UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
_____________
Commission File No. 001-41863
| SIGNING DAY SPORTS, INC. |
| (Exact name of registrant as specified in its charter) |
| Delaware | | 87-2792157 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | | |
| 8355 East Hartford Rd., Suite 100, Scottsdale, AZ | | 85255 |
| (Address of principal executive offices) | | (Zip Code) |
| (480) 220-6814 |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b)
of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.0001 per share | | SGN | | NYSE American LLC |
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant
was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate
the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.
As of March 26, 2024, there were a total of 15,365,312
shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Signing Day Sports, Inc.
Annual Report on Form 10-K
Year Ended December 31, 2023
TABLE OF CONTENTS
INTRODUCTORY NOTES
Use of Terms
Except as otherwise indicated by the context and
for the purposes of this report only, references in this report to “we,” “us,” “our,” the “Company,”
“Signing Day Sports,” and “our company” refer to the consolidated operations of Signing Day Sports, Inc., a Delaware
corporation. “Common stock” refers to the Company’s Common Stock, par value $0.0001 per share. Unless otherwise noted,
the share and per share information in this report 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.
Note Regarding 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 ™ symbols, 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 report are the property of their respective owners.
Note Regarding Industry and Market Data
We are responsible for the information contained
in this report. This report 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 report involve risks and uncertainties that are subject to change based on various factors, including those discussed in Item 1A.
“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.
Note Regarding Forward-Looking Statements
This report 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. 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, sponsorships,
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. You should not place undue reliance on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results.
Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item
1A. “Risk Factors” and elsewhere in this report. 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.
In addition, statements that “we believe”
and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available
to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information
may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or
review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to
unduly rely upon these statements.
The forward-looking statements made in this report
relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the
federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new
information, future events, changed circumstances or any other reason.
Summary of Risk Factors
The following is a summary of material risks that
could affect our business. This summary may not contain all of our material risks, and it is qualified in its entirety by the more detailed
risk factors set forth under “Item 1A. Risk Factors”.
| ● | 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 auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report
for the fiscal year ended December 31, 2023. |
| ● | 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 proprietary technology and any patents that we may obtain. |
| ● | 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. |
| ● | It is not possible to predict the actual number of shares we will sell under our committed equity financing
facility, or the actual gross proceeds resulting from those sales. |
| ● | Our ability to sell the maximum number of shares permitted to be sold under our committed equity financing
facility may be limited by its terms and conditions. |
| ● | The sale and issuance of our common stock under our committed equity financing facility may cause dilution
to our existing stockholders, and the sale of the shares of common stock acquired from us under our committed equity financing facility,
or the perception that such sales may occur, could cause the price of our common stock to fall. |
| ● | Our management team will have broad discretion over the use of the net proceeds from our sale of shares
of common stock under our committed equity financing facility, if any, and you may not agree with how we use the proceeds and the proceeds
may not be invested successfully. |
| ● | 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 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 stock exchange. |
| ● | 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 holders of our common stock 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. |
| ● | 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. |
PART I
ITEM
1. BUSINESS.
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 December 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 student-athletes together in a mutually beneficial ecosystem has shown significant benefits for
both sides of the student-athlete recruitment process. Parents and student-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 a student-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 student-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.
As of December 31, 2023,
we had total assets of approximately $4.7 million with total stockholders’ equity of approximately $1.7 million.
Our sales increased 293% year-over-year in 2023 compared
to 2022, primarily due to an increase in event revenue and user subscriptions.
Our Historical Performance
The
Company’s independent registered public accounting firm has 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 fiscal
years ended December 31, 2023 and 2022, our net loss was approximately $5.5 million and $6.7 million, respectively, our cash used in operating
activities was approximately $4.8 million and $4.9 million, respectively, and we had an accumulated deficit of approximately $17.0 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, 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 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 Item 7. “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 several problems.
Frequently, the best student-athletes are 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 do not know how to effectively promote themselves.
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 college coaches
without economic or geographic barriers. On the other side, every recruiter who uses the platform can access the same rich level of data
that can be provided by the 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 a website portal on personal computers for coaches
and recruiters for data review. 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,
their parents, high school and sports club coaches, college coaches, and professional scouts.
Student-athletes can upload key information and
video-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 speed tests that exemplify player mechanics, coordination, and development).
College coaches, team managers and other recruiters
can load in all student-athletes on their respective teams, sports clubs or programs. They can use the platform to communicate directly
with student-athletes, track their progress in the weight room and training field, and manage other aspects of their student-athletes.
Additionally, the platform serves as an important tool for recruitment and development. 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. Student-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 the number of youth sports
participants is likely in the hundreds of millions, including 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 student-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 student-athletes to bypass that process by providing a platform that
allows coaches to effectively evaluate talent without having to see the student-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 a student-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, video-verified speed testing, drill footage, and highlight and 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 student-athletes’ performances. |
| ● | Better Student-Athlete Comparison Tools. Other digital sports recruitment apps 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 platform’s verified measurables,
“Film Room,” “Big Board,” and “Interview” features, our coach/recruiter-facing platform allows college
coaches and recruiters to drive the recruitment process. Our platform allows recruiters to easily access and request verifiable information
from thousands of student-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-platform messaging allows coaches to communicate
directly with prospective recruits. All of our platform’s features are designed to produce an efficient, comprehensive and intuitive
process for accessing, comparing, ranking and recruiting student-athletes by user coaches and recruiters. Our data and video-verified
information can also be transferred into other data systems used by college recruiters, allowing our system to function either alone or
together with other systems as needed. |
| ● | 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, professional athletes, and
player personnel directors are readily available through the Signing Day Sports app, website, social media accounts, and weekly webinars.
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 platform 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 as a soccer recruitment platform. 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. We have 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 the sports on our platform. |
| ● | Increase Profitability through Multiple Revenue Streams. 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 student-athletes in areas such as apparel, supplements, and nutrition. 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. |
| ● | 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 the colleges/coaches
search feature expected to be introduced in or around April 2024. We have also prioritized internal hires of engineers and developers
to launch new features and sports platform support, while ensuring product stability and effectiveness. This focus is intended to support
the stable, consistent, and cost-efficient development of updates and upgrades to our platform. |
| ● | Launch New Products and Expand Features. Over time, we will continue to launch new products
and features to meet market demand. We will prioritize the needs of college coaches and recruiters across the nation, Signing Day Sports
event functionality, and the student-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 student-athlete’s profile, we can ensure that the ultimate power of recruiting
is in the student-athlete’s hands. We expect that the public version may be shared with coaches, other student-athletes and
on social media and will contain all of the student-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 student-athletes share and exchange
videos, information, and bragging rights, and enhance the users’ sense of community. With a robust integration of LinkedIn and
Facebook, student-athletes will be able to follow other student-athletes, see their profiles and videos in a feed, favorite other student-athletes,
and exchange workout tips on our platform forums. Student-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 student-athletes with the Signing Day Sports platform 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 in 2024 and 2025: |
| ● | Lead scraping AI technology to enhance customer identification
and acquisition through personalized outreach based on metrics determined by experts. The Company has implemented this feature as
of November 2023. The feature uses an AI algorithm that analyzes each lead’s profile to create personalized messages. The
system may help us find leads that match our target market’s sport and interests, allowing us to engage with customers more efficiently,
with higher reply rates, and longer-lasting customers. |
| ● | AI matchmaking for student-athletes to find the right fit based on criteria set by an institution.
The Company plans to begin development of this feature in the first quarter of 2025. This feature will be an AI algorithm that takes specific
needs set forth by a recruiter based on their own criteria and division level of athletics. It will then create recommendations to student-athletes
within the Company’s platform based on their verified metrics. The data and algorithm will be linked to previous data and analytics
related to previous student-athletes recruited by those recruiters. |
| ● | Integration of existing AI video-capturing hardware to
streamline video upload and highlight tape creation. We have begun discussions with makers of AI-programed video hardware systems
that can capture the video footage of student-athletes. The AI used in these devices enables cameras to recognize players in the field,
allowing for more efficient and accurate highlight-tape creation. These devices also allow for minimal human management as they are programmed
to follow the action of the game. Our platform’s profiles will allow for easier management and integration of the resulting video
highlight footage into student-athletes’ Signing Day Sports platform’s video resume. We plan to begin introducing the hardware
system to our platform’s profiles in the first quarter of 2024 and have full API integration for this feature completed by the
end of the first quarter of 2025. |
| ● | Use of AI technology to confirm and enhance visual biometrics
of uploaded videos that will expand on data currently available through the platform. This feature is projected to begin testing
and research in 2024 and be integrated into the Company’s platform in 2025. Our current systems use video capturing in order to
verify certain metrics. Based on developing AI camera technology, we plan to integrate software that recognizes and 3D-models all items
in videos to further verify these metrics. This hardware and modeling will produce biometrics and measurements in greater detail compared
to current systems. |
| ● | Standards assessed by AI and creation of grades/evaluations
of tasks being completed based on metrics set by experts. We plan to begin development of this feature in the third quarter of 2024
and complete its integration into the Company’s platform in 2025. It will use an algorithm to use data metrics
from professionals, college student-athletes, and peers, establishing standard measurements for all metrics entered into our platform.
This algorithm will then produce a grade based on profile data, such as position and age, to produce a standardized grade and measurement
tool. |
| ● | Integration of AI chatbots that encourage student-athletes
to spend more time on the platform, including personalized nutritional plans, fitness plans, general recruiting education, and more.
This feature is planned to begin in the second quarter of 2024. The chat feature will use an algorithm linked to a series of data
tables with information pertaining to the interests and challenges of student-athletes. Student-athletes will be able to use the feature
and receive recommended educational resources, action plans, or media-related items. The underlying algorithm will adjust output over
time based on user feedback and outcomes of chatbot sessions. The algorithm will also be trained to recognize when relevant information
is not available and offer to connect the user to a live Signing Day Sports representative. Based on the live representative’s
chat response, the AI algorithm will document and learn the response for future chat sessions. |
| ● | Retail Products and Services. We have introduced
a line of apparel, beginning with branded combine t-shirts, branded towels, branded socks, and branded hats. We plan to continue to extend
the user experience of our platform through additional retail items, including dietary supplements and other products and services that
are designed for student-athletes. |
| ● | Release of My Invites. With the first iterative release of our platform’s My Invites
feature, our staff can drive player subscriptions and engagement by assembling lists of student-athlete platform candidates and inviting
them to our platform with as few as two mouse clicks. Our system can track whether a student-athlete deleted our email, opened it, or
signed up for a subscription and analyze the data based on college coach preferences. With this functionality, we can increase the
population of motivated student-athletes to our platform with uploaded verified information like transcripts, drill videos, and height
and weight data. This data can then be shared with college coaches based on their preferences to facilitate their 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 and offer more features for sports that it currently supports, 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. With strategic collaborations with football associations, organizations, digital media, social media, event marketing,
and organizational alliances, we expect to grow our brand throughout the United States. Additionally, as we launch new sport 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 platform’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, X, 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 and Sponsorship Agreements. Our focus on key strategic alliance and sponsorship
agreements will serve to both increase overall player subscriptions and marketing. |
| ● | The U.S. Army Bowl: Over the course of our 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 10,000 student-athletes each year as a sponsor through the game’s advertising channels. U.S. Army
Bowl national combines are again planned throughout 2024. Each participant in the combine series pays Signing Day Sports an entry fee.
Data collected and analyzed by our platform are part of the selection process for determining whether student-athletes participating
in the combines may advance to the Bowl and/or National Combine events. Student-athletes participating in Bowl combines receive one month
of access to the Signing Day Sports 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 platform. Since the beginning of this collaboration, a significant percentage of combine participants have converted to paid
platform subscriptions. See “—Sales and Marketing – Strategic Alliance and Sponsorship Agreements” for
further information regarding the terms of this agreement. |
| ● | 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 student-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 student-athlete
data, and consult with EDP to implement and improve our platform’s features for its student-athletes. Subscription revenues from
EDP referrals will be shared between us. See “—Sales and Marketing – Strategic Alliance and Sponsorship Agreements”
for further information regarding the terms of this agreement. |
| ● | 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, student-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 platform registration with high school-aged athletes and their parents. Specifically, at these events, student-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. 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 student-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 Student-Athlete’s Profile
Student-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 video-verified
measurements, drills and speed tests such as the 40-yard dash, 5-10-5 shuttle and standing broad jump, that recruiters at all levels will
need to review to decide on proceeding with the recruitment process.
Keep Track of Student-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 a student-athlete’s chances to get
recruited. Recruiters will need to see and validate a student-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 a
student-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 student-athlete that may have
inappropriately mis-recorded key attributes.
Let Recruiters Meet the Real Student-Athlete
Through our platform, student-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 student-athlete’s
personality before they take the next step in the recruitment process.
Actual Game Film
The platform also allows recruiters to view actual
games and highlight films of student-athletes by integrating with verified game film distribution services.
Pricing
All platform users can freely download the mobile
app version of our platform. 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. Student-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 platform to evaluate and contact potential recruits without payment. Athletic departments or other group organizations may
be eligible for reduced pricing per student-athlete if the whole team participates. Subscriptions for individual student-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 price of $175.00 for referrals who purchase an annual subscription, with each referring EDP
club having the option to charge a referral up to an additional $124.99 for the subscription. During each term of the agreement, we will
remit $50.00 to EDP per referral subscription, pay EDP $75,000 per annual term to pay for EDP’s expenses to perform its obligations
under the agreement, and we will pay EDP certain revenue share fees depending on the amount of revenue received from referral subscriptions.
See “—Sales and Marketing – Strategic Alliance and Sponsorship Agreements – Strategic Alliance Agreement with
Elite Development Program Soccer”. We also have certain pricing arrangements under agreements with other organizations. See
“—Sales and Marketing – Other Agreements”.
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 Server Application OS: Linux |
| ● | Primary programming languages: PHP, JavaScript |
CI/CD - Continuous Integration, Continuous Deployment
| ● | Test-Driven Development with PHPUNIT tests |
| ● | Deployments of application container builds to Azure using GitHub actions |
Code Stack
Microservices Model
Key Third-Party Technology Services
Customers
As of December 2023,
many 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 student-athletes,
and now also offers a platform for baseball, softball, and men’s and women’s soccer, resulting in even more recruiter and
student-athlete platform participants.
We primarily develop
our customers through our strategic alliances and sponsorships and direct marketing. For example, as part of our sponsorship agreement
with the U.S. Army Bowl, each student-athlete participant in a combine series pays us an entry fee; we provide each participant with a
trial subscription to our platform; and we attempt to convert each trial into a paying subscription using direct marketing. As another
example, as part of our strategic alliance with EDP, we market primarily to each EDP soccer club to offer discount subscriptions to our
platform to the club’s 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
We believe that our intellectual
property rights are valuable and important to our business. We rely on trademarks, 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.
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 internationally 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 engaged 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. 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 contract is subject to certain confidentiality,
non-compete, and non-solicitation provisions. See Item 3. “Legal Proceedings – 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 student-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 and Sponsorship Agreements
Sponsorship Agreement
for The U.S. Army Bowl. Over the course of our 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 10,000 student-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 student-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 student-athletes participating in the combines may advance to the Bowl and/or National
Combine events in December. Each student-athlete is reviewed based on physical ability, skills, game film, combine numbers, and, most
importantly, their character, values and leadership. Student-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 platform. Since the beginning of this collaboration, a significant percentage of combine participants have converted to paid platform
subscriptions. 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 student-athletes and their families announce their college commitments in front of a national audience. The Company
announces and interviews student-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 student-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 student-athletes and coaches. We may provide other promotional materials to all student-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, student-athletes
and parents at Bowl events. We must receive a complete database after each Bowl event with all student-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). As part of these packages, since 2023 each participant in the
combine series pays Signing Day Sports an entry fee.
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 student-athletes and participants at our breakout speaking functions
with coaches, student-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,
GOAT Farm Sports 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.
Strategic Alliance Agreement with Elite Development
Program Soccer. EDP offers leagues, tournaments, and similar events to soccer clubs, teams, student-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
student-athletes. Under this agreement, dated as of October 20, 2023, as amended on March 8, 2024, 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 student-athletes get discovered and recruited by coaches.
For each one-year 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 student-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. 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 student-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 discount price of $175.00 per student-athlete. Any student-athlete who subscribes
to the SDS Platform 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. We will remit $50.00 to EDP within 90
days following each month end for each sale of a subscription to the SDS Platform to an EDP referral during the prior month, 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 or before each of March 1, 2024, March 1, 2025, and March 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 student-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 student-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.
Each term of the agreement
is one year, with unlimited automatic renewal for successive one-year terms 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.
Other Agreements
Collaboration and Revenue-Sharing Agreement
with Louisville Slugger Hitting Science Center LLC. 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 student-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 student-athletes and their parents on training, development, and recruiting.
Under the agreement, we will be LSHSC’s
exclusive provider of student-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.
Marketing Agreement
with Texas High School Coaches Association. Texas High School Coaches Association (“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 student-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. Arizona Football Coaches Association (“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 platform 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 platform 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 platform 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 platform to high school coaches:
| ● | Give your program an edge: Signing Day Sports supports student-athletes in football, baseball, softball,
and soccer. Coaches have the capability to maximize each student-athlete’s recruiting journey all in one place. |
| ● | Share your student-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 student-athletes seen by college coaches: Your student-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 platform 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 can sell directly to our customers or digitally through our
digital marketing strategies.
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 platform’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 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 platform 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 Item 1A. “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. 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 2023, our SQL data’s backup retention is
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 Item 1A. “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 March 19, 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.
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 student-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 Controlling the Assault of Non-Solicited Pornography And Marketing Act, as amended (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 Family Educational Rights and Privacy Act of 1974 (“FERPA”)
regulates the use and disclosure of student education records held by certain educational institutions. |
| ● | The California Consumer Privacy Act (“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 California Privacy Rights Act (“CPRA”), which expands
upon the consumer data use restrictions, penalties and enforcement provisions under the CCPA. |
| ● | Virginia’s Consumer Data Protection Act (“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 Colorado Privacy Act (the “CPA”) and
Connecticut’s An Act Concerning Personal Data Privacy and Online Monitoring (“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
Utah Consumer Privacy Act (“UCPA”), and the Iowa Consumer Privacy Act (“ICPA”),
will also regulate business handling of consumers’ personal data in Utah and Iowa, respectively. |
| ● | The European Union (the “EU”) General Data Protection Regulation (“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 U.S. Children’s Online
Privacy Protection Act (“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.”
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 prior to the effectiveness of the Amended and Restated Certificate of Incorporation (as defined
below), 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”), 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 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.
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 Item 13. “Certain Relationships and Related Party
Transactions, and Director Independence – 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”).
On February 27, 2024, the amendment and restatement of the Amended and Restated Certificate of Incorporation was approved by stockholders
holding a majority of the voting power of our issued and outstanding voting capital stock, and on the same date, the Second Amended
and Restated Certificate of Incorporation of the Company (“Second Amended and Restated Certificate of Incorporation”) was
filed with the Delaware Secretary of State and became effective upon filing. The Second 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” in Exhibit 4.1 to this Annual Report on Form 10-K and Item 10. “Directors,
Executive Officers and Corporate Governance – Limitation on Liability and Indemnification of Directors and Certain Officers”.
