of any material nonpublic information
about the Company and should describe fully those circumstances to the Administrator. The requestor should also indicate whether he, she
or they has effected any non-exempt “opposite-way” transactions (e.g., an open market sale would be “opposite”
any open market purchase, and vice versa) within the past six months, and should be prepared to report the proposed transaction on an
appropriate Form 4 or Form 5. The requestor should also be prepared to comply with SEC Rule 144 and file Form 144, if necessary, at the
time of any sale.
A request for pre-clearance
must be made in writing, preferably by submission of a completed Request for Pre-Clearance in the form of EXHIBIT A to this Policy.
Pre-cleared transactions should be effected promptly. Requestors are required to refresh the request for pre-clearance if a pre-cleared
transaction is not effected within five business days after pre-clearance is received.
Furthermore,
requestors must immediately notify the Administrator following the execution of any transaction.
(b) Quarterly
Trading Restrictions. Restricted Persons, as well as their Family Members and Controlled Entities, may not conduct transactions involving
the Company’s Securities (other than as specified by this Policy) except during an Open Trading Window. An “Open Trading
Window” generally begins on the second business day following the day of public release of the Company’s quarterly (or
annual) earnings and ends on the last day of the then-current quarter. The Administrator will notify Restricted Persons of the opening
and closing of the trading window.
(c) Event-Specific
Trading Restriction Periods. From time to time, an event may occur that is material to the Company and is known by only a few
Restricted Persons. So long as the event remains material and nonpublic, the persons designated by the Administrator may not engage
in transactions in Company Securities. In addition, the Company’s financial results may be sufficiently material in a
particular fiscal quarter that, in the judgment of the Administrator, designated persons should refrain from trading in Company
Securities even during the ordinary Open Trading Window described above. In that situation, the Administrator may notify these
persons that they should not engage in transactions in the Company’s Securities, without disclosing the reason for the
restriction. The existence of an event-specific trading restriction period or the closing of the Open Trading Window will be
announced by the Administrator to persons designated by the Administrator. Even if the Administrator has not designated you a
person who should not trade due to an event-specific trading restriction, you may not trade while aware of material nonpublic
information. Exceptions will not be granted during an event-specific trading restriction period.
(d)
Exceptions.
(i) The
quarterly trading restrictions and event-driven trading restrictions do not apply to those transactions to which this Policy does not
apply, as described above under the heading “Limited Exceptions,” nor do they apply to an election to participate in an employer
plan during an open enrollment period.
(ii) The
Administrator in his, her or their discretion may approve other or further exceptions to these requirements on a case-by-case basis in
extraordinary circumstances. Any request for an exception pursuant to this paragraph must be submitted in advance and in writing, and
any approval must be in writing.
| 13. | POST-TERMINATION TRANSACTIONS |
This Policy continues
to apply to transactions in Company Securities even after termination of service to the Company. If an individual is in possession of
material nonpublic information when his, her or their service terminates, that individual may not engage in transactions in Company Securities
until that information has become public or is no longer material. The pre-clearance procedures specified under the heading “Additional
Procedures” above and applicable to directors and certain executives will continue to apply for a period of six months after a termination
of service, in order to facilitate compliance with Section 16 of the Exchange Act.
| 14. | CONSEQUENCES OF VIOLATIONS |
Engaging in transactions
in securities while aware of material nonpublic information, or the disclosure of material nonpublic information to others who then engage
in transactions in the Company’s Securities, is prohibited by federal and state laws. Insider trading violations are pursued vigorously
by the SEC, the U.S. Department of Justice and state enforcement authorities, as well as enforcement authorities in foreign jurisdictions.
Punishment for insider trading violations is severe and could include significant fines and imprisonment. While the regulatory authorities
concentrate their efforts on the individuals who trade, or who tip inside information to others who trade, the federal securities laws
also impose potential liability on companies and other “controlling persons” if they fail to take reasonable steps to prevent
insider trading by company personnel.