As of the date of this report, we have no subsidiaries.
Our fiscal year ends on December 31. Neither we
nor any of our predecessors have been in bankruptcy, receivership or any similar proceeding.
ITEM
1A. RISK FACTORS.
An investment in our securities involves a
high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information
contained or referred to in this report, before making an investment decision with respect to our securities. If any of the following
events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected.
In that event, the market price of our shares could decline, and you could lose all or part of your investment.
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 Item
1. “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 auditor has included an explanatory paragraph relating
to our ability to continue as a going concern in its audit report for the fiscal year ended December 31, 2023.
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 auditor has included an explanatory paragraph relating
to our ability to continue as a going concern in its audit report for the fiscal year ended December 31, 2023.
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, 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. 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. For further discussion about our ability to continue as a going concern and our plan for future liquidity, see Item
7. “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 Federal Deposit Insurance Corporation
(the “FDIC”), as receiver. Similarly, on March 12, 2023, Signature Bank Corp. (“Signature”), and Silvergate
Capital Corp. were each swept into receivership
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. In addition, U.S. regional banks have experienced a broad
recovery since the turmoil of March 2023. Following the acute stress triggered by the collapse of SVB, aggregate financial indicators
of the group have shown improvements. Between March 2023 and January 31, 2024, deposit outflows have stabilized. However, vulnerabilities
in the U.S. banking sector are believed to persist.
Although we are not a borrower under or party
to any material letter of credit or any other such instruments with any 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 2008-2010
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 student-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 student-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 proprietary
technology and any patents that we may obtain.
The Company holds 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 may 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
any patents that we may obtain, or may be able to design alternative techniques or devices that avoid infringement of such patents, or
develop products with functionalities that are comparable to ours. In the event a competitor infringes upon any patent that we may obtain
or other intellectual property rights, litigation to enforce our intellectual property rights or to defend any patents that we may obtain
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 any patents that we may obtain 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 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; and Trent Whitehead, our Vice President of Human Resources and Secretary. 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 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 platform 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
FERPA, which regulates the use and disclosure of student education records held by certain educational institutions; 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 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 GDPR and the 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 CPRA in California, which expands upon the consumer data use restrictions, penalties
and enforcement provisions under the CCPA, and the VCDPA in Virginia, 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 CPA in Colorado and the CDPA in Connecticut and regulations promulgated under these laws, which are also comprehensive
consumer privacy laws. Effective December 31, 2023, we may also be subject to the UCPA in Utah, regarding business handling of consumers’
personal data. Effective January 1, 2025, we may also become subject to the ICPA, a similar consumer data privacy law in Iowa. 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 responding
to climate change issues. This increased focus on sustainability is resulting in new regulations and legislation 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 impose disclosure requirements, 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 particular, on March 6, 2024, the SEC adopted
rules that will require us to disclose:
| ● | Climate-related risks that have had or are reasonably likely
to have a material impact on our business strategy, results of operations, or financial condition; |
| ● | The actual and potential material impacts of any identified
climate-related risks on our strategy, business model, and outlook; |
| ● | If, as part of our strategy, we have undertaken activities
to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred
and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities; |
| ● | Specified disclosures regarding our activities, if any, to
mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon
prices; |
| ● | Any oversight by our board of directors of climate-related
risks and any role by management in assessing and managing our material climate-related risks; |
| ● | Any processes we have for identifying, assessing, and managing
material climate-related risks and, if we are managing those risks, whether and how any such processes are integrated into our overall
risk management system or processes; |
| ● | Information about our climate-related targets or goals, if
any, that have materially affected or are reasonably likely to materially affect our business, results of operations, or financial condition;
required disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result
of the target or goal or actions taken to make progress toward meeting such target or goal; |
| ● | The capitalized costs, expenditures expensed, charges, and
losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought,
wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed
in a note to the financial statements; |
| ● | The capitalized costs, expenditures expensed, and losses
related to carbon offsets and renewable energy credits or certificates if used as a material component of our plans to achieve our disclosed
climate-related targets or goals, disclosed in a note to our financial statements; and |
| ● | If the estimates and assumptions we use to produce our financial
statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or
any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions
was impacted, disclosed in a note to our financial statements. |
We will be exempt from the SEC rules’ requirements
to disclose certain information about our greenhouse gas emissions and comply with related auditor assurance requirements as long as we
remain a “smaller reporting company” (as described below under “—Risks Related to Our Common Stock and Securities
Convertible into 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.”) or an “emerging growth company” (as
described below under “—Risks Related to Our Common Stock and Securities Convertible into Our Common Stock – 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.”).
In addition, these disclosure rules will not require compliance by us until our fiscal year beginning in 2027, with certain requirements
not becoming effective until our fiscal year beginning in 2028, if we remain a smaller reporting company or emerging growth company.
A number of petitions have been filed in
federal courts seeking to challenge the SEC’s climate disclosure rules. The outcome of this litigation cannot be determined as
of the date of this report.
Assuming that the SEC climate disclosure rules
are ultimately upheld in their present form, and even in light of the exemptions and accommodations made for smaller reporting companies
and emerging growth companies described above, the costs to adopt the necessary disclosure controls and procedures to disclose all required
information, the potential costs to make changes in our operations to allow us to improve our climate change-related disclosures, or the
potential loss of revenues from these disclosure requirements due to investor, customer, or vendor requirements to disclose and meet certain
climate change-related targets pursuant to these disclosure rules, may still have a material adverse effect on our business and operations.
Risks Related to Our
Committed Equity Financing Facility
It is not possible
to predict the actual number of shares we will sell under our committed equity financing facility, or the actual gross proceeds resulting
from those sales.
On January 5, 2024 (the “CEFF Closing Date”),
we entered into a Common Stock Purchase Agreement, dated as of January 5, 2024 (the “CEFF Purchase Agreement”), with Tumim
Stone Capital LLC (“Tumim”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained
in the CEFF 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 CEFF Purchase Agreement, from time to time during the term of the
CEFF Purchase Agreement. Sales of common stock by the Company to Tumim under the CEFF Purchase Agreement, if any, may occur, from time
to time at our sole discretion, over the period commencing upon the initial satisfaction of all conditions to Tumim’s purchase obligations
set forth in the CEFF Purchase Agreement (the “Commencement Date”), including that the initial registration statement we were
required to file with the SEC pursuant to a Registration Rights Agreement, dated as of January 5, 2024, between the Company and Tumim
(the “CEFF Registration Rights Agreement”), be declared effective by the SEC, and ending on the first day of the month next
following the 24-month anniversary of the CEFF Closing Date, unless the CEFF Purchase Agreement is terminated earlier under its terms.
On January 26, 2024, we filed the initial registration statement required to be filed with the SEC pursuant to the CEFF Registration Rights
Agreement, and on February 14, 2024, the registration statement, as amended, was declared effective by the SEC. On February 15, 2024,
all other initial conditions to Tumim’s purchase obligations set forth in the CEFF Purchase Agreement were satisfied. Accordingly,
the Commencement Date occurred on February 15, 2024. On February 27, 2024, at a special
meeting of stockholders, the Company obtained stockholder approval (the “CEFF Stockholder Approval”) to issue shares
of common stock in excess of the number of shares representing 19.99% of the shares of the common stock outstanding immediately prior
to the execution of the CEFF Purchase Agreement (the “CEFF Exchange Cap”), or 2,648,385 shares of common stock, without requiring
the shares to be priced at or above a certain minimum amount per share under the NYSE American listing rules.
We may ultimately decide
to sell to Tumim all or only some of the shares that may be available for us to sell to Tumim pursuant to the CEFF Purchase Agreement.
Because the purchase price per share to be paid by Tumim for any shares that we may elect to sell to Tumim under the CEFF Purchase Agreement
will fluctuate based on the market prices of our common stock during the applicable period for each purchase made pursuant to the CEFF
Purchase Agreement, it is not possible for us to predict, as of the date of this report, the number of shares that we will sell to Tumim
under the CEFF Purchase Agreement, the purchase price per share that Tumim will pay for shares purchased from us under the CEFF Purchase
Agreement, or the aggregate gross proceeds that we will receive from those purchases by Tumim under the CEFF Purchase Agreement.
Our ability to sell the maximum number of
shares permitted to be sold under our committed equity financing facility may be limited by its terms and conditions.
Although the CEFF 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 shares, which include both 4,000,000 shares
that we may require Tumim to purchase and 661,102 shares that we issued to Tumim as consideration for its commitment to purchase shares
of our common stock from time to time at our direction under the CEFF Purchase Agreement (“CEFF Commitment Shares”), have
been registered for resale by Tumim under a registration statement. If after the Commencement Date we elect to sell to Tumim only the
shares registered by the respective registration statement, depending on the market prices of our common stock during the applicable period
for each purchase made pursuant to the CEFF 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 CEFF Purchase Agreement. Additional sales beyond the 4,000,000 shares registered under
the registration statement registering the resale of such shares will require us to file one or more additional registration statements,
and such registration statements would be required to be declared effective by the SEC.
Because we obtained the CEFF Stockholder Approval,
the Company may issue shares at prices that may be below 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. However, the CEFF Purchase Agreement continues to specifically provide that we may
not issue or sell any shares of common stock under the CEFF 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 CEFF 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 committed equity financing facility provided for under
the CEFF Purchase Agreement.
The sale and issuance of our common stock
under our committed equity financing facility may cause dilution to our existing stockholders, and the sale of the shares of common stock
acquired from us under our committed equity financing facility, or the perception that such sales may occur, could cause the price of
our common stock to fall.
The purchase price for the shares of common stock
that we have sold or may sell to Tumim under the CEFF 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 shares of common stock to Tumim pursuant to the CEFF Purchase Agreement and after Tumim has acquired such shares, Tumim may also
resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. Therefore, sales by
Tumim of the CEFF Commitment Shares and sales to Tumim by us of shares of common stock available for resale by Tumim 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 Tumim, 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 from Tumim at different times will likely
pay different prices.
Pursuant to the CEFF Purchase Agreement, we will
have discretion, subject to market demand and certain limitations set forth in the CEFF Purchase Agreement, to sell shares to Tumim at
varying times, prices, and numbers. Tumim may resell all, some or none of the CEFF Commitment Shares at any time or from time to time
in its discretion and at different prices. If and when we elect to sell shares of common stock to Tumim pursuant to the CEFF Purchase
Agreement and after Tumim has acquired such shares, Tumim may also resell all, some or none of such 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 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 as a result
of future sales made by us to Tumim at prices lower than the prices such investors paid for their shares.
Our management team will have broad discretion
over the use of the net proceeds from our sale of shares of common stock under our committed equity financing facility, 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 under our committed equity financing facility, if any, and we
could use such proceeds for purposes other than those contemplated at the time of the commencement of such facility. 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 Our Common Stock and Securities
Convertible into 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 stockholders may experience a decrease in the value of the 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 maintain the listing of our common stock on the NYSE American. |
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 report. 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 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.
As of March 26, 2024, we have also made the following
grants under the Plan to officers, directors, employees, and consultants that remain outstanding: 1,400,185 shares of restricted common
stock; options to purchase up to 141,938 shares of common stock at an exercise price per share of $3.10; options to purchase up to 90,000
shares of common stock at an exercise price per share of $2.50; options to purchase up to 175,000 shares of common stock at an exercise
price per share of $2.25; and an option to purchase up to 10,000 shares of common stock at an exercise price per share of $5.00. 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 consultants 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. 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
on our common stock in the foreseeable future.
We do not expect to declare or pay dividends on
our common stock in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our
business. In addition, bank line of credit covenants prohibit us from paying cash dividends except in limited circumstances. 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 holders of our
common stock 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 exempt from certain greenhouse gas emissions disclosure and related third-party assurance requirements; |
| ● | 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 will 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 may provide only two years of financial statements;
and we need not provide the table of selected financial data. We will also be exempt from certain greenhouse gas emissions disclosure
and related third-party assurance requirements. 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.
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 March 26, 2024, our executive officers and
directors collectively beneficially own shares representing approximately 6.1% of our outstanding common stock. Dennis Gile, our largest
stockholder and a former officer and director, beneficially owns and has voting power over approximately 14.2% 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 8.9% 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 and other provisions contained in our Second Amended and Restated Bylaws and Second Amended and Restated Certificate of Incorporation,
as well as provisions of Delaware law, could impair a takeover attempt and diminish the rights of holders of our common stock.
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 Second 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, subject to the rights of holders of preferred stock to elect directors. 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.
In addition, our Second Amended and Restated Certificate
of Incorporation authorizes our board of directors to issue up to 15,000,000 shares of “blank-check preferred stock” in one
or more series as solely determined by the board of directors, and to have the voting powers, preferences and relative participation,
optional and special rights and qualifications, limitations and restrictions thereof as solely determined by the board without further
action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences
as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock
could diminish the rights of holders of existing shares, and therefore could reduce the value of such shares. In addition, specific rights
granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The
ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it costlier
to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable
offer is extended and could materially and negatively affect the value of our securities.
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.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM
1C. CYBERSECURITY.
Risk Management and Strategy
The Company recognizes the critical importance
of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality,
integrity, and availability of our data. We have developed the following processes as part of our strategy for assessing, identifying,
and managing material risks from cybersecurity threats.
Managing Material Risks & Integrated
Overall Risk Management
We have integrated cybersecurity risk management
into our risk management processes. This integration is intended to ensure that cybersecurity considerations are part of our decision-making
processes. We continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.
Engaging Third-parties on Risk Management
Recognizing the complexity and evolving nature
of cybersecurity threats, we plan to engage external experts, including consultants and auditors, in evaluating and testing our risk management
systems. These services will enable us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes
remain at the forefront of industry best practices. Our collaboration with these third-parties is expected to include annual audits, ongoing
threat assessments, and regular consultations on security enhancements.
Overseeing Third-Party Risk
Because we are aware of the risks associated with
third-party service providers, we implement processes to oversee and manage these risks. We conduct thorough security assessments of all
third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. This approach
is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
Risks from Cybersecurity Threats
We have not encountered cybersecurity challenges
that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations,
or financial condition.
Governance
Board of Directors Oversight
Our board of directors oversees the management
of risks associated with cybersecurity threats.
Management’s Role Managing Risk
The Company’s management is primarily responsible
for assessing, monitoring and managing our cybersecurity risks. Management must ensure that all industry standard cybersecurity measures
are functioning as required to prevent or detect cybersecurity threats and related risks. Management oversees and tests our compliance
with standards, remediates known risks, and leads our employee training program.
Monitoring Cybersecurity Incidents
The Company’s management is continually
informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. Management
implements and oversees processes for the regular monitoring of our information systems. This includes the deployment of industry-standard
security measures and regular system audits to identify potential vulnerabilities. In the event of a cybersecurity incident, management
will implement an incident response plan. This plan includes immediate actions to mitigate the impact and long-term strategies for remediation
and prevention of future incidents.
Reporting to Board of Directors
Significant cybersecurity matters, and strategic
risk management decisions, will be escalated to the board of directors.
ITEM
2. 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 (the
“Office Lease”), and as further amended under a first amendment to lease dated April 1, 2023 (the “Amendment to Office
Lease”). As amended, the Office 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 Office Lease, as amended, 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 Office Lease, as amended,
including making all rent payments when due. We may exercise a one-time option to extend the Office Lease, as amended, 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 Office Lease, as amended, and which will not be less than 103% of the final rent amount under the current term. Under the Office Lease,
as amended, 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 Office Lease, as amended.
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.
The Office Lease and the Amendment to Office Lease
are filed as Exhibit 10.12 and Exhibit 10.22 to this Annual Report on Form 10-K, respectively, and the description above of the material
terms of the Office Lease and the Amendment to Office Lease is qualified in its entirety by reference to such exhibits.
ITEM
3. LEGAL PROCEEDINGS.
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. We are not currently aware of
any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating
results.
Claim of Robert Smith
On December 5, 2023,
the Company entered into a consulting agreement with Robert Smith. Pursuant to the consulting agreement, the Company agreed to award Mr.
Smith 500,000 shares of restricted common stock of the Company, subject to, among other things, the approval by the Company’s stockholders
of an amendment to the Signing Day Sports, Inc. 2022 Equity Incentive Plan (as amended, the “Plan”) to increase the number
of shares of the Company’s common stock. Thereafter, a dispute arose between the Company and Mr. Smith because he asserted that
the Company, through some of its principals, had represented that he would be provided with 900,000 shares of stock, not 500,000. The
Company has generally denied the assertions of Mr. Smith. On February 28, 2024, the Company and Robert Smith entered into a Settlement
Agreement, Release of Claims, and Covenant Not To Sue with Mr. Smith to resolve that dispute (the “Smith Settlement Agreement”).
Pursuant to the Smith Settlement Agreement, the Company agreed to amend the consulting agreement to award Mr. Smith 615,000 shares of
Company common stock pursuant to the Plan. The Smith Settlement Agreement also contains mutual releases of claims related to the dispute
or the Smith Settlement Agreement.
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 by making a payment of $300,000 within three business days of the
Midwestern Release Date and a payment of $300,000 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.
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 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
the Settlement Agreement, Release of Claims, and Covenant Not To Sue, dated as of January 12, 2023, between the Company and Mr. Dorsey
(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.
ITEM
4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock was listed and began trading
on the NYSE American on November 14, 2023, under the symbol “SGN”. Prior to the listing, there was no public market for our
common stock.
Number of Holders of Our Common Stock
As of March 26, 2024, there were approximately 84 holders of record
of our common stock, which does not include holders whose shares are held in nominee or “street name” accounts through banks,
brokers or other financial institutions.
Use of Proceeds from Registered Securities
On November 13, 2023,
we entered into an Underwriting Agreement (the “Underwriting Agreement”), with Boustead Securities, LLC (“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 warrants (collectively, the “Representative’s
Warrant”) 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 $4.7 million. The Company also issued Boustead the 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; the Representative’s
Warrant; and shares of common stock underlying the Representative’s Warrant 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 the Representative’s
Warrant 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 the 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, any
such sales may have occurred 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 Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations – Settlement
Notice to 6% Convertible Unsecured Promissory Note Holders” and Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations – 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.
The following is our
reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering
on November 16, 2023 until December 31, 2023:
| |
● |
None was used for construction of plant, building and facilities; |
| |
● |
None was used for the purchase and installation of machinery and equipment; |
| |
● |
None was used for purchases of real estate; |
| |
● |
None was used for the acquisition of other businesses; |
| |
● |
Approximately $0.83 million was used for the repayment of indebtedness; |
| |
● |
Approximately $1.87 million was used for working capital; and |
| |
● |
Approximately $2.11 million was used for temporary investments. |
As of December 31, 2023,
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 have not been, and we do not expect, any
material changes 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 Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Liquidity and Capital Resources – Contractual Obligations to Boustead Securities, LLC” for additional discussion
of certain provisions in the Underwriting Agreement.