In addition, an
individual’s failure to comply with this Policy may subject the individual to Company-imposed sanctions, up to and including termination
of employment, whether or not the individual’s failure to comply results in a violation of law. Needless to say, a violation of
law, or even an SEC investigation that does not result in prosecution, can tarnish a person’s reputation and irreparably damage
a career.
| 15. | REPORTING OF VIOLATIONS |
Any person who violates
this Policy or any federal or state law governing insider trading or tipping, or who knows of or reasonably suspects any such
violation by another person, should report the matter immediately to his, her or their supervisor and/or to the Administrator
identified in Section 5. Company personnel subject to this Policy are obligated to report suspected and actual violations of Company
policy or the law. Doing so brings the concern into the open so that it can be resolved quickly and more serious harm can be
prevented. Failure to do so could result in disciplinary action up to and including termination of employment.
If you encounter
a situation or are considering a course of action and its appropriateness is unclear, do not hesitate to reach out to the Administrator
with any questions; even the appearance of impropriety can be very damaging and should be avoided, and the Administrator may be in the
best position to provide helpful information or other resources.
All persons subject
to this Policy may be required to certify and re-certify, from time to time, their understanding of, and intent to comply with, this Policy.
This Policy may
be amended by the Board of Directors or any committee or designee to which the Board of Directors delegates this authority.
The Administrator
has the authority to make determinations under, and interpretations of, this Policy, as specified in this Policy under the heading “Administration
of the Policy.” In addition, the Administrator is authorized to approve amendments to this Policy that: (i) correct obvious errors
(e.g., typographical or grammatical errors); (ii) are necessitated by changes in legal requirements; (iii) are necessary to clarify the
meaning of this Policy; or (iv) are administrative in nature, such as the provisions of this Policy under the heading “Additional
Procedures.”
Effective: November
2, 2023
Appendix 10(b)
Guidelines for Rule 10b5-1 Plans⁎
Rule 10b5-1 under
the Exchange Act provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely on this defense,
a person subject to our Insider Trading Policy must enter into a Rule 10b5-1 Plan for transactions in Company Securities (as defined in
the Insider Trading Policy) that meets certain conditions specified in the Rule. If the plan meets the requirements of Rule 10b5- 1, Company
Securities may occur even when the person who has entered into the plan is aware of material nonpublic information. In general, a Rule
10b5-1 Plan must be entered into at a time when the person entering into the plan is not aware of material nonpublic information. Once
the plan is adopted, the person must not exercise any influence over the amount of securities to be traded, the price at which they are
to be traded or the date of the trade. The plan must either specify the amount, pricing and timing of transactions in advance or delegate
discretion on these matters to an independent third party.
A Rule 10b5-1 Plan
must include a cooling-off period before trading can commence that, for directors or officers, ends on the later of 90 days after the
adoption of the Rule 10b5-1 Plan or two business days following the disclosure of the Company’s financial results in an SEC periodic
report for the fiscal quarter in which the plan was adopted (but in any event, the required cooling- off period is subject to a maximum
of 120 days after adoption of the plan), and for persons other than directors or officers, 30 days following the adoption or modification
of a Rule 10b5-1 Plan. A person may not enter into overlapping Rule 10b5-1 Plans (subject to certain exceptions) and may only enter into
one single-trade Rule 10b5-1 Plan during any 12-month period (subject to certain exceptions). Directors and officers must include a representation
in their Rule 10b5-1 Plan certifying that: (i) they are not aware of any material nonpublic information; and (ii) they are adopting the
plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5. All persons entering into a Rule 10b5-1
Plan must act in good faith with respect to that plan.
As specified in
the Company’s Insider Trading Policy, a Rule 10b5-1 Plan must be approved by the Administrator and meet the requirements of Rule
10b5-1 and these guidelines. Any Rule 10b5-1 Plan must be submitted for approval at least five business days prior to theentry into the
Rule 10b5-1 Plan. Once a 10b5-1 Plan is approved, no further pre-approval of transactions conducted pursuant to the plan will be required.