Securities Authorized for Issuance Under Equity
Compensation Plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the information set forth in
Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters – Securities Authorized
for Issuance Under Equity Compensation Plans”.
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. In addition, bank line of credit covenants prohibit
us from paying cash dividends except in limited circumstances. 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 Item 1A. “Risk Factors – Risks Related to Our Common Stock and Securities Convertible into Our Common
Stock – We do not expect to declare or pay dividends on our common stock in the foreseeable
future.”
Recent Sales of Unregistered Securities
During 2023, we
did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed in a Quarterly
Report on Form 10-Q or Current Report on Form 8-K, except as disclosed below.
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 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.
328,000
of the 2,774,200 shares of common stock issued upon conversion of the 6% convertible unsecured promissory notes were registered for
resale upon issuance pursuant to the IPO Registration Statement.
8% Convertible Unsecured Promissory Notes
and Warrants Private Placement
As previously reported in the Quarterly Report
on Form 10-Q/A filed by the Company on December 29, 2023, 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 of $2.50 per share, equal to 50% of the price of the common stock in the initial public offering of $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.
200,000
of the 586,000 shares of common stock issued upon conversion of the 8% convertible unsecured promissory notes were registered for
resale upon issuance pursuant to the IPO Registration Statement.
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. 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.
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 were required to 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 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
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
Company’s engagement letter agreement with Boustead, as amended (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 our
committed equity financing facility.
Restricted Stock and Option Grants
During 2023, we made the following grants of options
to purchase common stock and restricted stock to employees, officers, and directors under the Plan, prior to the filing of registration
statements on Form S-8 with the SEC which registered the offer and sale, or reoffer and resale, of shares of common stock that are issuable
or were issued under the Plan:
On March 14, 2023, David O’Hara, a former
Chief Operating Officer and Secretary of the Company, was granted 90,000 shares of restricted stock, subject to certain vesting conditions.
On March 1, 2024, Mr. O’Hara resigned from his position as Chief Operating Officer and terminated his employment as Chief Operating
Officer and Secretary of the Company. On the same date, the unvested portion of the restricted stock, consisting of 45,000 shares, was
automatically forfeited.
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 5, 2023, Richard Symington, a former
officer and director of the Company, was granted an option to purchase 100,000 shares of common stock. The option may be exercised at
$2.50 per share. The option is subject to certain vesting conditions. Mr. Symington previously resigned from each of his positions as
an officer and director of 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 elected as a director of the Company as of December 19, 2023. On February 22, 2024,
Mr. Symington resigned from all positions and terminated his employment with the Company. Due to the option’s vesting conditions,
the option will not be exercisable prior to expiration.
On April 11, 2023, Martin Lanphere, a former director
of the Company, was granted an option to purchase 3,000 shares of common stock for $2.50 per share. Effective December 19, 2023, Mr. Lanphere
resigned from his position as a director of the Company. Under the terms of his option agreement, Mr. Lanphere’s stock option terminated
unexercised as of March 19, 2024.
On April 19, 2023, Trent Whitehead, the Vice President
of Human Resources and Secretary of the Company, was granted an option to purchase 10,000 shares of common stock. The option may be exercised
at $2.50 per share. The option is subject to certain vesting conditions.
On April 19, 2023, stock options to purchase a
total of 41,000 shares of common stock were granted under the Plan to certain other 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.
On May 9, 2023, Greg Economou, a director of the
Company, was granted an option to purchase 24,000 shares of common stock. The option may be exercised at $2.50 per share. The option is
subject to certain vesting conditions.
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.
Purchases of Equity Securities
No repurchases of our
common stock were made during the fourth quarter of 2023.
ITEM
6. [RESERVED]
ITEM
7. 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 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 report. 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, 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 report,
particularly in the sections titled Item 1A. “Risk Factors” and “Introductory Notes – Note Regarding Forward-Looking
Statements.”
Who We Are
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 student-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 December 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 student-athletes, and now also offers a platform for baseball, softball, and
men’s and women’s soccer, resulting in even more recruiter and student-athlete platform participants.
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 independent registered public accounting firm has 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 fiscal
years ended December 31, 2023 and 2022, our net loss was approximately $5.5 million and $6.7 million, respectively, our cash used in operating
activities was approximately $4.8 million and $4.9 million, respectively, and we had an accumulated deficit of approximately $17.0 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, 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. 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 “—Liquidity and Capital Resources –
Going Concern”.
Emerging Growth Company and Smaller Reporting
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; |
| ● | present three years, and may instead present only two years, of audited financial statements, with correspondingly
reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this report; |
| ● | 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); |
| ● | comply with certain greenhouse gas emissions disclosure and related third-party assurance requirements; |
| ● | 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 and accommodations available to us as an emerging growth company may continue to be
available to us as a smaller reporting company, including as to: (i) the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act; (ii) scaled executive compensation disclosures; (iii) presenting three years of audited financial statements; and (iv) compliance
with certain greenhouse gas emissions disclosure and related third-party assurance requirements.
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
The following table sets forth key components
of our results of operations during the years ended December 31, 2023 and 2022.
| | |
Years Ended December 31, | | |
$ | | |
% | |
| | |
2023 | | |
2022 | | |
Change | | |
Change | |
| Revenues, net | |
$ | 307,578 | | |
$ | 78,336 | | |
$ | 229,242 | | |
| 292.6 | % |
| Cost of revenues | |
| 40,387 | | |
| 783,064 | | |
| (742,677 | ) | |
| (94.8 | )% |
| Gross profit (loss) | |
$ | 267,191 | | |
$ | (704,728 | ) | |
$ | (513,435 | ) | |
| 72.9 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Operating cost and expenses | |
| | | |
| | | |
| | | |
| | |
| Advertising and marketing | |
| 439,700 | | |
| 1,842,666 | | |
| (1,402,966 | ) | |
| (76.1 | )% |
| General and administrative | |
| 4,575,672 | | |
| 3,846,174 | | |
| 729,498 | | |
| 19.0 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Total operating expenses | |
$ | 5,015,372 | | |
$ | 5,688,840 | | |
$ | (673,468 | ) | |
| (11.8 | )% |
| | |
| | | |
| | | |
| | | |
| | |
| Net income (loss) from operations | |
$ | (4,748,181 | ) | |
$ | (6,393,568 | ) | |
$ | 1,645,387 | | |
| (25.7 | )% |
| | |
| | | |
| | | |
| | | |
| | |
| Other Income (expense) | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (856,573 | ) | |
| (597,747 | ) | |
| (258,826 | ) | |
| 43.3 | % |
| Interest income | |
| - | | |
| 1,100 | | |
| (1,100 | ) | |
| (100.0 | )% |
| Deferred tax income | |
| 65,000 | | |
| 100,000 | | |
| (35,000 | ) | |
| (35.0 | )% |
| Other income, net | |
| 61,634 | | |
| 216,401 | | |
| (154,767 | ) | |
| (71.5 | )% |
| | |
| | | |
| | | |
| | | |
| | |
| Total other income (expense) | |
$ | (729,939 | ) | |
$ | (280,246 | ) | |
$ | (514,693 | ) | |
| 183.7 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (5,478,120 | ) | |
$ | (6,673,814 | ) | |
$ | 1,423,694 | | |
| (17.9 | )% |
Revenues, Net
Net revenues for the years ended December
31, 2023 and 2022 were approximately $0.31 million and approximately $0.08 million, respectively. Net revenues increased approximately
$0.23 million, or approximately 293%, primarily due to an increase in event revenue of approximately $0.11 million and an increase in
subscription revenue of approximately $0.09 million. 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 year ended December 31, 2023 totaled less than $1,000.
The following table presents information about
the number of users of our platform under subscriptions by type of subscription plan for each of the years ended December 31, 2023 and
2022. Subscriptions to our platform require payment prior to platform access except that group subscriptions may make payments on a monthly
installment basis.
| | |
Users with Subscriptions | |
| Subscription Type | |
Year Ended December 31,
2023 | | |
Year Ended December 31,
2022 | |
| Monthly | |
| 3,801 | (1) | |
| 1,193 | |
| Annual | |
| 45 | | |
| 33 | |
| Semi-Annual | |
| - | (2) | |
| 27 | |
| PRO+ | |
| - | (3) | |
| 13 | |
| Group – High School | |
| - | (4) | |
| 256 | |
| Group – General | |
| - | (1) | |
| 3 | |
| Total: | |
| 3,846 | | |
| 1,525 | |
| (1) | Includes monthly subscriptions previously designated as “Group
– General” subscriptions subsequent to fiscal year 2022. |
| (2) | Semi-annual subscriptions were not offered after 2022. |
| (3) | PRO+ subscriptions were not offered after 2022. |
| (4) | High school sports program group accounts were not differently
billed from other group accounts after 2022. |
The following table presents information about
the number of users of our platform under a former free use arrangement and the number of users with subscriptions for each of the years
ended December 31, 2023 and 2022.
| | |
Number of Users | |
| User Type | |
Year Ended December 31,
2023 | | |
Year Ended December 31,
2022 | |
| Free Use Arrangement(1) | |
| - | | |
| 46,961 | (1) |
| Subscription | |
| 3,846 | | |
| 1,525 | |
| Total(1): | |
| 3,846 | | |
| 48,486 | (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 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, during 2023, we signed strategic alliance and sponsorship agreements with significant college sports recruiting industry participants,
including GOAT Farm Sports, the owner of the U.S. Army Bowl, and EDP, 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, for college football and soccer 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 these sports now or in the future, to support
the particular priorities of strategic sports recruiting allies and collaborators, and to 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 report,
including under Item 1A. “Risk Factors”, “Introductory Notes – Note Regarding Forward-Looking Statements”,
this Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the notes
to the financial statements accompanying this report, and in the report of our independent registered public accounting firm accompanying
this report.
Cost of Revenues
Cost of revenues for
the years ended December 31, 2023 and 2022 was approximately $0.04 million and approximately $0.78 million, respectively. Cost of revenue
decreased approximately $0.74 million, or 95%, primarily due to a reduction in software development staff.
Advertising and Marketing
Advertising and marketing expenses were approximately
$0.44 million and approximately $1.84 million for the years ended December 31, 2023 and 2022, respectively. The decrease of approximately
$1.40 million, or 76%, was due to minimal advertising and marketing during the year ended December 31, 2023 principally relating to promotion
of the Company and its platform 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 platform
to support baseball, softball, and men’s and women’s soccer college recruitment in order to increase users during the year
ended December 31, 2023, and the non-repetition of incurred expenses for approximately $0.30 million in costs for special promotional
events, an approximately $0.20 million professional business-to-business digital marketing campaign, a $0.10 million payment in September
2022 required under our sponsorship agreement relating to the U.S. Army Bowl, an approximately $0.09 million public relations campaign,
and an approximately $0.02 million social media marketing campaign conducted during the year ended December 31, 2022.
General and Administrative
General and administrative
expenses were approximately $4.58 million and approximately $3.85 million for the years ended December 31, 2023 and 2022, respectively.
The increase of approximately $0.73 million, or 19.0%, was primarily due to an increase in stock-based compensation from $0.15 million
during the year ended December 31, 2022 to $0.55 million during the year ended December 31, 2023. This increase was offset by an impairment
charge of approximately $0.8 million that was recorded for the year ended December 31, 2022; no impairment charge was recorded for
the year ended December 31, 2023. The nonrecurrence of the impairment charge was due to the recoverability of software development ready-for-use
in future periods. 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 December 31, 2023 will have straight-line
amortization expense to cost of revenue for a period of five years beginning January 1, 2023.
Interest Expense
Interest expense was approximately $0.86 million
and approximately $0.60 million for the years ended December 31, 2023 and 2022, respectively. The increase was due to an increase
in convertible and nonconvertible notes payable.
Other Income (Expense), Net
Net other income was approximately $0.06 million
and approximately $0.22 million for the years ended December 31, 2023 and 2022, respectively. The
decrease was primarily due to a decrease in fair value adjustment of SAFE Agreements (as defined in “—Contractual Obligations
– SAFEs” of approximately $0.16 million and a decrease in sublease income of $0.66 million.
Liquidity and Capital Resources
As of December 31, 2023, we had cash and cash
equivalents of approximately $1.12 million and investments of approximately $2.11 million. As of December 31, 2023, we have financed our
operations primarily through revenue generated from operations and private placements of securities. In
November 2023, we raised approximately $4.7 million in net proceeds from our initial public offering. In February 2024, we also gained
access to a committed equity financing facility for up to $25,000,000, subject to certain
terms and conditions. See “—Recent Developments – Committed Equity Financing Facility” below.
We believe that our current
levels of cash, with the proceeds of the initial public offering and access to our committed equity financing facility, will be sufficient
to meet our anticipated cash needs for our operations and other cash requirements until December 31, 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, limits on or relatively unfavorable requirements for use of our committed equity financing facility, 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
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. Our auditor’s opinion included
in our audited financial statements for the years ended December 31, 2023 and 2022 contains an explanatory paragraph regarding substantial
doubt about our ability to continue as a going concern. In recent years, we have suffered recurring losses from operations, negative working
capital and cash outflows from operating activities, and therefore have been 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 platform 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 initial public offering,
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 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 report 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 Signing Day Sports, Inc. 2022 Equity Incentive 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. On February 27, 2024, the stockholders
of the Company approved an amendment to the Plan to increase the number of shares of common stock reserved for issuance under the Plan.
A maximum of 2,250,000 shares of common stock are available 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 416,938 shares of common stock,
not including stock options that subsequently terminated due to employee, officer, or director departures. In addition, a total of 1,400,185
shares of restricted stock have been granted to officers, directors, employees, and consultants. See Item 11. “Executive Compensation
– Signing Day Sports, Inc. 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 fiscal years ended December 31, 2023 and December 31, 2022:
Cash Flow
| | |
Years Ended December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Net cash provided by (used in) operating activities | |
$ | (4,848,373 | ) | |
$ | (4,928,461 | ) |
| Net cash provided by (used in) investing activities | |
| (3,178,179 | ) | |
| (855,480 | ) |
| Net cash provided by (used in) financing activities | |
| 8,895,671 | | |
| 1,350,800 | |
| Net change in cash and cash equivalents | |
| 869,119 | | |
| (4,433,141 | ) |
| Cash and cash equivalents, beginning of period | |
| 254,409 | | |
| 4,687,550 | |
| Cash and cash equivalents, end of period | |
$ | 1,123,529 | | |
$ | 254,409 | |
Net cash used in operating activities was approximately
$4.8 million for the year ended December 31, 2023 and approximately $4.9 million for the year ended December 31, 2022. The decrease was
primarily due to a decrease of net loss to approximately $5.5 million for the year ended December 31, 2023 from approximately $6.7 million
for the year ended December 31, 2022, offset primarily by an adjustment to reconcile net income to net cash used in operating activities
from the non-recurrence for the year ended December 31, 2023 of an impairment loss on software development costs of approximately $0.8
million for the year ended December 31, 2022 and a decrease in accounts payable and accrued liabilities of approximately $0.7 million.
Net cash used in investing activities was approximately
$3.2 million for the year ended December 31, 2023 and approximately $0.9 million for the
year ended December 31, 2022. The increase was primarily due to short-term investment in a certificate of deposit.
Net cash provided by financing activities was
approximately $8.9 million for the year ended December 31, 2023 and approximately $1.4 million for the year ended December 31, 2022. The
increase was primarily due to an increase in gross proceeds from issuance of common stock pursuant to the initial public offering of $6.0
million offset in part by the purchase of stock from a stockholder for an aggregate payment of $0.8 million.
Recent Developments
Stockholder Approval
of Certain Equity Finance and Equity Incentive Plan Proposals
At a special stockholders’
meeting that was held on February 27, 2024 (the “Special Stockholders’ Meeting”), the stockholders of the Company approved
the following proposals: (i) Proposal No. 1: To consider and vote upon a proposal to amend the Amended
and Restated Certificate of Incorporation of the Company to authorize 15,000,000 shares of preferred stock, which shares shall be “blank-check
preferred stock” in one or more series as solely determined by the board of directors of the Company, and to have the voting powers,
preferences and relative participation, optional and special rights and qualifications, limitations and restrictions thereof as solely
determined by the board (“Proposal No. 1”); (ii) Proposal No. 2: To consider and vote upon a proposal to amend the Signing
Day Sports, Inc. 2022 Equity Incentive Plan to increase the number of authorized shares of common stock available for issuance under the
Plan from 750,000 shares of common stock to 2,250,000 shares of common stock (“Proposal No. 2”); and (iii) Proposal No. 3:
To consider and vote upon a proposal to approve the issuance of up to $25,000,000 in common stock under an “equity line” financing
arrangement in order to comply with Section 713 of the NYSE American LLC Company Guide (“Proposal No. 3”).
Pursuant
to the stockholders’ approval of Proposal No. 1 and the approval of the board of directors, on February 27, 2024, the Company filed
the Second Amended and Restated Certificate of Incorporation, which provides the board with the powers described in Proposal No. 1. Pursuant
to the stockholders’ approval of Proposal No. 2 and the approval of the board, on February
27, 2024, the Company adopted Amendment No. 1 to the Signing Day Sports, Inc. 2022 Equity Incentive Plan, which increased the number of
shares of common stock available for issuance under the Plan from 750,000 to 2,250,000, and on March 1, 2024, the Company filed a registration
statement on Form S-8 to register the additional 1,500,000 shares of common stock for issuance under the Plan. On January 26, 2024,
we filed the initial registration statement required to be filed with the SEC pursuant to the CEFF Registration Rights Agreement, and
on February 14, 2024, the CEFF Registration Statement (as defined below under “—Committed Equity Financing Facility”)
was declared effective by the SEC. On February 15, 2024, all other initial conditions to Tumim’s purchase obligations set forth
in the CEFF Purchase Agreement were satisfied. Pursuant to the approval by the stockholders of Proposal
No. 3, the Company obtained the CEFF Stockholder Approval, and therefore may issue up to $25,000,000 in common stock under the CEFF Purchase
Agreement without being required to comply with the CEFF Exchange Cap, subject to the terms and conditions of the CEFF Purchase Agreement
and the CEFF Registration Rights Agreement.
The
actions described above were taken to improve the Company’s ability to meet its capital finance and equity compensation requirements.
The Company’s board of directors and its Compensation Committee will determine how and to what extent the Company will use each
of the above means to meet such requirements.
Committed Equity Financing
Facility
On January 5, 2024, the Company entered into the
CEFF Purchase Agreement with Tumim, providing for a committed equity financing facility, pursuant to which, upon the terms and subject
to the satisfaction of the conditions contained in the CEFF 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 CEFF Purchase Agreement, from time to time during the term of the CEFF Purchase Agreement. Concurrently with the execution
of the CEFF Purchase Agreement, the Company and Tumim also entered into the CEFF 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 CEFF Purchase Agreement
(collectively, the “CEFF Registration Statement”).