The following guidelines
apply to all Rule 10b5-1 Plans:
| ● | You may not enter into, modify or terminate a Rule 10b5-1
Plan outside of an Open Trading Window or while in possession of material nonpublic information. |
| ● | All Rule 10b5-1 Plans must have a duration of at least six
months and no more than two years. |
| ● | For officers and directors, no transaction may take place
under a Rule 10b5-1 Plan until the later of (a) 90 days after adoption or modification (as specified in Rule 10b5-1) of the Rule 10b5-1
Plan or (b) two business days following the disclosure of the Company’s financial results in a Form 10-Q or Form 10-K for the fiscal
quarter (the Company’s fourth fiscal quarter in the case of a Form 10-K) in which the Rule 10b5-1 Plan was adopted or modified
(as specified in Rule 10b5-1). In any event, the cooling-off period is subject to a maximum of 120 days after adoption of the plan. |
| ● | For persons other than officers and directors, no transaction
may take place under a Rule 10b5-1 Plan until 30 days following the adoption or modification (as specified in Rule 10b5-1) of a Rule
10b5-1 Plan. |
| ● | Subject to certain limited exceptions specified in Rule 10b5-1,
you may not enter into more than one Rule 10b5-1 Plan at the same time; |
| ● | Subject to certain limited exceptions specified in Rule 10b5-1,
you are limited to only one Rule 10b5-1 Plan designed to effect an open market purchase or sale of the total amount of securities subject
to the Rule 10b-1 Plan as a single transaction in any 12- month period; |
| ● | You must act in good faith with respect to a Rule 10b5-1 Plan.
A Rule 10b5-1 Plan cannot be entered into as part of a plan or scheme to evade the prohibition of Rule 10b-5. Therefore, although modifications
to an existing Rule 10b5-1 Plan are not prohibited, a Rule 10b5-1 Plan should be adopted with the intention that it will not be amended
or terminated prior to its expiration. |
| ● | Officer and directors must include a representation to the
Company at the time of adoption or modification of a Rule 10b5-1 Plan that (i) the person is not aware of material nonpublic information
about the Company or Company Securities and (ii) the person is adopting the plan in good faith and not as part of plan or scheme to evade
the prohibitions of Rule 10b-5. |
| ● | You may not enter into any transaction in Company Securities
while the Rule 10b5-1 Plan is in effect. |
The Company and
the Company’s officers and directors must make certain disclosures in SEC filings concerning Rule 10b5-1 Plans. Officers and directors
of the Company must undertake to provide any information requested by the Company regarding Rule 10b5-1 Plans for the purpose of providing
the required disclosures or any other disclosures that the Company deems to be appropriate under the circumstances.
The approval or
adoption of a Rule 10b5-1 Plan in no way reduces or eliminates a person’s obligations under Section 16 of the Exchange Act, including
disclosure obligations and liability for short- swing profits. Persons subject to Section 16 of the Exchange Act should consult with their
own counsel in implementing a Rule 10b5-1 Plan.
| ⁎ | Capitalized terms used but not defined herein have the meanings
ascribed to them in the Signing Day Sports, Inc. Insider Trading Policy. |
Exhibit A
Request for Pre-Clearance⁎
For pre-clearance to transact in Company
Securities.
Upon executing a transaction, directors, officers and
key employees must immediately notify the Company.
Transaction Vehicle (check one) |
Transaction Initiated By (check one) |
☐ Open Market Transaction |
☐ Employee or immediate family member
directly |
☐ Equity Compensation Plan |
☐ Court or government decree (e.g., divorce
decree) |
☐ Other (specify): |
☐ Broker (provide name, firm, telephone and
e-mail): |
Type of Transaction (check one) |
|
☐ Purchase or acquire common stock |
|
☐ Sell or dispose of common stock |
|
☐ Move Company Securities from one
account to another (e.g., in or out of a trust) |
☐ Dispose of fractional shares |
|
☐ Pledge Company Securities for
margin account, or otherwise |
☐ Exercise options without subsequent
sale |
|
☐ Exercise options with subsequent
sale (e.g., a “cashless exercise”) |
☐ Gift of Company Securities |
|
Other (describe): __________________________ |
|
Transaction Detail (provide the following information) |
Number of securities: _________________________ |
|
Estimated share price: ________________________ |
|
Contemplated execution date: __________________ |
|
Date of your last “opposite
way” transaction⁎⁎: _____________________________________________________ |
Certification
I certify that I have fully disclosed
the information requested in this form, I have read the Signing Day Sports, Inc. Insider Trading Policy, I am not in possession of material
nonpublic information, and to the best of my knowledge and belief the proposed transaction will not violate the Signing Day Sports, Inc.