Sales of common stock by the Company to Tumim
under the CEFF 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 CEFF Purchase Agreement (the “Commencement”),
including that the initial CEFF 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 CEFF Closing Date, unless the CEFF Purchase Agreement is terminated earlier under its terms.
On January 26, 2024, we filed the initial CEFF
Registration Statement, and on February 14, 2024, the initial CEFF Registration Statement was declared effective. On February 15, 2024,
all other initial conditions to Tumim’s purchase obligations set forth in the CEFF Purchase Agreement were satisfied. Accordingly,
the Commencement Date occurred on February 15, 2024.
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 CEFF
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 CEFF Purchase Agreement have been received by Tumim electronically
as set forth in the CEFF 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
CEFF Purchase Agreement. The purchase price per share of common stock that the Company directs Tumim to purchase in a VWAP Purchase under
the CEFF 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 CEFF Purchase Agreement on the Commencement Date and thereafter at each time that the Company
may direct Tumim to purchase shares of common stock under the CEFF Purchase Agreement. Actual sales of common stock by the Company to
Tumim under the CEFF 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 CEFF 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 (the “CEFF Beneficial Ownership
Limitation”).
Under the applicable rules of the NYSE American,
in no event could the Company issue to Tumim under the CEFF Purchase Agreement more than the CEFF Exchange Cap, or 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 CEFF Purchase Agreement, until the Company obtained the CEFF Stockholder Approval to issue shares of common stock in excess of
the CEFF Exchange Cap in accordance with applicable NYSE American listing rules. The CEFF Exchange Cap was not applicable to limit the
number of shares of common stock that the Company could sell to Tumim in any VWAP Purchase that the Company effected pursuant to the CEFF
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
was 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 delivered 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 cash and/or stock having an aggregate value of $500,000
(the “CEFF Commitment Fee”) to Tumim and the amount paid as reimbursement for the legal fees and disbursements of Tumim’s
counsel in connection with the committed equity financing facility, each as described in more detail below, and otherwise as may be necessary
to ensure compliance with the applicable rules of the NYSE American.
Pursuant to the CEFF Purchase Agreement, the Company
was 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 CEFF Purchase Agreement for the purpose of obtaining the CEFF Stockholder Approval, and to use its reasonable
best efforts to obtain the CEFF Stockholder Approval at such stockholder meeting. Accordingly, as set forth in the definitive proxy materials
the Company filed with the SEC on December 29, 2023 and on January 2, 2024, the Company scheduled the Special Stockholders’ Meeting
to be held on February 27, 2024 for the purpose of, among other things, obtaining the CEFF Stockholder Approval. If the Company had not
obtained the CEFF Stockholder Approval at the Special Stockholders’ Meeting on February 27, 2024, the CEFF Purchase Agreement would
have required the Company to convene another stockholders’ meeting at least every three months after February 27, 2024 for the purpose
of obtaining the CEFF Stockholder Approval, until the earlier of (i) the date on which the CEFF Stockholder Approval was finally obtained
and (ii) the termination of the CEFF Purchase Agreement.
On February 27, 2024, at the Special Stockholders’
Meeting, the Company obtained the CEFF Stockholder Approval. As a result, the Company may issue more than the limited number of shares
as defined by the CEFF Exchange Cap, at prices that may be below 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 to Tumim and the amount paid as reimbursement for the legal fees and disbursements of Tumim’s counsel in connection with the
committed equity financing facility. However, the CEFF Purchase Agreement continues to provide that the Company may not issue or sell
any shares of common stock under the CEFF Purchase Agreement if such issuance or sale would breach any applicable rules or regulations
of NYSE American.
The net proceeds from
sales, if any, under the CEFF 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 CEFF Purchase Agreement or CEFF 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 CEFF 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 CEFF Closing Date and ending on the earlier of (i) the first day
of the month next following the 24-month anniversary of the CEFF Closing Date and (ii) the six-month anniversary of the effective date
of the termination of the CEFF Purchase Agreement pursuant to its terms. During the term of the CEFF 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 CEFF Purchase Agreement,
on the date of the initial filing with the SEC of the CEFF Registration Statement, the Company was required to issue to Tumim the CEFF
Commitment Shares in an amount valued at $500,000 in the aggregate, subject to the CEFF Beneficial Ownership Limitation. The per share
value of the CEFF Commitment Shares was required to be 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 CEFF Registration Statement. If any shares that were otherwise required to be issued as CEFF Commitment Shares
were not permitted to be issued due to the CEFF Beneficial Ownership Limitation, 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 CEFF Commitment Shares due to the CEFF Beneficial Ownership
Limitation 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 CEFF Registration Statement. Accordingly, on the date of the initial filing
with the SEC of the CEFF Registration Statement, the Company issued the CEFF 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 CEFF Registration Statement, which constituted approximately 4.99%
of the outstanding shares of common stock, and, due to the CEFF Beneficial Ownership Limitation and pursuant to the terms and conditions
of the CEFF Purchase Agreement summarized above, we paid Tumim $29,639.55 in cash, which equaled the number of the CEFF Commitment Shares
that would have been issued but for the application of the CEFF Beneficial Ownership Limitation, 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 CEFF Registration Statement. In the event that the initial satisfaction of all conditions to Tumim’s purchase obligations
set forth in the CEFF Purchase Agreement had not occurred by February 15, 2024, the Company would have been required to pay Tumim $500,000
less any amount of the Commitment Fee previously paid in cash upon the return and cancellation of the CEFF Commitment Shares. As noted
above, on February 14, 2024, the SEC declared the CEFF Registration Statement effective, and, on February 15, 2024, the other conditions
to the occurrence of the Commencement Date were satisfied. As such, the contingent requirement to pay Tumim the Commitment Fee in cash
upon the return and cancellation of the CEFF Commitment Shares expired without effect. In addition, as required under the CEFF 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 CEFF Purchase Agreement will automatically
terminate upon the earliest of (i) the first day of the month next following the 24-month anniversary of the CEFF Closing Date, (ii) Tumim’s
purchase of shares of common stock having an aggregate purchase price equal to $25,000,000 under the CEFF Purchase Agreement, or (iii)
the occurrence of certain other events set forth in the CEFF Purchase Agreement. The Company has the right to terminate the CEFF Purchase
Agreement at any time after the Commencement Date, at no cost or penalty, upon five trading days’ prior written notice to Tumim,
subject to certain conditions and the survival of certain provisions of the CEFF Purchase Agreement and the CEFF Registration Rights Agreement.
Tumim may terminate the CEFF Purchase Agreement upon five trading days’ prior written notice after the occurrence of certain events,
including if the Commencement Date shall not have occurred on or prior to February 15, 2024, upon the occurrence of a Material Adverse
Effect (as defined in the CEFF 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 CEFF Purchase Agreement, and no provision of the CEFF Purchase Agreement
or the CEFF 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 CEFF Purchase Agreement had not occurred by February 15, 2024, and
Tumim had terminated the CEFF Purchase Agreement as a result, the Company was required to issue to Tumim warrants to purchase 750,000
shares as a break-up fee (the “Penny Warrants”). The Penny Warrants were required to 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 was 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 was required to 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 was 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. As noted above, on February 14, 2024, the SEC declared the CEFF Registration Statement effective,
and, on February 15, 2024, the other conditions to the occurrence of the Commencement Date were satisfied. As such, the contingent requirement
to issue the Penny Warrants and comply with the related registration requirements expired without effect.
The CEFF Purchase Agreement and the CEFF 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.
The CEFF Purchase Agreement and the CEFF Registration
Rights Agreement are filed as Exhibit 10.42 and Exhibit 10.43 to this Annual Report on Form 10-K, respectively, and the description above
of the material terms of the CEFF Purchase Agreement and the CEFF Registration Rights Agreement is qualified in its entirety by reference
to such exhibits.
Under the Boustead Engagement Letter, Boustead
is acting as the placement agent in connection with the transactions contemplated by the CEFF Purchase Agreement. We agreed to issue Boustead
49,193 shares of common stock in connection with our issuance of the CEFF Commitment Shares to Tumim on January 26, 2024, equal to 7%
of the number of CEFF Commitment Shares that would have been issued but for the application of the CEFF Beneficial Ownership Limitation,
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% of the shares of common stock issued to Tumim pursuant to purchases under the CEFF
Purchase Agreement, with an exercise price equal to the applicable purchase price per share. 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 IPO Registration Statement
and the CEFF 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 CEFF 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”).
Contractual
Obligations
Summary of Future Contractual Financial Obligations
The following
table outlines our future contractual financial obligations by period in which payment is expected, as of December 31, 2023 (dollars in
thousands):
| | |
Total | | |
Short Term | | |
Long Term | |
| Operating lease obligations | |
$ | 228,061 | | |
$ | 83,736 | | |
$ | 144,325 | |
| Principal amount payable on promissory notes | |
| 3,530 | | |
| 3,530 | | |
| | |
| Total contractual obligations | |
$ | 231,591 | | |
$ | 87,266 | | |
$ | 144,325 | |
For additional
information regarding certain convertible and nonconvertible notes, refer to Note 7 in the notes to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
Midwestern Settlement
and Release Agreement
Under the Midwestern Release Agreement, dated
as of December 12, 2023, or the Midwestern Release Date, between the Company and Midwestern, 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
by making a payment of $300,000 within three business days of the Midwestern Release Date and a payment of the $300,000 Midwestern Release
Amount 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.
The Midwestern Release Agreement is filed as Exhibit
10.35 to this Annual Report on Form 10-K, and the description above of the material terms of the Midwestern Release Agreement is qualified
in its entirety by reference to such exhibit.
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 “—Recent Developments – Committed Equity Financing Facility” above for related
subsequent developments.
Initial Public Offering and Underwriting Agreement
On November 13, 2023,
we entered into 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 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
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 the Representative’s Warrant 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 $4.7 million. The Company also issued Boustead the 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 IPO Registration Statement; pursuant to the
462(b) Registration Statement; and by means of 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; the Representative’s
Warrant; and shares of common stock underlying the Representative’s Warrant 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 the Representative’s
Warrant 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 the 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 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, any such sales may have occurred 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.
The following is our
reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering
on November 16, 2023 until December 31, 2023:
| ● | None was used for construction
of plant, building and facilities; |
| ● | None was used for the purchase
and installation of machinery and equipment; |
| ● | None was used for purchases
of real estate; |
| ● | None was used for the acquisition
of other businesses; |
| ● | Approximately $0.83 million
was used for the repayment of indebtedness; |
| ● | Approximately $1.87 million
was used for working capital; and |
| ● | Approximately $2.11 million
was used for temporary investments. |
As of December 31, 2023,
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 have not been, and we do not expect, any
material changes 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 to Boustead Securities, LLC” for additional discussion of certain provisions in
the Underwriting Agreement.
The Underwriting Agreement is filed as Exhibit
10.29 to this Annual Report on Form 10-K, and the description above of certain material terms of the Underwriting Agreement is qualified
in its entirety by reference to such exhibit.
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: |
| o | 10.0% for Aggregate Consideration of less than $10,000,000;
plus |
| o | 8.0% for Aggregate Consideration between $10,000,000 and $25,000,000;
plus |
| o | 6.0% for Aggregate Consideration between $25,000,001 and $50,000,000;
plus |
| o | 4.0% for Aggregate Consideration between $50,000,001 and $75,000,000;
plus |
| o | 2.0% for Aggregate Consideration between $75,000,001 and $100,000,000;
plus |
| o | 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 “—Initial Public Offering and
Underwriting Agreement” for additional discussion of certain provisions in the Underwriting Agreement.
The Underwriting Agreement is filed as Exhibit
10.29 to this Annual Report on Form 10-K, and the description above of certain material terms of the Underwriting Agreement is qualified
in its entirety by reference to such exhibit.
Management Employment Agreements
During the fourth quarter of 2023, we entered
into certain executive employment agreements with certain executive officers. See Item 11. “Executive Compensation – Management
Employment and Consulting Agreements” for related discussion.
Debt
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 the 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” and “—Convertible and Nonconvertible
Interest-Bearing Unsecured 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 (see “—Convertible and Nonconvertible Interest-Bearing Unsecured Promissory
Notes”) 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 (see “—Convertible
and Nonconvertible Interest-Bearing 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 (see “—Convertible and Nonconvertible Interest-Bearing Unsecured 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.
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 Trust. The First CBAZ LOC had been
further conditioned on the issuance of Employee Retention Credit payroll tax refunds that the Company expected 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 $334,625 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 $1,540,125 as of
December 31, 2023.
The First CBAZ Loan Agreement,
the First CBAZ Promissory Note, the Second CBAZ Loan Agreement, the Second CBAZ Promissory Note, and the Assignment of Deposit Account
are filed as Exhibit 10.36, Exhibit 10.37, Exhibit 10.38, Exhibit 10.39, and Exhibit 10.40 to this Annual Report on Form 10-K, respectively,
and the description above of the material terms of the First CBAZ Loan Agreement, the First CBAZ Promissory Note, the Second CBAZ Loan
Agreement, the Second CBAZ Promissory Note, and the Assignment of Deposit Account is qualified in its entirety by reference to such exhibits.
Convertible and Nonconvertible
Interest-Bearing Unsecured Promissory Notes
The outstanding principal balance as of December
31, 2023 and as of December 31, 2022 under certain convertible and nonconvertible interest-bearing unsecured promissory notes issued by
the Company consisted of the following:
| | |
December 31,
2023 | | |
December 31,
2022 | |
| 8% nonconvertible unsecured promissory notes, $1,500,000 of principal maturing on March 17, 2025 and $850,000 maturing on May 2, 2025 | |
$ | - | (1) | |
$ | - | |
| 8% convertible unsecured promissory notes, maturing August 8, 2023 as initially issued, maturing August 8, 2025 as amended | |
| - | | |
| 1,315,000 | |
| 6% convertible unsecured promissory notes, maturing October 15, 2024 | |
| - | | |
| 3,300,000 | |
| 6% convertible unsecured promissory notes, maturing November 15, 2024 | |
| - | | |
| 1,205,000 | |
| 6% convertible unsecured promissory notes, maturing December 23, 2024 | |
| - | | |
| 1,800,000 | |
| Total: | |
| - | | |
| 7,620,000 | |
| Less unamortized debt issuance costs | |
| - | | |
| (387,920 | ) |
| Long-term debt, less unamortized debt issuance costs | |
$ | - | | |
$ | 7,232,080 | |
| (1) | $113,304 in accrued
interest under these promissory notes remained due as of December 31, 2023 and included in the accrued liabilities line item on the balance
sheet included with the accompanying consolidated financial statements. |
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.
As of December 31, 2023, in
connection with the closing of the Company’s initial public offering, all of the principal underlying the convertible promissory
notes had been automatically converted. 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 and the proceeds were automatically used to repay the outstanding principal underlying the 8% nonconvertible
promissory notes consisting of $2,350,000. On the same date, a total of $113,304 in accrued interest under these promissory notes
became due, and remained due as of December 31, 2023. See Exhibit 4.1 to this Annual Report on Form 10-K for a further description
of the 8% unsecured promissory notes, 8% convertible unsecured promissory notes, and 6% convertible unsecured promissory notes. 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” for a description of related developments.
See “Description of Securities – 6% Convertible Unsecured Promissory Notes,” “Description of Securities
– 8% Convertible Unsecured Promissory Notes,” and “Description of Securities – 8% Unsecured Promissory
Notes” of Exhibit 4.1 to this Annual Report on Form 10-K for a description of the terms of these promissory notes. The forms
of 8% unsecured promissory notes, 8% convertible unsecured promissory notes, and 6% convertible unsecured promissory notes are filed as
Exhibit 4.6, Exhibit 4.5, and Exhibit 4.3 to this Annual Report on Form 10-K, respectively, and the descriptions above and in Exhibit
4.1 hereto of material terms of the 8% unsecured promissory notes, 8% convertible unsecured promissory notes, and 6% convertible unsecured
promissory notes are qualified in their entirety by reference to such exhibits.
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 were required to 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 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.
The form of 15% OID promissory notes filed as
Exhibit 4.11 to this Annual Report on Form 10-K, and the description above of the material terms of the 15% OID promissory notes is qualified
in its entirety by reference to such exhibit.
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 the
Alleged Loan. The Company has generally denied entering into a binding agreement with Mr. Dorsey 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.
On November
22, 2023, the outstanding balance of $40,000 was fully repaid.
The January 2023 Dorsey Settlement Agreement and
promissory note issued to Mr. Dorsey are filed as Exhibit 10.11 and Exhibit 4.7 to this Annual Report on Form 10-K, respectively, and
the description above of the material terms of the January 2023 Dorsey Settlement Agreement and promissory note issued to Mr. Dorsey is
qualified in its entirety by reference to such exhibits.
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 November 22, 2023, the outstanding balance of $130,000 was fully repaid. Mr. Nelson
waived all interest owed under the promissory note.
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 November 22, 2023, the outstanding balance of $10,238.36 was fully repaid.
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
October 10, 2023, the outstanding balance of $97,670.41 was fully repaid.
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 was required to be repaid within ten
days. The amount could 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 could be prepaid at any time.
Due to a subsequent issuance of debt convertible into equity on August 8, 2022, in accordance with the terms of the note, 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.
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. On October 10, 2023, the outstanding balance
of $37,635.07 was fully repaid.
The promissory notes described above are filed
as Exhibit 4.12, Exhibit 4.13, Exhibit 4.14, Exhibit 4.15, Exhibit 4.16, and Exhibit 4.17 to this Annual Report on Form 10-K, respectively,
and the description above of the material terms of such promissory notes is qualified in its entirety by reference to such exhibits.
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.
The Repurchase Agreement and the Mutual Release
Agreement are filed as Exhibit 10.20 and Exhibit 10.21 to this Annual Report on Form 10-K, respectively, and the description above of
the material terms of the Repurchase Agreement and the Mutual Release Agreement is qualified in its entirety by reference to such exhibits.
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 the Office Lease, and as further amended under the Amendment to Office Lease. As amended,
the Office 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 Office Lease, as amended, 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 Office Lease, as amended, 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 Office
Lease, as amended, and which will not be less than 103% of the final rent amount under the current term. Under the Office Lease, as amended,
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. The lease
liability will be amortized over the remainder of the lease. As of December 31, 2023 and December 31, 2022, the unamortized balance was
$0 and $13,924, respectively.
The Office Lease and the Amendment to Office Lease
are filed as Exhibit 10.12 and Exhibit 10.22 to this Annual Report on Form 10-K, respectively, and the description above of the material
terms of the Office Lease and the Amendment to Office Lease is qualified in its entirety by reference to such exhibits.
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 or cash of the Company in the form of these agreements
(each, a “SAFE” and collectively, the “SAFEs”).
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 Liquidity Event (as defined
in the SAFE Agreements), 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 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, 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 potentially required the Company to issue a variable number of shares.
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 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.
See Note
1 – Principal Business Activity and Significant Accounting Policies in the consolidated financial statements included elsewhere
in this Annual Report on Form 10-K, for a description of our other significant accounting policies. We believe the following critical
accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
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 September 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
December 31, 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, 2023, the 2020 through 2022 tax
years generally remain subject to examination by federal and state authorities.