Insider Trading Policy.
|
|
|
(Sign Above) |
|
|
|
|
|
(Print Name Above) |
|
|
|
|
|
(Date) |
| ⁎ | Capitalized terms used but not defined herein have the meanings
ascribed to them in the Signing Day Sports, Inc. Insider Trading Policy. |
| ⁎⁎ | If
a Section 16 insider buys and sells (or sells and buys) Company Securities within a six-month
time frame and such transactions are not exempt under SEC rules, the two transactions can
be “matched” for purposes of Section 16. The insider may be sued and will be
strictly liable for any profits made, regardless of whether the insider was in possession
of material nonpublic information. |
Exhibit 99.6
SIGNING DAY SPORTS, INC.
CLAWBACK POLICY
In accordance
with the applicable rules of the NYSE American LLC Company Guide (the “NYSE American Rules”), Section 10D and Rule
10D-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 10D-1”), the
Board of Directors (the “Board”) of Signing Day Sports, Inc. (the “Company”) has adopted this Policy
(the “Policy”) to provide for the recovery of erroneously awarded Incentive-based Compensation from Executive Officers.
All capitalized terms used and not otherwise defined herein shall have the meanings set forth in Section H, below.
B. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION |
(1) In
the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded Compensation Received in
accordance with the NYSE American Rules and Rule 10D-1 as follows:
| (i) | After an Accounting Restatement, the Compensation Committee of the Board (the “Committee”)
shall determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall promptly notify each Executive
Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such
compensation, as applicable. |
| (a) | For Incentive-based Compensation based on (or derived from) the Company’s
stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation
directly from the information in the applicable Accounting Restatement: |
| i. | The amount to be repaid or returned shall be determined by the Committee based
on a reasonable estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder return upon
which the Incentive- based Compensation was Received; and |
| ii. | The Company shall maintain documentation of the determination of such reasonable
estimate and provide the relevant documentation as required to the NYSE American. |
| (ii) | The Committee shall have discretion to determine the appropriate means of recovering
Erroneously Awarded Compensation based on the particular facts and circumstances. Notwithstanding the foregoing, except as set forth in
Section B(2) below, in no event may the Company accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction
of an Executive Officer’s obligations hereunder. |
| (iii) | To the extent that the Executive Officer has already reimbursed the Company for
any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law,
it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject
to recovery under this Policy. |
| (iv) | To the extent that an Executive Officer fails to repay all Erroneously Awarded
Compensation to the Company when due, the Company shall take all actions reasonable and appropriate to recover such Erroneously Awarded
Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company for any
and all expenses reasonably incurred (including legal fees) by the Company in recovering such Erroneously Awarded Compensation in accordance with the
immediately preceding sentence. |
(2) Notwithstanding
anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section B(1) above if the Committee
determines that recovery would be impracticable and any of the following two conditions are met:
| (i) | The Committee has determined that the direct expenses paid to a third party to assist
in enforcing the Policy would exceed the amount to be recovered. Before making this determination, the Company must make a reasonable
attempt to recover the Erroneously Awarded Compensation, document such attempt(s) and provide such documentation to the NYSE American; |
| (ii) | Recovery would likely cause an otherwise tax-qualified retirement plan, under which
benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of
the Internal Revenue Code of 1986, as amended, and regulations thereunder. |
C. | DISCLOSURE REQUIREMENTS |
The Company
shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange Commission (“SEC”)
filings and rules.
D. | PROHIBITION OF INDEMNIFICATION |
The
Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously Awarded
Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the
Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts
any Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or
that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such
agreement (whether entered into before, on or after the Effective Date of this Policy). It is hereby acknowledged that Rule
10D-1(b)(1)(v) and Section 811 of the NYSE American Rules provide that the Company is prohibited from indemnifying any executive
officer or former executive officer against the loss of erroneously awarded compensation. It is therefore acknowledged that such
indemnification is prohibited by applicable law for all purposes, including any and all such agreements.
E. | ADMINISTRATION AND INTERPRETATION |
This Policy
shall be administered by the Committee, and any determinations made by the Committee shall be final and binding on all affected individuals.
The Committee
is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration
of this Policy and for the Company’s compliance with the NYSE American Rules, Section 10D, Rule 10D-1 and any other applicable law,
regulation, rule or interpretation of the SEC or NYSE American promulgated or issued in connection therewith.
The Committee
may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything
in this Section F to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would
(after taking into account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to
violate any federal securities laws, SEC rule or NYSE American rules.
This
Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance
from the SEC or NYSE American, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee
intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award
agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a
condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any
right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be
available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any
provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
For purposes of this Policy, the following capitalized terms
shall have the meanings set forth below.
(1)
“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously
issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that
would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a
“little r” restatement).
(2)
“Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive Officer
(i) on or after the effective date of the applicable NYSE American rules, (ii) after beginning service as an Executive Officer, (iii)
who served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation
(whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company),
(iv) while the Company has a class of securities listed on a national securities exchange or a national securities association, and (v)
during the applicable Clawback Period (as defined below).
(3)
“Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company
immediately preceding the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition period of less
than nine months within or immediately following those three completed fiscal years.
(4)
“Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting
Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based Compensation that otherwise
would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.
(5)
“Executive Officer” means each individual who is currently or was previously designated as an “officer”
of the Company as defined in Rule 16a-1(f) under the Exchange Act. For the avoidance of doubt, the identification of an executive officer
for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or
Item 6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no
principal accounting officer, the controller).
(6)
“Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part from
such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total
shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a Financial
Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
(7)
“Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon
the attainment of a Financial Reporting Measure.
(8)
“NYSE American” means NYSE American LLC.
(9)
“Received” means, with respect to any Incentive-based Compensation, actual or deemedr eceipt, and Incentive-based
Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in
the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive
Officer occurs after the end of that period.
(10)
“Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board or the officers
of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the
Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs
the Company to prepare an Accounting Restatement.
Effective as of November 2, 2023
Page | 4
Exhibit 99.7
SIGNING DAY SPORTS, INC.
DISCLOSURE CONTROLS AND PROCEDURES
COMMITTEE CHARTER
Disclosure Policy
All financial and other disclosures
made by Signing Day Sports, Inc. (the “Company”) to its security holders or the investment community should (i) be accurate,
complete and timely, (ii) fairly present, in all material respects, the Company’s financial condition, results of operations and
cash flows, and (iii) meet any other legal, regulatory or stock exchange requirements.
Committee
Purpose
The Company’s Disclosure Controls
and Procedures Committee (the “Committee”) shall assist the Company’s officers and directors (collectively, the “Senior
Officers”) in fulfilling the Company’s and their responsibilities regarding (i) the identification and disclosure of material
information about the Company and (ii) the accuracy, completeness and timeliness of the Company’s reports under the Securities Exchange
Act of 1934, as amended, and the rules of NYSE American LLC.
Responsibilities
Subject to the supervision and oversight of the Senior Officers,
the Committee shall be responsible for the following tasks:
| ● | Review and, as necessary, help revise the Company’s controls and other procedures (“Disclosure Controls and Procedures”)
to ensure that (i) information required to be disclosed by the Company in reports filed with or submitted to the Securities and Exchange
Commission (the “SEC”), and other written information that the Company will disclose to the public is recorded, processed,
summarized and reported accurately and on a timely basis, and (ii) such information is accumulated and communicated to management, including
the Senior Officers, as appropriate to allow timely decisions regarding required disclosure. |
| ● | Assist in documenting, and monitoring the integrity and evaluating the effectiveness of, the Disclosure Controls and Procedures. |
| ● | Review the Company’s (i) Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, proxy
statement, registration statements, and any other information filed with the SEC (collectively, the “Reports”), (ii) press
releases containing financial information, earnings guidance, forward-looking statements, information about material transactions, or
other information material to the Company’s security holders, (iii) correspondence broadly disseminated to stockholders, and (iv)
other relevant communications or presentations (collectively, the “Disclosure Statements”). |
| ● | Discuss information relative to the Committee’s responsibilities and proceedings, including (i) the preparation of the Disclosure
Statements and (ii) the evaluation of the effectiveness of the Disclosure Controls and Procedures. |
Other
Responsibilities
The Committee shall have such other responsibilities, consistent
with the Committee’s purpose, as any of the Senior Officers may assign to it from time to time.