Internally Developed Software
Software consists of an internally developed information
system for use by the Company in matching student-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.
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. The Company’s software
development costs before January 1, 2023, were deemed impaired due to inability of recovery of costs in future periods. The Company’s
platform 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 fiscal year ended December 31, 2023. Capitalized
costs associated with the platform during the fiscal year ended December 31, 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 fiscal year ended
December 31, 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, 2023 and 2022 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 year ended December 31, 2022 were fully impaired at the end of such fiscal year, in
accordance with ASC Subtopic 350-40-35 and as described below. During the fiscal years ended December 31, 2023 and 2022, 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 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, 2023 and 2022, the Company wrote off net capitalized software development costs of $0 and $820,951, respectively, which were
recorded in general and administrative expenses in the consolidated statements of operations. An impairment charge for this write-off
is reflected in the operating expenses in the accompanying statement of operations.
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.
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, consultants,
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 does not presently plan to pay cash dividends in the foreseeable future.
Consequently, we use an expected dividend yield of zero.
Volatility. With
respect to grants of equity awards made prior to the listing of our common stock on the NYSE American on November 14, 2023, given the
absence of an active market for our common stock, the Company’s expected volatility was derived from the historical volatilities
of several unrelated public companies in the digital media and social platform industries because we had little information on the volatility
of the price of our common stock because we had 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. With
respect to grants of equity awards made after the listing, the Company determines the expected volatility by weighing the historical average
volatilities of publicly traded industry peers and its own trading history. The Company intends to continue to consistently apply this
methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of
the Company’s own common stock price becomes available, unless circumstances change such that the identified companies are no longer
similar to the Company, in which case more suitable companies whose stock prices are publicly available would be utilized in the calculation.
The following table summarizes
the assumptions relating to our stock options for the year ended December 31, 2022 and the period from January 1, 2023 to November 13,
2023, the last day prior to the date of the listing of the common stock on the NYSE American on November 14, 2023.
| | |
January 1,
2023 to | | |
Year ended | |
| | |
November 13, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Risk-free interest rate | |
| 3.78 | % | |
| 3.88 | % |
| Expected term (in years) | |
| 5.42 | | |
| 5.42 | |
| Expected volatility | |
| 50 | % | |
| 50 | % |
| Expected dividend yield | |
$ | - | | |
$ | - | |
The following table summarizes
the assumptions relating to our stock options for the period from November 14, 2023, the date of the listing of the common stock on the
NYSE American on November 14, 2023, to December 31, 2023.
| | |
November 14,
2023 to | |
| | |
December 31,
2023 | |
| | |
| |
| Risk-free interest rate | |
| 4.44 | % |
| Expected term (in years) | |
| 5.41 | |
| Expected volatility | |
| 92.16 | % |
| 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. With
respect to grants of equity awards made before the listing of our common stock on the NYSE American on November 14, 2023, given the absence
of an active market for our common stock, 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 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. |
For valuations
after our listing on November 14, 2023 and until December 31, 2023, our board of directors
determined the fair value of each share of underlying common stock based on the closing price of the common stock as reported on the date
of grant.
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, stock options to purchase
110,000 shares of common stock were granted to employees and a newly-appointed independent director. On September 28, 2022, stock
options to purchase 152,000 shares of common stock 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, stock options to purchase 53,800
shares of common stock and 90,000 restricted shares 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, stock options
to purchase 243,000 shares of common stock 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, 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 the same third-party independent valuation firm 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 – Contractual Obligations – 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.
Recent Accounting Pronouncements
See the
sections titled “Principal Business Activity and Significant Accounting Policies — Adopted Accounting Pronouncements”
and “—New Accounting Pronouncements” in Note 1 to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The full text of our audited consolidated financial
statements begins on page F-1 of this Annual Report on Form 10-K.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Marcum LLP (“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 this report.
On March 1, 2023, we engaged BARTON CPA (“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.
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with
the participation of our Chief Executive Officer and Interim Chief Financial Officer, have evaluated our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) prior to the filing of this Annual Report
on Form 10-K. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the end
of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were, in design and operation, effective
at a reasonable assurance level.
Management’s Annual Report on Internal
Control over Financial Reporting
This Annual Report on
Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation
report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public
companies.
Changes in Internal Controls over Financial
Reporting
There were no changes in our internal control
over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Control
The effectiveness of any system of internal control
over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing,
operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of
internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not
absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you
that such improvements will be sufficient to provide us with effective internal control over financial reporting.
ITEM
9B. OTHER INFORMATION.
Revolving
Lines of Credit with Commerce Bank of Arizona
Under
the First CBAZ Loan Agreement, the Company and CBAZ entered into the First CBAZ LOC. In connection with the First CBAZ LOC, CBAZ issued
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 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 Trust. The First CBAZ LOC had been further conditioned on the issuance of Employee Retention
Credit payroll tax refunds that the Company expected to be received by April 2024, and was subject to certain other terms and conditions.
Under
the Second CBAZ Loan Agreement, the Company and CBAZ entered into the Second CBAZ LOC. In connection with the Second CBAZ LOC, CBAZ issued
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 the CD Collateral under
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 $1,540,125 as of
December 31, 2023.
The First CBAZ Loan Agreement, the First CBAZ
Promissory Note, the Second CBAZ Loan Agreement, the Second CBAZ Promissory Note, and the Assignment of Deposit Account are filed as Exhibit
10.36, Exhibit 10.37, Exhibit 10.38, Exhibit 10.39, and Exhibit 10.40 to this Annual Report on Form 10-K, respectively, and the description
above of the material terms of the First CBAZ Loan Agreement, the First CBAZ Promissory Note, the Second CBAZ Loan Agreement, the Second
CBAZ Promissory Note, and the Assignment of Deposit Account is qualified in its entirety by reference to such exhibits.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following sets forth information about our
directors and executive officers:
| Name |
|
Age |
|
Position |
| Daniel D. Nelson |
|
61 |
|
Chief Executive Officer, Chairman and Director |
| Damon Rich |
|
54 |
|
Interim Chief Financial Officer |
| Trent Whitehead |
|
63 |
|
Vice President of Human Resources and Secretary |
| Roger Mason Jr. |
|
43 |
|
Director |
| Greg Economou |
|
59 |
|
Director |
| Peter Borish |
|
64 |
|
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.
Trent Whitehead. Mr. Whitehead,
63, has served as the Company’s Vice President of Human Resources since March 2023. From June 2022 to March 2023, Mr. Whitehead
was Director of Human Resources at Scottsdale Christian Academy. From August 2015 to May 2022, Mr. Whitehead was High School Bible Department
Chair and High School Bible Teacher for Scottsdale Christian Academy. Mr. Whitehead also has more than 12 years of experience in previous
human resources positions. Mr. Whitehead obtained a M.S. in Industrial and Labor Relations from University of Wisconsin – Madison
and a B.A. in Social Science and Employee Relations International Studies from Michigan State University.
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.
Peter Borish. Mr.
Borish has served as a member of our board of directors since February 2024. Since January 2015, Mr. Borish has been the President and
Chief Executive Officer of Computer Trading Corporation, an investment and advisory firm. Since December 2021, Mr. Borish has also been
a partner of Torsion Technologies, LLC. In addition, since 2015, Mr. Borish has been an independent trustee of RMB Investors Trust, a
registered management investment company. Since October 2023, Mr. Borish has also served as a director of CIBC Bancorp USA, a subsidiary
of Canadian Imperial Bank of Commerce (TSX: CM; NYSE: CM). Additionally, since September 2013, Mr. Borish has served as the Board Advisor
of ValueStream Labs, an accelerator for financial services technologies. From January 2013 to June 2020, Mr. Borish was the Chief Strategist
of Quad Group LLC, an investment firm. Mr. Borish graduated from the University of Michigan with an A.B. and earned an M.P.P. in Public
Policy from Gerald R. Ford School of Public Policy, University of Michigan. We believe that Mr. Borish is qualified to serve on
our board of directors due to his prior experience serving in executive, director or trustee positions
in financial management companies and organizations.
Arrangements Between Officers and Directors
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 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, his 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 SEC 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. |
Material Changes to Director Nomination Procedures
There have been no material changes to the procedures
by which stockholders may recommend nominees to our board of directors since such procedures were last disclosed.
Committees of the Board of Directors
Our board of directors established the Company’s
Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Disclosure Controls and Procedures Committee,
each with its own charter approved by the board. Each committee’s charter is 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.
For further related discussion, see Item 13. “Certain
Relationships and Related Transactions, and Director Independence – Director Independence – Committees of the Board of Directors”.
Audit Committee and Audit Committee Members
Our Audit Committee was established in accordance
with section 3(a)(58)(A) of the Exchange Act. Roger Mason Jr., Greg Economou, and Peter Borish, each of whom has been determined by our
board of directors to satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and the NYSE American’s
rules, serve on our Audit Committee, with Mr. Borish serving as the chairman. Our board has determined that Mr. Borish qualifies as an
“audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-K.
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.
The full text of the Code of Ethics and Business
Conduct is posted on our website at https://ir.signingdaysports.com/. Any waiver of the Code of Ethics and Business Conduct for directors
or executive officers must be approved by our Audit Committee. We will disclose future amendments to our Code of Ethics and Business Conduct,
or waivers from our Code of Ethics and Business Conduct for our principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, on our website within four business days following the date of the
amendment or waiver. In addition, we will disclose any waiver from our Code of Ethics and Business Conduct for our other executive officers
and our directors on our website. A copy of our Code of Ethics and Business Conduct will also be provided free of charge upon request
to: Secretary, Signing Day Sports, Inc., 8355 East Hartford Rd., Suite 100, Scottsdale, AZ 85255.
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 is filed as Exhibit 99.1 to this report.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our
directors and executive officers and beneficial holders of more than 10% of our shares of common stock to file with the SEC initial reports
of ownership and reports of changes in ownership of our equity securities. We believe, based solely on a review of the copies of such
reports furnished to us and representations of these persons, that all reports were timely filed for the year ended December 31, 2023,
except as follows: Dennis Gile, a beneficial owner of more than 10% of our shares of common stock, failed to timely file a required Form
3.
ITEM
11. 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, | |
2023 | | |
| 23,038 | | |
| - | | |
| - | | |
| 114,000 | (1) | |
| - | | |
| 137,038 | |
| Chief Executive Officer | |
2022 | | |
| - | | |
| - | | |
| - | | |
| 20,195 | (2) | |
| - | | |
| 20,195 | |
| David O’Hara, former | |
2023 | | |
| 192,779 | | |
| 100,000 | | |
| 154,800 | (4) | |
| 114,000 | (5) | |
| - | | |
| 561,579 | |
| Chief Operating Officer(3) | |
2022 | | |
| 194,993 | | |
| - | | |
| - | | |
| 34,640 | (6) | |
| - | | |
| 229,633 | |
Richard Symington,
former President, Chief Technology Officer, and Chief Marketing Officer(7) | |
2023 | | |
| 67,893 | | |
| - | | |
| - | | |
| 240,000 | (8) | |
| - | | |
| 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 was granted 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 report. |
| (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 report. |
| (3) | David O’Hara was Chief Operating Officer of the Company
from July 2022 to March 2024. |
| (4) | David O’Hara was granted 90,000 shares of common stock
on March 14, 2023. A portion of the shares was granted 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 report. |
| (5) | David O’Hara was granted an option to purchase 100,000
shares of common stock on November 22, 2023. A portion of the option was granted 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 report. |
| (6) | 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 was granted 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 report. |
| (7) | Richard Symington was President
and Chief Marketing Officer of the Company from April 2023 to May 2023 and was President and Chief Technology Officer of the Company
from November 2023 to February 2024. Mr. Symington was not a named executive officer
in 2022. |
| (8) | 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 were
granted 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 report. |
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 “Original CEO Employment
Agreement”). Under the Original 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 Original CEO Employment Agreement.
Mr. Nelson’s annual
base salary was $425,000 from November 22, 2023 to February 29, 2024, subject to modification upon execution of an amendment or addendum
to the Original CEO Employment Agreement. Under an Amended and Restated Executive Employment Agreement, dated as of March 1, 2024, between
the Company and Mr. Nelson (the “Amended and Restated CEO Employment Agreement”). Pursuant to the Amended and Restated CEO
Employment Agreement, the Original CEO Employment Agreement was amended to reduce Mr. Nelson’s annual base salary from $425,000
to $200,000, effective March 1, 2024. No other terms of the Original CEO Employment Agreement were amended. 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 Original 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 Original
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 was exercisable
as to half the shares immediately upon the date of grant and was subject to vesting 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.
Former Employment Agreements with David
O’Hara
Under an employment contract with David O’Hara,
the Company’s former 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 was employed in his former 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 was $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 agreed
to 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 was exercisable
as to half the shares immediately upon the date of grant and was subject to vesting as to the remaining half in six equal monthly portions
after the grant date subject to continuous service.
Mr. O’Hara was
eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options. The Company
agreed to cover 100% of the health insurance premium costs for Mr. O’Hara’s spouse and dependent children. Mr. O’Hara
was also 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 was at-will. If the Company had terminated Mr. O’Hara without cause, Mr. O’Hara would have been 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 would 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.
On
March 1, 2024, Mr. O’Hara notified the Board of his resignation from his position as Chief Operating Officer, effective immediately.
Mr. O’Hara also notified the Board that the COO Employment Agreement was terminated, effective immediately.
Former Employment
Agreements and Former Consulting Agreement 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. The option was subject to vesting as to one-third 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
remained in continuous service with the Company, and had 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 (the “Symington Consulting Agreement”), 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 Symington
Consulting Agreement 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 Symington Consulting Agreement effective November 27, 2023, prior to the beginning of the
service term under the Symington Consulting Agreement, which, under its terms, would have been November 30, 2023. No compensation was
owed under the Symington Consulting Agreement 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 was
employed as the Company’s President and Chief Technology Officer. Mr. Symington was also elected 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 was $375,000, subject to modification upon execution of an amendment or addendum to the CTO Employment Agreement. The
Company agreed to 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 was
eligible to participate in comprehensive benefits plans of the Company, including medical, dental and life insurance options, and was
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 provided 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. The option was subject to vesting
as to one-third 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 remained in continuous
service with the Company.
Mr. Symington’s
employment was at-will. If the Company had terminated Mr. Symington without cause after one year of employment from November 22,
2023, Mr. Symington would have been 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.
On February 22, 2024,
Mr. Symington notified the Board of his resignation from his positions as President, Chief Technology Officer, and a member of the Board,
effective immediately. Mr. Symington also notified the Board that the CTO Employment Agreement was terminated, effective immediately.
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.
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, former
Chief Operating Officer(2) | |
| 58,333 | | |
| 41,667 | (3) | |
| - | | |
$ | 2.25 | | |
November 21, 2033 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
David O’Hara, former
Chief Operating Officer(2) | |
| 14,531 | | |
| 15,469 | (4) | |
| - | | |
$ | 3.10 | | |
September 9, 2032 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
David O’Hara, former
Chief Operating Officer(2) | |
| 14,531 | | |
| 15,469 | (5) | |
| - | | |
$ | 3.10 | | |
September 28, 2032 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
David O’Hara, former
Chief Operating Officer(2) | |
| - | | |
| - | | |
| - | | |
| - | | |
- | |
| 45,000 | (6) | |
| 50,850 | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
Richard Symington, former
President, Chief Technology Officer, former Chief Marketing Officer(7) | |
| - | | |
| 100,000 | (8) | |
| - | | |
$ | 2.50 | | |
April 5, 2033 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
Richard Symington, former
President, Chief Technology Officer, and Chief Marketing Officer(7) | |
| - | | |
| 50,000 | (9) | |
| - | | |
$ | 2.25 | | |
November 21, 2033 | |
| - | | |
| - | | |
| - | | |
| - | |
| (1) | As of December 31, 2023, the unvested shares under the option
were subject to vesting in five equal monthly installments of approximately 8,333 shares each. |
| (2) | David O’Hara was Chief Operating Officer of the Company
from July 2022 to March 2024. |
| (3) | As of December 31, 2023, the unvested shares under the option
were subject to vesting in five equal monthly installments of approximately 8,333 shares each. |
| (4) | As of December 31, 2023, the unvested shares under the option
were subject to vesting in 33 equal monthly installments of approximately 417 shares each. |
| (5) | As of December 31, 2023, the unvested shares under the option
were subject to vesting in 33 equal monthly installments of approximately 417 shares each. |
| (6) | As of December 31, 2023, the unvested shares were subject to
vesting 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. |
| (7) | Richard Symington was President
and Chief Marketing Officer of the Company from April 2023 to May 2023 and was President and Chief Technology Officer of the Company
from November 2023 to February 2024. |
| (8) | 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 was subject to vesting 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. Mr. Symington resigned from each of his positions with the Company on May 26, 2023. Under
the Symington Consulting Agreement, 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 Symington Consulting Agreement prior to any services provided under the Symington Consulting Agreement.
Mr. Symington was appointed as a director of the Company as of December 19, 2023. As of December 31, 2023, the stock option is considered
to have been outstanding and exercisable subject to its vesting conditions. |
| (9) | As of December 31, 2023, the option was subject to vesting 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. |
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) | |
$ | - | | |
$ | - | | |
$ | - | (3) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Martin Lanphere(4) | |
$ | - | | |
$ | - | | |
$ | 5,520 | (5) | |
$ | - | | |
$ | - | | |
$ | 25,176 | (6) | |
$ | 30,696 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Roger Mason Jr. | |
$ | - | | |
$ | - | | |
$ | - | (7) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Noah (Jed) Smith(8) | |
$ | - | | |
$ | - | | |
$ | - | (9) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Richard
Symington(10) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 5,000 | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Greg Economou(11) | |
$ | - | | |
$ | - | | |
$ | 24,480 | (12) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 24,480 | |
| (1) | Clayton Adams was a director of the Company from July 2022 to
April 2023. |
| (2) | Glen Kim was a director of the Company from July 2022 to February
2024. |
| (3) | 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. |
| (4) | Martin Lanphere was a director of the Company from September
2022 to December 2023. |
| (5) | 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 report. 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. |
| (6) | Consisted of reimbursement of expenses for service on the board
of directors. |
| (7) | 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. |
| (8) | Noah (Jed) Smith was a director of the Company from July 2022
to April 2023. |
| (9) | 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. |
| (10) | Richard Symington was a director of the Company from April 2023
to May 2023, and from December 2023 to February 2024. |
| (11) | Greg Economou has been a director of the Company since May 2023. |
| (12) | 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 this option 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., Greg Economou, and Peter Borish, has entered into an independent director agreement. We also entered into an independent
director agreement with former directors Clayton Adams, Noah (Jed) Smith, Martin Lanphere, and Glen Kim. In accordance with their independent
director agreements, we granted equity awards and, subsequent to 2023 as to Mr. Borish, cash fees, to these current and former directors.
Mr. Adams, Mr. Smith, Mr. Lanphere, and Mr. Kim, resigned from the board of directors in April 2023, April 2023, December 2023, and February
2024, respectively, and their independent director agreements expired in accordance with their terms at such times.
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 former 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 a
director and serving as President and Chief Technology 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. Kim, 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.
Signing Day Sports, Inc. 2022 Equity Incentive Plan
On August 31, 2022, we established the Signing
Day Sports, Inc. 2022 Equity Incentive Plan and reserved 750,000 shares of common stock for issuance under the Plan. On February 27, 2024,
the Plan was amended to increase the number of shares of common stock reserved for issuance under the Plan to 2,250,000 shares. 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 2,250,000 shares. Cancelled
and forfeited stock options and stock awards may again become available for grant under the Plan. As of March 26, 2024, 432,878 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 2,250,000, 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 Exhibit 97.1 to this report.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information
with respect to the beneficial ownership of our common stock as of March 26, 2024 by (i) each of our named executive officers, current
executive officers, and directors; (ii) all of our executive officers and directors as a group; and (iii) each person who is known by
us to beneficially own more than 5% of our common stock.
Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power with respect to securities. Under those rules, beneficial
ownership includes any shares as to which a person has sole or shared voting power or investment power, and also any shares which the
person has the right to acquire within 60 days of March 26, 2024, through the exercise or conversion of any stock option, convertible
security, warrant or other right. Except as set forth below, each of the beneficial owners listed above has direct ownership of and sole
voting power and investment power with respect to the shares of our common stock.
Unless otherwise specified, the address of each
of the persons named in this table 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 | |
| 844,851 | (2) | |
| 5.5 | |
| - | |
Damon Rich, Interim Chief Financial Officer | |
| - | | |
| - | |
| Common Stock | |
Trent Whitehead, Vice President of Human Resources and Secretary | |
| 28,333 | (3) | |
| 0.2 | |
| Common Stock | |
Roger Mason Jr., Director | |
| 10,000 | (4) | |
| * | |
| Common Stock | |
Greg Economou, Director | |
| 8,000 | (5) | |
| * | |
| Common Stock | |
Peter Borish, Director | |
| 43,796 | | |
| * | |
| Common Stock | |
All directors and executive officers (6 persons) | |
| 934,980 | | |
| 6.1 | % |
| Common Stock | |
Dennis Gile(6) | |
| 2,176,377 | | |
| 14.2 | |
| Common Stock | |
Dorsey Family Holdings, LLC(7) | |
| 1,309,940 | | |
| 8.5 | |
| Common Stock | |
John Dorsey(8) | |
| 1,369,940 | (8) | |
| 8.9 | |
| Common Stock | |
Virginia Byrd(9) | |
| 817,785 | | |
| 5.3 | |
| Common Stock | |
Jodi B. Nelson(10) | |
| 844,851 | (10) | |
| 5.5 | |
| Common Stock | |
David O’Hara(11) | |
| 150,938 | (12) | |
| 1.0 | |
| Common Stock | |
Richard Symington(13) | |
| 100,000 | | |
| 0.6 | |
| * | Non-employee director beneficially owning less than 1% of the
shares of the Company’s common stock. |
| (1) | Based on 15,365,312 shares of common stock issued and outstanding as of March 26, 2024. For each beneficial
owner above, any options exercisable within 60 days of March 26, 2024 have been included in the denominator. |
| (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) 100,000 shares of common stock issuable
upon the exercise of an option held by Daniel D. Nelson within 60 days of March 26, 2024.
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) 25,000 shares of common stock and (ii) 3,333 shares of common stock issuable upon the
exercise of an option within 60 days of March 26, 2024. |
| (4) | Consists of 10,000 shares of common stock issuable upon the exercise of an option within
60 days of March 26, 2024. |
| (5) | Consists of 8,000 shares of common stock issuable upon the exercise of an option within
60 days of March 26, 2024. |
| (6) | Dennis Gile’s last known address is 4010 E. Leland St., Mesa,
AZ 85215. |
| (7) | 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 sole voting and dispositive power over
its shares. Dorsey LLC’s last known address is 18690 N. 101st Pl., Scottsdale, AZ 85255. |
| (8) | 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 sole voting and
dispositive power over its shares. Mr. Dorsey’s last known address is 18690 N. 101st Pl., Scottsdale, AZ 85255. |
| (9) | 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 of Arizona, Inc., an Arizona corporation (“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 sole 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 have sole voting and dispositive power over its shares. |
| (10) | 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) 100,000 shares of common stock issuable
upon the exercise of an option held by Daniel D. Nelson within 60 days of March 26, 2024.
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. |
| (11) | David O’Hara was Chief Operating Officer of the Company from July 2022 to March 2024, and is a named
executive officer. |
| (12) | Consists of (i) 45,000 shares of common stock, (ii) 15,469 shares of common stock issuable upon exercise
of an option within 60 days of March 26, 2024, (iii) 15,469 shares of common stock issuable upon exercise of an option within 60 days
of March 26, 2024; and (iv) 75,000 shares of common stock issuable upon exercise of an option within 60 days of March 26, 2024. |
| (13) | Richard Symington was President and Chief Marketing Officer of the
Company from April 2023 to May 2023, was President and Chief Technology Officer of the Company from November 2023 to February 2024,
and is a named executive officer. |
Changes in Control
We do not have any arrangements known to us the
operation of which may at a subsequent date result in a change in control of the Company.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information
about the securities authorized for issuance under compensation plans (including individual compensation arrangements) under which equity
securities of the Company are authorized for issuance as of December 31, 2023.
| Plan Category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | |
Weighted-average exercise price of outstanding options, warrants and rights (b) | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |
| Equity compensation plans approved by security holders(1) | |
| 651,000 | (2) | |
$ | 2.58 | | |
| 9,000 | (3) |
| Equity compensation plans not approved by security holders | |
| - | | |
| - | | |
| - | |
| Total | |
| 651,000 | (2) | |
$ | 2.88 | | |
| 9,000 | (3) |
| (1) | On August 31, 2022, we established the Signing Day Sports, Inc.
2022 Equity Incentive Plan and reserved 750,000 shares of common stock for issuance under the Plan. On February 27, 2024, the Plan was
amended to increase the number of shares of common stock reserved for issuance under the Plan to 2,250,000 shares. 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 2,250,000 shares. Cancelled and forfeited stock
options and stock awards may again become available for grant 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. For a further description of the Plan, see
Item 11. “Executive Compensation – Signing Day Sports, Inc. 2022 Equity Incentive Plan”. |
| (2) | Includes both vested and unvested options to purchase common
stock under the Plan. Does not include any restricted stock that has been granted subject to forfeiture as of December 31, 2023. |
| (3) | Represents shares available for award grant purposes under the
Plan. Does not include any restricted stock that has been granted subject to forfeiture as of December 31, 2023. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
The following includes a summary of transactions
since the beginning of our 2022 fiscal year, 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 1% 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 Item 11 “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.
| ● | Under the First CBAZ Loan Agreement, the Company and CBAZ entered
into the First CBAZ LOC. In connection with the First CBAZ LOC, CBAZ issued 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 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 Trust.
The First CBAZ LOC had been further conditioned on the issuance of Employee Retention Credit payroll tax refunds that the Company expected
to be received by April 2024, and was subject to certain other terms and conditions. The total approximate dollar value of this
transaction was $354,124. The approximate dollar value of the interest of each of Mr. Nelson,
Ms. Nelson, and the Nelson Trust in this transaction was $350,000 plus interest. |
| ● | 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 a 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 a 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 former 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 former director and
a former beneficial owner of more than 5% of the shares of common stock of the Company, purchased 20,000 shares of common stock for a
purchase price of $100,000. |
| ● | 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, the Company’s former President, Chief Technology
Officer, Chief Marketing Officer, and 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. A total of $11,836 in accrued unpaid interest was due and payable
on the promissory note as of December 31, 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 was required to be repaid within ten days. The amount could 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 could 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 March 26, 2024, 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 March 26, 2024, 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 beneficial owner of more than 5% of the
outstanding common stock of the Company, and Byrd Enterprises, a former beneficial owner of more than 5% of the outstanding common stock
of the Company, 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 March 26, 2024, 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 former beneficial owner of more than 5% of the shares of common stock of the Company, in a private placement. Glen Kim,
a former director and a former beneficial owner of more than 5% of the shares of common stock 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”
of Exhibit 4.1 to this annual report 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, a former beneficial owner of more than 5% of the shares
of common stock of the Company, Glen Kim, a former director and a former beneficial owner of more than 5% of the shares of common stock
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 March 26, 2024, 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. Mr. 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. |
| ● | 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 March 26, 2024, 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. 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 were required to be repaid by December 31, 2023. The notes could be prepaid without a premium or penalty.
Mr. Adams resigned from his position on the board of directors effective April 27, 2023. On November 20, 2023, the Company repaid the
aggregate balance of $117,648 under the two 15% OID promissory notes. |
| ● | Under our Settlement Agreement with Matthew Atkinson, a former director and a former beneficial owner
of more than 5% of the issued and outstanding shares 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 March 26, 2024, 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 March 26, 2024,
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 exchange for a payment of $250,000. See “Description of Securities –
SAFEs” of Exhibit 4.1 to this annual report for a further description of the terms of the SAFE. 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 (as defined in “Description of Securities – SAFEs”
in Exhibit 4.1 to this annual report) 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”
in Exhibit 4.1 to this annual report 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” in Exhibit 4.1 to this annual report
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. |
Director Independence
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., Greg Economou, and Peter Borish, 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. Economou, and Mr.
Borish. For discussion of compensation and indemnification arrangements with our independent directors for services performed as members
of our board of directors, see Item 11 “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. Each committee’s charter is 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 the board.
Audit Committee
Roger Mason Jr., Greg Economou, and Peter Borish,
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. Borish serving as the chairman. Our board has determined that Mr. Borish 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
Roger Mason Jr., Greg Economou, and Peter Borish,
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
Roger Mason Jr., Greg Economou, and Peter Borish,
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.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Independent Auditors’ Fees
The aggregate fees billed to the Company by Barton,
the Company’s principal registered public accounting firm performing services in connection with engagements for which independence
is required (the “principal accountant”), for the indicated services for each of the last two fiscal years were as follows:
| | |
Year Ended | |
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Audit Fees | |
$ | 57,299 | | |
$ | 0 | |
| Audit-Related Fees | |
| — | | |
| — | |
| Tax Fees | |
| — | | |
| — | |
| All Other Fees | |
| — | | |
| — | |
| Total | |
$ | 57,299 | | |
$ | 0 | |
As used in the table above, the following terms have the meanings set
forth below.
Audit Fees
Audit fees consist of aggregate fees billed for
each of the last two fiscal years for professional services performed by the Company’s principal accountant for the audit of the
financial statements included in our Annual Report on Form 10-K and review of the financial statements included in our quarterly Form
10-Q filings, reviews of registration statements and issuances of consents, and services that are normally provided in connection with
statutory and regulatory filings or engagements for those fiscal years.
Audit-Related Fees
Audit-related fees consist of aggregate fees
billed for each of the last two fiscal years for assurance and related services performed by the Company’s principal accountant
that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the paragraph
captioned “Audit-Fees” above. We did not engage our principal accountant to provide assurance or related services during
the last two fiscal years.
Tax Fees
Tax fees consist of aggregate fees billed for
each of the last two fiscal years for professional services performed by the Company’s principal accountant with respect to tax
compliance, tax advice, tax consulting and tax planning. We did not engage our principal accountant to provide tax compliance, tax advice
or tax planning services during the last two fiscal years.
All Other Fees
All other fees consist of aggregate fees billed
for each of the last two fiscal years for products and services provided by the Company’s principal accountant, other than for
the services reported under the headings “Audit Fees,” “Audit-Related Fees” and “Tax Fees”
above. We did not engage our principal accountant to render services to us during the last two fiscal years, other than as reported above.
Pre-Approval Policies and Procedures
The Audit Committee has reviewed and approved,
or the board of directors of the Company has reviewed and approved by unanimous written consent, all fees earned in 2023 and 2022 by
the Company’s principal accountant, and actively monitored the relationship between audit and non-audit services provided. The
Audit Committee and the board of directors has concluded that the fees earned by the principal accountant were consistent with the maintenance
of the principal accountant’s independence in the conduct of its auditing functions.
The Company’s principal accountant did
not provide, and the Audit Committee or the board of directors of the Company did not approve, any of the services described under “—Tax
Fees”, “—Audit-Related Fees”, or “—All Other Fees” above for either of the
last two fiscal years.
The Audit Committee annually considers the provision
of audit services. The Audit Committee must pre-approve all services provided and fees earned by the Company’s principal accountant.
The Audit Committee has established pre-approval policies and procedures that are detailed as to the particular service, that require
that the Audit committee be informed of each service, and that do not include delegation of the Audit Committee’s responsibilities
under the Exchange Act to management. The pre-approval policies and procedures provide only for defined audit services and, if any, specified
audit-related fees, tax services, and other services, and may impose specific dollar value limits for the fees for pre-approved services.
The Audit Committee also considers on a case-by-case basis specific engagements that are not otherwise pre-approved under the pre-approval
policies and procedures or that materially exceed pre-approved fee amounts. On an interim basis, any proposed engagement that does not
fit within the definition of a pre-approved service may be presented to a designated member of the Audit Committee for approval and to
the full Audit Committee at its next regular meeting.
The percentage of hours expended on the Company’s
principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed
to work performed by persons other than the principal accountant’s full-time, permanent employees was not greater than 50%.
PART IV
ITEM
15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Documents Filed as a Part of This Report:
(1) Index to Financial Statements:
(2) Index to Financial Statement Schedules:
All schedules have been omitted because the required information
is included in the financial statements or the notes thereto, or because it is not required.
(3) Index to Exhibits:
See exhibits listed under “—(b) Exhibits”
below.
(b) Exhibits:
| Exhibit No. |
|
Description |
| 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 |
|
Second Amended and Restated Certificate of Incorporation
of Signing Day Sports, Inc. |
| 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 |
|
Description of Securities of Signing Day Sports,
Inc. |
| 4.2 |
|
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) |
| 4.3 |
|
Form of 6% Convertible Note (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 4.4 |
|
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) |
| 4.5 |
|
Form of 8% Convertible Unsecured Note (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 4.6 |
|
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) |
| 4.7 |
|
Promissory Note issued to John Dorsey, dated January 12, 2023 (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 4.8 |
|
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) |
| 4.9 |
|
Form of Common Stock Purchase Warrant issued with 8% Unsecured Promissory Note (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 4.10 |
|
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) |
| 4.11 |
|
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) |
| 4.12 |
|
Promissory Note issued to Daniel Nelson, dated July 23, 2023 (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
| 4.13 |
|
Promissory Note issued to Daniel Nelson, dated March 17, 2023 (incorporated by reference to Exhibit 4.16 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 4.14 |
|
Promissory Note issued to Nelson Financial Services Inc., dated March 8, 2023 (incorporated by reference to Exhibit 4.15 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 4.15 |
|
Promissory Note issued to Nelson Financial Services Inc., dated March 1, 2023 (incorporated by reference to Exhibit 4.14 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 4.16 |
|
Promissory Note issued to Dennis Gile, dated July 11, 2022 (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 4.17 |
|
Promissory Note issued to Daniel Nelson, dated July 11, 2022 (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 4.18 |
|
Form
of Warrant to Purchase Common Stock to be issued to Boustead Securities, LLC, as placement agent for purchases pursuant to Common
Stock Purchase Agreement, dated January 5, 2024, between Signing Day Sports, Inc. and Tumim Stone Capital LLC |
| 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 |
|
Settlement Agreement, Release of Claims, and Covenant Not To Sue between Signing Day Sports, Inc. and John Dorsey, dated as of January 12, 2023 (incorporated by reference to Exhibit 10.48 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 10.12 |
|
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) |
| 10.13† |
|
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) |
| 10.14† |
|
Form of Indemnification Agreement between Signing Day Sports, Inc. and each executive officer or director (incorporated by reference to Exhibit 10.52 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 10.15† |
|
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) |
| 10.16† |
|
Amendment No. 1 to the Signing Day Sports, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 filed on March 1, 2024) |
| 10.17† |
|
Form of Stock Option Agreement for Signing Day Sports, Inc. 2022 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.3 to the Registration Statement on Form S-8 filed on March 1, 2024) |
| 10.18† |
|
Form of Restricted Stock Award Agreement for Signing Day Sports, Inc. 2022 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.4 to the Registration Statement on Form S-8 filed on March 1, 2024) |
| 10.19† |
|
Form of Restricted Stock Unit Award Agreement for Signing Day Sports, Inc. 2022 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.6 to the Registration Statement on Form S-8 filed on March 1, 2024) |
| 10.20 |
|
Repurchase and Resignation Agreement between Signing Day Sports, Inc. and Dennis Gile, dated March 21, 2023 (incorporated by reference to Exhibit 10.58 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 10.21 |
|
Confidential Mutual General Release and Covenant Not to Sue Agreement, effective as of March 29, 2023, between Signing Day Sports, Inc. and John Dorsey (incorporated by reference to Exhibit 10.59 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 10.22 |
|
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) |
| 10.23† |
|
Amended and Restated Employment Offer Letter, dated March 14, 2023, between Signing Day Sports, Inc. and David O’Hara (incorporated by reference to Exhibit 10.50 to the Registration Statement on Form S-1 filed on May 15, 2023) |
| 10.24† |
|
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) |
| 10.25† |
|
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) |
| 10.26 |
|
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) |
| 10.27 |
|
Amendment to Convertible Unsecured Note, dated as of August 7, 2023, among Signing Day Sports, Inc. and certain holders of the 8% Convertible Unsecured Promissory Notes (incorporated by reference to Exhibit 10.65 to the Registration Statement on Form S-1/A filed on August 31, 2023) |
| 10.28 |
|
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) |
| 10.29 |
|
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) |
| 10.30† |
|
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) |
| 10.31† |
|
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) |
| 10.32† |
|
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) |
| 10.33† |
|
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) |
| 10.34† |
|
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) |
| 10.35 |
|
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) |
| 10.36 |
|
Business Loan Agreement, dated October 6, 2023, between Signing Day Sports, Inc. and Commerce Bank of Arizona (incorporated by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
| 10.37 |
|
Promissory Note issued by Commerce Bank of Arizona to Signing Day Sports, Inc., dated October 6, 2023 (incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
| 10.38 |
|
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) |
| 10.39 |
|
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) |
| 10.40 |
|
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) |
| 10.41 |
|
Term Sheet for an Equity Line of Credit between Signing Day Sports, Inc. and 3i Management, dated as of November 16, 2023 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q/A filed on December 29, 2023) |
| 10.42 |
|
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) |
| 10.43 |
|
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) |
| 10.44† |
|
Amended and Restated Executive Employment Agreement, dated as of March 1, 2024, between Signing Day Sports, Inc. and Daniel D. Nelson (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 6, 2024) |
| 10.45 |
|
Amendment No. 1 to Strategic Alliance Agreement, dated as of March 8, 2024, between Signing Day Sports, Inc. and SAJE Enterprises LLC (DBA Elite Development Program Soccer) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 11, 2024) |
| 14.1 |
|
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) |
| 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 |
| 31.1 |
|
Certifications
of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 |
|
Certifications
of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 |
|
Certifications
of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 |
|
Certifications
of Principal Financial and Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 97.1 |
|
Signing Day Sports, Inc. Clawback Policy (incorporated by reference to Exhibit 99.6 to the Registration Statement on Form S-1 filed on January 26, 2024) |
| 99.1 |
|
Signing Day Sports, Inc. Insider Trading Policy (incorporated by reference to Exhibit 99.5 to the Registration Statement on Form S-1 filed on January 26, 2024) |
| 101.PRE |
|
Inline XBRL
Instance Document |
| 101.INS |
|
Inline XBRL
Taxonomy Extension Schema Document |
| 101.SCH |
|
Inline XBRL
Taxonomy Extension Calculation Linkbase Document |
| 101.CAL |
|
Inline XBRL
Taxonomy Extension Definition Linkbase Document |
| 101.DEF |
|
Inline XBRL
Taxonomy Extension Label Linkbase Document |
| 101.LAB |
|
Inline XBRL
Taxonomy Extension Presentation Linkbase Document |
| 104 |
|
Cover
Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| † | Executive compensation plan or arrangement |
ITEM
16. FORM 10-K SUMMARY.
None.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered
Public Accounting Firm
To the Board of Directors of
Signing Day Sports, Inc.