Disclosure
Control Considerations
The Committee shall base the review and revision of the Disclosure
Controls and Procedures on the following factors:
| ● | Control Environment: The directives of the Board of Directors and Audit Committee; the integrity and ethical values of the
Company’s officers and employees, including the “tone at the top”; the Company’s Code of Ethics and Business Conduct;
and the philosophy and operating style of management, including how employees are organized and how authority is delegated. |
| ● | Risk Assessment: The identification and analysis of relevant risks to achieving the goal of accurate and timely disclosure,
forming a basis for determining how the risks should be managed. |
| ● | Control Activities: The procedures to ensure that necessary actions are taken to address and handle risks to achievement of
objectives. |
| ● | Information and Communication: The accumulation, delivery and communication of information required to be disclosed by the
Company throughout (i.e., up, down and across) the organization. |
| ● | Monitoring: The assessment of the quality of the information reporting systems over time through ongoing monitoring and separate
evaluations, including through regular management supervision and reporting of deficiencies upstream. |
Organization
The members of the Committee will be
comprised of the Company’s officers and directors.
The Committee may designate two or more
individuals, at least one of whom shall be knowledgeable about financial reporting and another about applicable legal requirements regarding
all information required to be disclosed by the Company in the Reports, who can, acting together, review Disclosure Statements when time
does not permit full Committee review.
The Senior Officers at their option
may, at any time and from time to time, assume any or all of the responsibilities of the Disclosure Committee identified in this Charter,
including, for example, approving Disclosure Statements when time does not permit the full Committee (or the designated individuals) to
meet or act.
Chair
The Chief Operating Officer of the Company shall act as the
Chair of the Committee (unless and until another member of the Committee shall be so appointed by any of the Senior Officers).
Meetings
and Procedures
The Committee shall meet or act as frequently
and as formally or informally as circumstances dictate to (i) ensure the accuracy, completeness and timeliness of the Disclosure Statements
and (ii) evaluate the Disclosure Controls and Procedures and determine whether any changes to the Disclosure Controls and Procedures are
necessary or advisable in connection with the preparation of the Reports or other Disclosure Statements, taking into account developments
since the most recent evaluation, including material changes in the Company’s organization and business lines and any material change
in economic or industry conditions.
The Committee shall adopt, whether formally
or informally, such procedures as it deems necessary to facilitate the fulfillment of its responsibilities.
Full
Access
The Committee shall have full access to all of the Company’s
books, records, assets, facilities and personnel, including any internal auditors, in connection with fulfilling its responsibilities.
Charter
Review
The Committee shall review and assess this Charter annually,
and recommend any proposed changes to the Senior Officers for approval.
Interpretation
Any questions of interpretation regarding this Charter,
or the Committee’s responsibilities or procedures, shall be determined initially by the Chair and, to the extent necessary, ultimately
by the Senior Officers.
Adopted by the Board of Directors on January 25, 2024.
3
Exhibit 107
Calculation of Filing Fee Table
Signing
Day Sports, Inc. |
(Exact Name of Registrant as Specified in its Charter) |
Table 1: Newly Registered
and Carry Forward Securities
| |
Security Type | |
Security Class Title | |
Fee Calculation
or Carry
Forward Rule | |
Amount
Registered(1) | | |
Proposed Maximum Offering
Price
Per Unit | | |
Maximum
Aggregate
Offering Price | | |
Fee Rate | | |
Amount of
Registration
Fee | |
Newly Registered Securities |
Fees to be Paid | |
Equity | |
Shares of common stock, $0.0001 par value per share | |
Other(2) | |
| 4,661,102 | | |
$ | 0.72 | (2) | |
$ | 3,355,993.44 | | |
| 0.00014760 | | |
$ | 495.34 | |
| |
Total Offering Amounts | | |
| | | |
$ | 3,355,993.44 | | |
| | | |
$ | 495.34 | |
| |
Total Fees Previously Paid | | |
| | | |
| | | |
| | | |
$ | 0.00 | |
| |
Total Fee Offsets | | |
| | | |
| | | |
| | | |
$ | 0.00 | |
| |
Net Fee Due | | |
| | | |
| | | |
| | | |
$ | 495.34 | |
(1) | Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities
Act”), there is also being registered hereby such indeterminate number of additional shares of common stock, par value $0.0001 per
share (“common stock”), as may be issued or issuable because of stock splits, stock dividends and similar transactions. |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act, based upon the average of the high and low prices of the common stock, reported
by NYSE American LLC on January 19, 2024. |
Grafico Azioni Signing Day Sports (AMEX:SGN)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Signing Day Sports (AMEX:SGN)
Storico
Da Lug 2023 a Lug 2024