8355 E Hartford
Dr. Suite 100
Scottsdale, Arizona 85255
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Signing Day Sports, Inc., (the “Company”), as of December 31, 2023 and 2022, and the related statements of operations,
stockholders’ equity, and cash flows for the years 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, 2023 and 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 Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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. 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 audits, 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 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.
Critical Audit Matters
The critical audit matters communicated below
are 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. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Share Conversions related to the Initial Public
Offering
As described in Note 7 of the financial statements,
in connection with the closing of the Company’s initial public offering on November 16, 2023, the Company’s convertible unsecured
promissory notes automatically converted into shares of common stock in accordance with their terms. Also, in connection with the public
offering, the warrants attached to the Company’s nonconvertible notes payable were automatically exercised. Due to the significant
and complex nature of the transactions, we identified the conversions related to the initial public offering as a critical audit matter.
The primary procedures we performed to address
this critical audit matter included: Validating the terms of each type of convertible and nonconvertible note and any amendments by reviewing
the executed note contracts. Recalculating the conversions based on the terms of the agreements. Validating the share transactions as
recorded in the securities transfer report.
/s/ BARTON CPA
We have served as the Company’s auditor
since 2023.
BARTON CPA
Cypress, Texas 77433
March 29, 2024
Signing Day Sports, Inc.
Consolidated Balance Sheets
| | |
December 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| ASSETS | |
| | |
| |
| | |
| | |
| |
| Current assets | |
| | |
| |
| Cash and cash equivalents | |
$ | 1,123,529 | | |
$ | 254,409 | |
| Short term investments | |
| 2,109,011 | | |
| - | |
| Accounts receivable | |
| 58,775 | | |
| 15,670 | |
| Prepaid expense | |
| 125,841 | | |
| 13,841 | |
| Other current assets | |
| 68,500 | | |
| 17,412 | |
| | |
| | | |
| | |
| Total current assets | |
| 3,485,656 | | |
| 301,332 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 5,078 | | |
| 10,302 | |
| Internally developed software, net | |
| 895,534 | | |
| - | |
| Operating lease right of use asset, net | |
| 208,443 | | |
| - | |
| Intangible assets, net | |
| 20,900 | | |
| 34,529 | |
| Deferred tax asset | |
| 65,000 | | |
| 100,000 | |
| Other assets | |
| 24,000 | | |
| 8,000 | |
| | |
| | | |
| | |
| Total assets | |
$ | 4,704,611 | | |
$ | 454,163 | |
| | |
| | | |
| | |
| LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 804,534 | | |
$ | 614,158 | |
| Accrued liabilities | |
| 379,948 | | |
| 512,688 | |
| Deferred revenue | |
| 4,282 | | |
| 44,073 | |
| Deferred rent | |
| - | | |
| 9,894 | |
| Current operating lease right of use liability | |
| 83,736 | | |
| 13,924 | |
| Tenant deposit | |
| - | | |
| 9,894 | |
| Convertible notes - current maturities | |
| - | | |
| 1,315,000 | |
| Loans payable | |
| 3,530 | | |
| 120,000 | |
| Line of credit | |
| 1,540,125 | | |
| - | |
| | |
| | | |
| | |
| Total current liabilities | |
| 2,816,155 | | |
| 2,639,631 | |
| | |
| | | |
| | |
| Non-current liabilities | |
| | | |
| | |
| Convertible and nonconvertible notes - net of current maturities,
less unamortized debt issuance costs | |
| - | | |
| 5,917,080 | |
| Noncurrent operating lease liability | |
| 144,325 | | |
| - | |
| | |
| | | |
| | |
| Total liabilities | |
$ | 2,960,480 | | |
$ | 8,556,711 | |
| | |
| | | |
| | |
| Stockholders’ equity
(deficit) | |
| | | |
| | |
| | |
| | | |
| | |
| Common stock: par value $0.0001 per share; 150,000,000 authorized shares, 13,248,552 and 8,086,152 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. | |
| 1,326 | | |
| 809 | |
| Additional paid-in capital | |
| 18,701,752 | | |
| 3,377,459 | |
| Subscription receivable | |
| (11 | ) | |
| - | |
| Accumulated equity (deficit) | |
| (16,958,936 | ) | |
| (11,480,816 | ) |
| | |
| | | |
| | |
| Total stockholders’ equity
(deficit) | |
| 1,744,131 | | |
| (8,102,548 | ) |
| | |
| | | |
| | |
| Total liabilities and stockholders’
equity (deficit) | |
$ | 4,704,611 | | |
$ | 454,163 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Signing Day Sports, Inc.
Consolidated Statements of Operations
| | |
For the Years Ended
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Revenues, net | |
$ | 307,578 | | |
$ | 78,336 | |
| Cost of revenues | |
| 40,387 | | |
| 783,064 | |
| | |
| | | |
| | |
| Gross profit (loss) | |
| 267,191 | | |
| (704,728 | ) |
| | |
| | | |
| | |
| Operating cost and expenses | |
| | | |
| | |
| Advertising and marketing | |
| 439,700 | | |
| 1,842,666 | |
| General and administrative | |
| 4,575,672 | | |
| 3,846,174 | |
| | |
| | | |
| | |
| Total operating expenses | |
| 5,015,372 | | |
| 5,688,840 | |
| | |
| | | |
| | |
| Net loss from operations | |
| (4,748,181 | ) | |
| (6,393,568 | ) |
| | |
| | | |
| | |
| Other income (expense) | |
| | | |
| | |
| Interest expense | |
| (856,573 | ) | |
| (597,747 | ) |
| Interest income | |
| - | | |
| 1,100 | |
| Deferred tax income | |
| 65,000 | | |
| 100,000 | |
| Other income (expense), net | |
| 61,634 | | |
| 216,401 | |
| | |
| | | |
| | |
| Total other income (expense) | |
| (729,939 | ) | |
| (280,246 | ) |
| | |
| | | |
| | |
| Net loss before franchise tax expense | |
| (5,478,120 | ) | |
| (6,673,814 | ) |
| | |
| | | |
| | |
| Income tax expense | |
| - | | |
| - | |
| | |
| | | |
| | |
| Net loss | |
$ | (5,478,120 | ) | |
$ | (6,673,814 | ) |
| | |
| | | |
| | |
Weighted average common shares outstanding - basic and diluted | |
| 13,248,552 | | |
| 7,614,070 | |
| | |
| | | |
| | |
Net loss per common share - basic and diluted | |
| 0.41 | | |
| 0.88 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Signing Day Sports, Inc.
Consolidated Statements of Stockholders’
Equity (Deficit)
| | |
| | |
Additional | | |
| | |
| | |
Total | |
| | |
Common
Stock | | |
Paid-in | | |
Subscription | | |
Accumulated | | |
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Capital | | |
Receivable | | |
Deficit | | |
Equity (Deficit) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| 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 cancellation | |
| 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 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based
compensation expense | |
| - | | |
| - | | |
| 547,923 | | |
| - | | |
| - | | |
| 547,923 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock
repurchase and retirement | |
| (600,000 | ) | |
| (60 | ) | |
| (799,940 | ) | |
| - | | |
| - | | |
| (800,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance
of common stock | |
| 105,000 | | |
| 11 | | |
| - | | |
| (11 | ) | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock pursuant to initial public offering, net of issuance costs of $1,342,913 | |
| 1,210,700 | | |
| 121 | | |
| 4,656,967 | | |
| - | | |
| - | | |
| 4,657,088 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance
of common stock pursuant to convertible notes, net of interest cancelled | |
| 4,446,700 | | |
| 445 | | |
| 10,919,343 | | |
| - | | |
| - | | |
| 10,919,788 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
loss | |
| - | | |
| - | | |
| | | |
| - | | |
| (5,478,120 | ) | |
| (5,478,120 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance
at December 31, 2023 | |
| 13,248,552 | | |
$ | 1,326 | | |
$ | 18,701,752 | | |
$ | (11 | ) | |
$ | (16,958,936 | ) | |
$ | 1,744,131 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Signing Day Sports, Inc.
Consolidated Statements of Cash Flows
| | |
For the Years Ended
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Cash flows from operating activities | |
| | |
| |
| Net loss | |
$ | (5,478,120 | ) | |
$ | (6,673,814 | ) |
| Adjustments to reconcile net income to net cash used in
operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 183,745 | | |
| 1,768 | |
| Bad debt | |
| - | | |
| 6,660 | |
| Change in fair value of future equity obligations | |
| - | | |
| (154,635 | ) |
| Interest expense attributable to amortization of debt issuance
cost | |
| 72,777 | | |
| 191,287 | |
| Impairment loss on software development costs | |
| - | | |
| 820,951 | |
| Loss on disposal of assets | |
| 8,742 | | |
| - | |
| Stock-based compensation | |
| 547,923 | | |
| 152,251 | |
| (Increase) decrease in assets: | |
| | | |
| | |
| Accounts receivable | |
| (43,105 | ) | |
| (17,490 | ) |
| Prepaid and other assets | |
| (179,088 | ) | |
| 172,482 | |
| Operating lease right of use asset | |
| (208,443 | ) | |
| - | |
| Deferred offering costs | |
| - | | |
| (100,000 | ) |
| Deferred tax asset | |
| 35,000 | | |
| - | |
| Increase (decrease) in liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
| 57,638 | | |
| 746,482 | |
| Deferred revenue | |
| (39,791 | ) | |
| (22,476 | ) |
| Deferred rent | |
| (9,894 | ) | |
| (22,066 | ) |
| Lease liabilities | |
| 214,137 | | |
| (29,861 | ) |
| Tenant deposit | |
| (9,894 | ) | |
| - | |
| | |
| | | |
| | |
| Net cash used in operating activities | |
| (4,848,373 | ) | |
| (4,928,461 | ) |
| | |
| | | |
| | |
| Cash flows from investing
activities | |
| | | |
| | |
| Purchase of investments | |
| (2,109,011 | ) | |
| - | |
| Development of internal software | |
| (1,063,526 | ) | |
| (833,480 | ) |
| Purchase of intellectual property | |
| - | | |
| (22,000 | ) |
| Purchase of property and equipment | |
| (5,642 | ) | |
| - | |
| | |
| | | |
| | |
| Net cash used in investing activates | |
| (3,178,179 | ) | |
| (855,480 | ) |
| | |
| | | |
| | |
| Cash flows from financing
activities | |
| | | |
| | |
| Proceeds from issuance of convertible notes | |
| 2,500,000 | | |
| 1,230,800 | |
| Proceeds from debt borrowings | |
| 678,666 | | |
| - | |
| Proceeds from revolving line of credit | |
| 1,540,125 | | |
| - | |
| Payments on debt borrowings | |
| (10,919,788 | ) | |
| - | |
| Payment of debt issuance cost | |
| 319,793 | | |
| - | |
| Proceeds from loans | |
| - | | |
| 120,000 | |
| Proceeds from issuance of common stock pursuant to initial
public offering | |
| 6,000,000 | | |
| - | |
| Payments of issuance costs pursuant to initial public offering | |
| (1,342,913 | ) | |
| - | |
| Proceeds from convertible notes | |
| 10,919,788 | | |
| - | |
| Distribution to member | |
| (800,000 | ) | |
| - | |
| | |
| | | |
| | |
| Net cash provided by financing activities | |
| 8,895,671 | | |
| 1,350,800 | |
| | |
| | | |
| | |
| Net increase (decrease) in cash and cash equivalents | |
| 869,119 | | |
| (4,433,141 | ) |
| | |
| | | |
| | |
| Cash and cash equivalents, beginning of period | |
| 254,409 | | |
| 4,687,550 | |
| | |
| | | |
| | |
| Cash and cash equivalents, end of period | |
$ | 1,123,529 | | |
$ | 254,409 | |
| | |
| | | |
| | |
| Supplemental disclosure of non-cash financing activities: | |
| | | |
| | |
| SAFEs cancellation | |
$ | - | | |
$ | (1,980,000 | ) |
| Issuance of common stock in exchange for SAFEs cancellation | |
$ | - | | |
$ | 1,980,000 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Signing Day Sports, Inc.
Notes to 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,
customer lists, trademarks, software IP, and customer data in the form of verifiable video uploads, player statistics, and academic records.
Initial Public Offering
On November 14, 2023, the Company’s shares
of common stock were listed and commenced trading on NYSE American LLC (“NYSE American”), and on November 16, 2023, the Company
completed its initial public offering (“IPO”). The Company sold 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 $4.7 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 of 1933, as amended (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.
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.
Segment Disclosure
The Company
determined that there is one reportable segment, with activities related to digital products. The website and mobile phone application
have similar economic characteristics and nature of services. The Company’s chief executive officer, who is the chief operating
decision maker, reviews financial information on an aggregate basis for purposes of evaluating financial performance and allocating resources.
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 $5.5 million and $6.7 million for the years ended December 31, 2023 and 2022,
respectively. We had cash used in operating activities of approximately $4.8 million and $4.9 million for the years ended December 31,
2023 and 2022, respectively, and have an accumulated deficit of approximately $17.0 million and $11.5 million as of December 31, 2023
and 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
The 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”).
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.
Cash and Cash Equivalents
The Company considers all short-term, highly
liquid investments, including certificates of deposit (“CDs”) purchased with an original maturity of three months or less
at the date of purchase, to be cash equivalents. Cash deposits are held with financial institutions with investment-grade ratings in
the United States of America, or U.S. Cash deposits typically exceed federally insured limits. As of December 31, 2023, cash and
cash equivalents consisted of cash on deposit with banks denominated in U.S. dollars and investments in money market funds. At December 31,
2022, cash and cash equivalents consisted of cash on deposit with banks denominated in U.S. dollars.
Short-term Investments
The Company classifies
its certificates of deposit as short-term investments and reassesses the appropriateness of the classification of its investments at
the end of each reporting period. Certificates of deposit held for investment with an original maturity greater than three months are
carried at amortized cost and reported as short-term investments on the consolidated balance sheets. The type of certificates of deposit
that the Company invests in are not considered debt securities under Financial Accounting Standards Board Accounting Standards Codification
(“ASC”) 320, Investments - Debt Securities.
As of December 31, 2023, the Company had
approximately $2.1 million in certificates of deposit. The Company classified $2.1 million of its certificates of deposits as short-term
investments on its consolidated balance sheets as of December 31, 2023. The Company did not have any certificates of deposit as
of December 31, 2022.
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 $58,775 and $15,670 of open
receivables at December 31, 2023 and 2022, respectively. At December 31, 2023 and 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, 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 December 31, 2023 and 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 years ended
December 31, 2023 and 2022 the Company wrote off net capitalized software development costs of $0 and $820,951, respectively, which were
recorded in general and administrative expenses in the consolidated statements of operations. 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 purchased development
software, 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 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.
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.
Concentrations of Credit Risk
Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments consisting of
CDs. Total cash balances exceeded insured balances by the Federal Deposit Insurance Corporation as of December 31, 2023 and 2022.
The company has cash equivalents that are invested in highly rated money market funds invested only in obligations of the U.S. government
and its agencies.
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 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, 2023 and 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, 2023, the 2020 through 2023 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. There were $15,670 and $58,775 of open
receivables at January 1, 2023 and December 31, 2023, respectively, and there were $0 and $15,670 of open receivables at January 1, 2022
and December 31, 2022, respectively.
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, 2023 and 2022, unamortized debt issuance costs are $0 and $387,920, respectively.
Advertising Costs
Advertising and marketing costs are expensed as
incurred. Such costs amounted to $439,700 and $1,842,666 for the years ended December 31, 2023 and 2022, respectively. Advertising costs
are included in advertising and marketing expenses in the statements of operations.
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, 2023 and 2022, 651,000 and 257,000 stock options, respectively, were excluded
from dilutive earnings per share as their effects were anti-dilutive.
| | |
Year Ended
December 31, | |
| | |
2023 | | |
2022 | |
| Numerator: | |
| | |
| |
| Net loss | |
$ | (5,478,120 | ) | |
$ | (6,673,814 | ) |
| | |
| | | |
| | |
| Denominator: | |
| | | |
| | |
| Weighted-average common shares outstanding - basic | |
| 13,248,552 | | |
| 7,614,070 | |
| Effect of potentially dilutive securities: | |
| | | |
| | |
| Stock options | |
| - | | |
| - | |
| Weighted-average common shares outstanding
- diluted | |
| 13,248,552 | | |
| 7,614,070 | |
| | |
| | | |
| | |
| Net (loss) income per share - basic | |
$ | (0.41 | ) | |
| (0.88 | ) |
| Net (loss) income per share - diluted | |
$ | (0.41 | ) | |
| (0.88 | ) |
The following potentially dilutive shares were excluded from the computation
of diluted net (loss) income per share for the periods presented because including them would have been antidilutive:
| | |
Year Ended
December 31, | |
| | |
2023 | | |
2022 | |
| Stock options | |
| 651,000 | | |
| 257,000 | |
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.
Deferred Offering Costs
The Company capitalizes certain legal, accounting,
and other third-party fees that are directly related to the Company’s equity financings, including the IPO, until such financings
are consummated. After consummation of an equity financing, these costs are then recorded as a reduction of the proceeds received as
a result of the financing. Should a planned equity financing be abandoned, terminated, or significantly delayed, the deferred offering
costs would be immediately written off to operating expenses. Upon the closing of the IPO in November 2023, all deferred offering costs
in the accompanying consolidated balance sheets were reclassified from prepaid expenses and other current assets and recorded against
the IPO proceeds as a reduction to additional paid-in capital. There were no deferred offering costs capitalized as of December 31, 2023
and December 31, 2022.
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 December 31, 2023, the
Company measured the allowance for doubtful accounts amortized cost.
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.
Reclassifications
Certain amounts in the 2022 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 as of:
| | |
For the Years Ended
December 31, | |
| | |
2023 | | |
2022 | |
| Revenue recognized over time | |
$ | 307,578 | | |
$ | 33,229 | |
| Revenue recognized at a point in time | |
| - | | |
| 45,107 | |
| Total revenue from contracts with customers | |
$ | 307,578 | | |
$ | 78,336 | |
The following table presents our contract liabilities (deferred revenue)
and certain information related to these balances as of:
| | |
December 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Contract liabilities (deferred revenue) | |
$ | 4,282 | | |
$ | 44,073 | |
| | |
For the Years Ended
December 31, | |
| Revenue recognized in the period from: | |
2023 | | |
2022 | |
| Amounts included in contract liabilities at
the beginning of the period | |
$ | 44,073 | | |
$ | 66,549 | |
The Company recognized revenue of $44,073 in 2023 that was included
in the deferred revenue balance as of December 31, 2022. The Company expects to recognize the December 31, 2023 balance fully in the
year ending December 31, 2024.
Note 3 - Property and Equipment, net
The Company’s property and equipment include the following:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Office Furniture | |
$ | 5,642 | | |
$ | 12,380 | |
| Less: accumulated depreciation | |
| (564 | ) | |
| (2,078 | ) |
| Property and equipment, net | |
$ | 5,078 | | |
$ | 10,302 | |
Depreciation expense of property and equipment was $2,124 and 1,768
for the years ended December 31, 2023 and 2022, respectively.
Note 4 - Internally Developed Software
Internally developed software asset consists of the following:
| | |
| | |
Accumulated | | |
| | |
| |
| | |
Cost Basis | | |
Amortization | | |
Impairment | | |
Net | |
| | |
December 31, 2023 | |
| Internally developed software | |
$ | 1,063,526 | | |
$ | (167,992 | ) | |
$ | - | | |
$ | 895,534 | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
December
31, 2022 | |
| Internally developed software | |
$ | 820,951 | | |
$ | - | | |
$ | (820,951 | ) | |
$ | - | |
During the year ended December 31, 2022, the
Company recognized impairment loss on its internally developed software amounting to $820,951, due to a decrease in projected revenues.
The Company did not have an impairment charge for the year ended December 31, 2023.
Amortization expense for the years ended December 31, 2023 and 2022,
was $167,992 and $0, respectively.
Note 5 - Intangible Assets
The Company’s intangible assets include the following:
| | |
| | |
Accumulated | | |
| |
| | |
Cost Basis | | |
Amortization | | |
Net | |
| | |
December 31, 2023 | |
| Intellectual property | |
$ | 22,000 | | |
$ | (7,333 | ) | |
$ | 14,667 | |
| Proprietary technology | |
| 18,700 | | |
| (12,467 | ) | |
| 6,233 | |
| Total | |
$ | 40,700 | | |
$ | (19,800 | ) | |
$ | 20,900 | |
| | |
December 31, 2022 | |
| Intellectual property | |
$ | 22,000 | | |
| - | | |
$ | 22,000 | |
| Proprietary technology | |
| 18,700 | | |
| (6,171 | ) | |
| 12,529 | |
| Total | |
$ | 40,700 | | |
$ | (6,171 | ) | |
$ | 34,529 | |
Amortization expense for the years ended December 31, 2023 and
2022 was $13,629 and $6,171, respectively. Estimated amortization for intangible assets with definitive lives for the next two years
ended December 31, is as follows:
| | |
Amount | |
| Years ending December 31, | |
| | |
| 2024 | |
$ | 13,567 | |
| 2025 | |
| 7,333 | |
| Total | |
$ | 20,900 | |
Note 6 - Accrued Liabilities
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Accrued Expenses | |
$ | 183,347 | | |
$ | 512,688 | |
| Accrued Payroll | |
| 79,653 | | |
| - | |
| Accrued Interest | |
| 116,948 | | |
| - | |
| Total Accrued Expenses | |
$ | 379,948 | | |
$ | 512,688 | |
Note 7 - Notes Payable
Convertible and nonconvertible notes payable consist or consisted
of:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Convertible notes payable, bearing interest at 6% | |
$ | - | | |
$ | 6,305,000 | |
| | |
| | | |
| | |
| Convertible notes payable, bearing interest at 8% | |
| - | | |
| 1,315,000 | |
| | |
$ | - | | |
$ | 7,620,000 | |
| | |
| | | |
| | |
| Less unamortized debt issuance costs | |
| - | | |
| (387,920 | ) |
| | |
| | | |
| | |
| Debt, less unamortized debt issuance costs | |
$ | - | | |
$ | 7,232,080 | |
6% Convertible Unsecured Promissory Notes
On October 15, 2021,
the Company entered into nine unsecured convertible notes payable, for $3,300,000, bearing interest of 6% with no monthly payments, and
that automatically converted at 50% (as adjusted) of the IPO Conversion Price (as defined in such notes) upon an initial public offering
(IPO). The Company had the option to prepay the notes prior to March 31, 2022.
On November 12, 2021,
the Company entered into twelve unsecured convertible notes payable, for $1,205,000, bearing interest of 6%, with no monthly payments,
and that automatically converted at 50% (as adjusted) of the IPO Conversion Price upon an IPO. The Company had the option to prepay the
notes prior to March 31, 2022.
On December 23, 2021,
the Company entered into six unsecured convertible notes payable, for $1,800,000, bearing interest of 6%, with no monthly payments, and
that automatically converted at 50% (as adjusted) of the IPO Conversion Price upon an IPO. The Company had the option to prepay the notes
prior to March 31, 2022.
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 a settlement notice issued 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. All
accrued interest on the principal under the notes was waived in accordance with the terms of the notes.
8% Convertible Unsecured Promissory Notes
During the year ended December 31, 2022, the
Company entered into thirteen unsecured convertible notes payable, for $1,315,000 bearing interest of 8%, with no monthly payments, and
that automatically converted at 50% of the IPO Conversion Price upon an IPO. Notes may only be prepaid by the Company with the written
consent of the holder prior to the maturity date, which was initially August 8, 2023.
During the year ended December 31, 2023, the
Company entered into two unsecured convertible notes payable, for $150,000 bearing interest of 8%, with no monthly payments, and that
automatically converted 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, which was
initially August 8, 2023.
On August 7, 2023, the
fifteen 8% convertible notes payable with outstanding balances of $1,465,000 and maturity date of August 8, 2023 (“August
2023 Notes Payable”), were amended by written agreement. 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 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.
8% Nonconvertible Unsecured Promissory Note
During the year ended December 31, 2023, the
Company entered into 11 unsecured nonconvertible notes payable, for $2,350,000 bearing interest at 8%, with no monthly payments, with
warrants that are automatically exercised upon an IPO or other “Liquidity Event” as defined in such notes. The Company had
the option to prepay the notes payable at any time, in its sole discretion, prior to the maturity on dates ranging from March 17, 2025
to May 2, 2025.
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.
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.
On November 20, 2023, the Company repaid the
aggregate balance of $117,648 under two 15% OID promissory notes. 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.
Secured Revolving Line of Credit
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 Trust. The First CBAZ LOC had been further conditioned on the issuance of Employee Retention
Credit payroll tax refunds that the Company expected to be received by April 2024, and was subject to certain other terms and conditions.
On December
11, 2023, the Company entered into a Revolving Line of Credit with Commerce Bank of Arizona secured with a 12-month certificate
of deposit of $2,000,000 at the CD market rate plus 2.00%. The Company paid loan origination and other fees totaling $5,500 and
Commerce Bank of Arizona immediately disbursed $334,625 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 $1,540,125 as of December
31, 2023.
Note
8 - SAFE Agreements
During
March 2021 through July 2021, the Company entered into eight 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 or cash of the Company in the
form of these notes payable.
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.
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. As of December 31, 2022, the
Company estimated the fair value of the SAFE notes to be $0.
Note
9 - Leases
The Company
leased 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 of December 31, 2023 and 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. Rent for the first month was $6,742
and was $7,491 plus rental tax for each subsequent month through April 2023. The Company amended and renewed this office space lease
under a long-term operating lease which commenced on May 4, 2023. Monthly rent ranged 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, 2023 and 2022, there were no leases with an expected term greater
than 12 months.
The components of lease expense were as follows:
| | |
For the Years Ended
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Non-related party lease expense | |
$ | 163,022 | | |
$ | 158,621 | |
| Related party lease expense | |
| - | | |
| 148,876 | |
| Total operating lease expense | |
$ | 163,022 | | |
$ | 307,497 | |
Total lease assets and liabilities were as follows:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Operating lease right of use asset | |
$ | 259,121 | | |
$ | - | |
| Less: operating asset lease accumulated depreciation | |
| (50,678 | ) | |
| - | |
| Net operating lease right of use asset | |
$ | 208,443 | | |
| - | |
| Current operating lease liability | |
$ | 83,736 | | |
$ | - | |
| Noncurrent operating lease liability | |
| 144,325 | | |
| - | |
| Total operating lease liability | |
$ | 228,061 | | |
$ | - | |
Future minimum lease payments under non-cancelable leases as of December
31, 2023 were as follows:
| | |
Amount | |
| Years ending December 31, | |
| |
| 2024 | |
$ | 90,076 | |
| 2025 | |
| 92,784 | |
| 2026 | |
| 55,358 | |
| Total future minimum lease payments | |
$ | 238,218 | |
| Less: interest | |
| 10,157 | |
| Total lease liability | |
$ | 228,061 | |
Note 10 - Income Taxes
There was no current tax expense for the year
ended December 31, 2023 and 2022. Deferred tax income was $65,000 and $100,000 as of December 31, 2023 and 2022.
Deferred tax assets consist of the following components as of December
31, 2023 and 2022:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Deferred Tax Asset | |
| | |
| |
| Net operating loss carryforwards | |
$ | 3,240,000 | | |
$ | 1,860,000 | |
| Internally developed software / Intangibles | |
| 880,000 | | |
| 470,000 | |
| Furniture and fixtures | |
| (1,000 | ) | |
| (3,000 | ) |
| R&D Tax Credit Carryforwards | |
| 199,000 | | |
| 160,000 | |
| AZ Refundable R&D Tax Credit | |
| 65,000 | | |
| 100,000 | |
| | |
| | | |
| | |
| Net deferred tax assets before valuation allowance | |
$ | 4,383,000 | | |
$ | 2,587,000 | |
| | |
| | | |
| | |
| Less valuation allowance | |
| (4,318,000 | ) | |
| (2,487,000 | ) |
| | |
| | | |
| | |
| Net deferred tax assets | |
$ | 65,000 | | |
$ | 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 December 31, 2023 and 2022,
the Company had approximately $12,500,000 and $7,200,000, 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, 2023 and 2022, the Company has approximately $264,000 and $260,000, respectively, of federal and
state research and development credits. The 2023 Arizona research and development credit of $65,000 is refundable, and the remaining
federal credit from 2023 will expire in 2043, 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.
On June 5, 2020, a process to
change SDS LLC – AZ into a Delaware corporation was initiated. On September 9, 2021, a certificate of incorporation of Signing
Day Sports, Inc., a Delaware corporation (SDS Inc. – DE), was filed. 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
such date, SDS Inc. – DE had 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 12 - Stockholder’s
Deficit
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, 2023, there were 9,000 shares available for grant under the 2022 Plan and the Company had granted 90,000 restricted
stock awards and stock options to purchase 651,000 shares of common stock. The stock options generally vest based on one to four years of
continuous service and have ten-year contractual terms.
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”).
Common Stock
The Company is authorized to issue 150,000,000
shares of $0.0001 par value common stock as of December 31, 2023 and 2022, respectively. The Company has 13,248,552 and 8,086,152 shares
issued and outstanding as of December 31, 2023 and 2022, 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 cancellation 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.
Stock Repurchase and Retirement
On March 31, 2023, under the terms of a Repurchase
and Resignation Agreement, dated March 21, 2023, the Company paid an aggregate purchase price of $800,000 for the repurchase (the
“Repurchase”) of 600,000 shares of common stock from Dennis Gile, the largest stockholder and a former Chief Executive
Officer, President, Secretary, Chairman, and director of the Company, at approximately $1.33 per share.
Share-Based Payment Valuation
The grant date fair value
of Time Vesting Options granted is determined using the Black-Scholes option-pricing model. The grant date fair value of Performance Vesting
Options is determined using a Monte Carlo simulation model and a barrier-adjusted Black-Scholes option-pricing model.
The following table summarizes stock option activity for the year ended December 31, 2023:
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average
Exercise | | |
Intrinsic | |
| | |
Options | | |
Price | | |
Value | |
| Outstanding at December 31, 2021 | |
| - | | |
$ | - | | |
| | |
| Granted | |
| 257,000 | | |
| 3.10 | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | |
| Forfeited or expired | |
| - | | |
| - | | |
| | |
| Outstanding at December 31, 2022 | |
| 257,000 | | |
| 3.10 | | |
| | |
| Granted | |
| 556,800 | | |
| 2.49 | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | |
| Forfeited or expired | |
| (162,800 | ) | |
| 2.92 | | |
| | |
| | |
| | | |
| | | |
| | |
| Outstanding at December 31, 2023 | |
| 651,000 | | |
$ | 2.62 | | |
$ | 0 | |
| | |
| | | |
| | | |
| | |
| Exercisable at December 31, 2023 | |
| 274,713 | | |
$ | 2.64 | | |
$ | 0 | |
| | |
Year Ended | |
| | |
December 31, | |
| | |
2023 | |
| Weighted average grant-date fair value of options granted during year | |
$ | 1.44 | |
The following table summarizes
restricted stock award activity for the year ended December 31, 2023:
| | |
Restricted Stock | | |
Weighted Average
Exercise | |
| | |
Awards | | |
Price | |
| 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:
| | |
Year Ended | |
| | |
December 31, | |
| | |
2023 | |
| Risk-free interest rate | |
| 3.53 | % |
| Expected term (in years) | |
| 4.80 | |
| Expected volatility | |
| 48.06 | % |
| Expected dividend yield | |
$ | - | |
The total grant-date fair value of the options
granted during the year ended December 31, 2023, was $801,822. Stock-based compensation expense of $547,923 was recognized for the year
ended December 31, 2023. Total unrecognized compensation cost related to non-vested stock option awards amounted to $570,058 as of December
31, 2023, which will be recognized over a weighted average period of 4.34 years.
Private
Placement
In March
2023 and April 2023 the Company conducted one private placement, and in May 2023 the Company 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 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.
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 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
the Settlement Agreement, Release of Claims, and Covenant Not To Sue, dated as of January 12, 2023, between the Company and Mr. Dorsey
(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.
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.
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.
Note 14 - Related Party Transactions
On
April 10, 2023, the Company issued Richard Symington, the Company’s 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. 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. A total of $11,836 in accrued unpaid interest was due and payable on the promissory note as
of December 31, 2023.
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,
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 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.
Repayment
of Related-Party Promissory Notes
The following
promissory notes held by related parties were fully repaid during 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 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 principal of $95,000 to Nelson Financial Services Inc., whose sole owner is
Daniel Nelson, Chief Executive Officer, Chairman and director of the Company. |
| ● | On November 22, 2023, the outstanding balance of $40,000 was fully
repaid under a promissory note issued on January 12, 2023 to John Dorsey, a former Chief Executive Officer and director of the Company. |
| ● | On November 22, 2023, the outstanding balance of $130,000 was fully
repaid under a promissory note issued on July 23, 2023 with principal of $130,000, incurring interest at 6%, held by Daniel Nelson, Chief
Executive Officer, Chairman and director of the Company. Mr. Nelson waived all interest owed under the promissory note. |
| ● | On November 22, 2023, the outstanding balance of $10,238.36 was
fully repaid under a promissory note 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. |
| ● | A promissory note issued on July 11, 2022 with
principal of $35,000, incurring interest at 6%, to Dennis Gile,
the largest stockholder and a former Chief Executive Officer, President, Secretary, Chairman, and director of the Company.
Due to a subsequent issuance of debt convertible into equity on August 8, 2022, in accordance with the terms of the note, 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. |
Note 15 - Subsequent Events
On January 5, 2024, the
Company entered into the Common Stock Purchase Agreement (the “CEFF Purchase Agreement”) with Tumim Stone Capital LLC (“Tumim”),
providing for a committed equity financing facility, pursuant to which, upon the terms and subject to the satisfaction of the conditions
contained in the CEFF 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 CEFF Purchase Agreement,
from time to time during the term of the CEFF Purchase Agreement. Concurrently with the execution of the CEFF Purchase Agreement, the
Company and Tumim also entered into a 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 CEFF Purchase Agreement (collectively, the “CEFF Registration
Statement”).
On January
26, 2024, the Company made the initial filing with the SEC of the CEFF Registration Statement. Pursuant to the terms of the CEFF
Purchase Agreement, the Company issued 661,102 shares of common stock to
Tumim, which were valued at $470,360.45 in the aggregate, based on the average of the daily volume-weighted average prices (“VWAPs”)
during the five consecutive trading day period ending on (and including) the trading day immediately prior to January 26, 2024, which
constituted approximately 4.99% of the outstanding shares of common stock, and, due to a beneficial ownership limitation and pursuant
to the terms and conditions of the CEFF Purchase Agreement, the Company paid Tumim $29,639.55
in cash, which equaled the approximate number of the Commitment Shares that would have been issued but for the application of the beneficial
ownership limitation, 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 January 26, 2024.
We have evaluated subsequent events through March 29, 2024, the date
the financial statements were available to be issued. Based on our evaluation, no additional events than listed above have occurred that
would require adjustment to or disclosure in the financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| Date: March 29, 2024 |
Signing Day Sports, Inc. |
| |
|
| |
/s/ Daniel D. Nelson |
| |
Name: Daniel D. Nelson |
| |
Title: Chief Executive Officer |
| |
(Principal Executive Officer) |
| |
|
| |
/s/ Damon Rich |
| |
Name: Damon Rich |
| |
Title: Interim Chief Financial Officer |
| |
(Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| /s/ Daniel D. Nelson |
|
Chief Executive Officer |
|
March
29, 2024 |
| Daniel D. Nelson |
|
(principal executive officer), Chairman, and Director |
|
|
| |
|
|
|
|
| /s/ Damon Rich |
|
Interim Chief Financial Officer |
|
March 29, 2024 |
| Damon Rich |
|
(principal financial officer and principal accounting officer) |
|
|
| |
|
|
|
|
| /s/ Greg Economou |
|
Director |
|
March 29, 2024 |
| Greg Economou |
|
|
|
|
| |
|
|
|
|
| /s/ Roger Mason Jr. |
|
Director |
|
March 29, 2024 |
| Roger Mason Jr. |
|
|
|
|
| |
|
|
|
|
| /s/ Peter Borish |
|
Director |
|
March 29, 2024 |
| Peter Borish |
|
|
|
|
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