Mobile Global Esports, Inc S-1/A, filed Jul 19, 2022
Mobile Global Esports, Inc. (MGAM)
As filed with the Securities and Exchange Commission on July 19, 2022
Registration No. 333-261877
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOBILE GLOBAL ESPORTS INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | (7941) | (86-2684455) | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
David Pross
Chief Executive Officer
Mobile Global Esports Inc.
616 South El Camino Real, Suite H
San Clemente, CA 92672-4294
949-573-0628
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Donald G. Davis Esq. Palos Verdes Estates.
CA 90274 |
Joel D. Mayersohn Dickinson Wright
PLLC Ft. Lauderdale, FL 33301 Suite 1750 954-991-5426 |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”) check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☐ | |
| Emerging growth company ☒ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act:
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED July 19, 2022
PRELIMINARY PROSPECTUS
Common Shares
MOBILE GLOBAL ESPORTS INC.
1,500,000 Shares of Common Stock being offered by the Company
2,300,000 Shares of Common Stock being sold by the Selling Stockholders
This is a firm commitment offering (the “Offering”) of 1,500,000 shares of our common stock (“Common Stock”), par value $0.0001 per share, and the registration of an additional 2,300,000 common shares held by selling shareholders. The estimated initial public offering price per share is between $4.00 and $5.00 per share. We have selected the lower price point of $4.00 per share for use herein as the estimated actual sales price for our shares, given recent market turmoil, for purposes of calculation of estimated use of proceeds, estimated dilution and other matters in this prospectus. Prior to this offering, there has been no public market for our Common Stock. Of the total securities being offered under this prospectus (the “Prospectus”), Mobile Global Esports Inc. (the “Company”) is offering 1,500,000 shares (the “Company Offering Shares”); The selling stockholders named in the section entitled “Selling Stockholders” in this prospectus (the “Selling Stockholders”) are offering 2,300,000 shares (the “Selling Stockholder Shares”). No shares offered by the Selling Stockholders will be sold until after our Common Stock has begun trading on the Nasdaq Capital Market (but see below).
We anticipate receiving conditional approval to list our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “MGAM,” provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering.
Investing in our common shares involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common shares in “Risk Factors” beginning on page 10 of this prospectus.
We are an “emerging growth company” as defined under the federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company” for additional information.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share | Total | |||||||
| Initial public offering price | $ | 4.00 | $ | 6,000,000 | ||||
| Underwriting discounts(1) | $ | 0.40 | $ | 600,000 | ||||
| Proceeds to us before expenses to us(2) | $ | 3.60 | $ | 5,400,000 | ||||
| (1) | The Company has agreed to sell the securities to the underwriter identified herein at a discount of 10% of the offering price per share and to issue Underwriter’s Warrants to purchase shares of our Common Stock equal to 10% of the aggregate number of Company Offering Shares initially sold in this Offering (excluding the underwriter’s over-allotment option), exercisable for five years commencing on the six month anniversary of closing, at an exercise price equal to 165% of the public offering price of each Company Offering Share. Please refer to the section entitled “Underwriting” in this Prospectus for additional information regarding total compensation to be received by the underwriter. For a description of other terms of the representative’s warrants and a description of the other compensation to be received by the underwriters, see “Underwriting.” |
| (2) | Does not include estimated offering expenses including, without limitation, legal, accounting, auditing, escrow agent, transfer agent, other professional, printing, advertising, travel, marketing, blue-sky compliance and other expenses of this Offering. We estimate the total expenses of this Offering, excluding the underwriter’s discount of $600,000 (based on the assumed mid-point offering price described above), and non-accountable expense allowance of $120,000, will be approximately $300,000. The underwriters expect to deliver the common shares against payment as set forth under “Underwriting,” |
WestPark Capital, Inc.
The date of this Prospectus is July 19, 2022
Table of Contents
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2,000 enthusiastic fans filled the sold-out arena at Lovely Professional University on April 4-6, 2022 for the largest national university esports tournament in India. MOGO’s championship event brought together 24 teams competing against each other in Battlegrounds Mobile India (BGMI) and 8 teams competing against each other in the Valorant games.
We are responsible for the information contained in this prospectus and any free writing prospectus we prepare or authorize. We have not, and the underwriters have not, authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell our common shares in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or the sale of any common shares.
For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the common shares and the distribution of this prospectus outside the United States.
Until and including (25 days after the date of this prospectus), all dealers that buy, sell or trade our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms MOGO, the “Company,” “we,” “us” and “our” refer to MOBILE GLOBAL ESPORTS INC.
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option and no exercise of the representative’s warrants.
ii
The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common shares. You should read the entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes thereto, in each case included in this prospectus. You should carefully consider, among other things, the matters discussed in the section of this prospectus titled “Business” before making an investment decision.
Mobile Global Esports (“MOGO” or “Mogo,” or the “Company”) was organized in March of 2021 to carry on and expand an esports business (the “Business”) started by Sports Industry of India (“SII”), in 2016. Through a series of contracts, the rights to the Business were assigned to MOGO by SII and its affiliates beginning in October of 2021. MOGO is now building out and expanding the business created by SII, which is focused on the rapidly-growing esports industry, with special emphasis on India and other South Asian markets. The Indian market for esports, and particularly university esports events in India, represent, in management’s opinion, one of the largest and fastest growing esports markets in the world.1
SII is an American branding, marketing and sports promotion company that, through subsidiaries and affiliates in India and other South Asian countries, enters into exclusive long-term arrangements with universities for the purpose of promoting, expanding and commercializing university sports programs, creating professional opportunities for university athletes and alumni and developing and marketing university and event-branded merchandise. The SII esports business, which has now been transferred to and is operated by MOGO, is the only business in India to organize and sponsor an officially-sanctioned national championship for university esports. SII holds a 14.5% minority common share interest in MOGO, but has no controlling interest in MOGO.
Esports are the competitive playing of video games by amateur and professional teams for cash and other prizes. Esports typically take the form of organized, multiplayer video games that include real-time strategy and competition, including virtual fights, first-person shooter and multiplayer online battle arena games. Esports are defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck. Mobile esports are defined as esports that are streamed on an electronic esports platform and played by individuals or teams on mobile devices, usually smartphones. Competitors participate at large in-person events, small in-person events and virtually from home or computer cafes. Interest in esports is rapidly growing. In 2020, the global audience for gaming video content, including esports, grew to 1.2 billion viewers,2 an 18 percent increase from 2019, as gaming streams became a popular social activity and distraction during coronavirus-related lockdowns.
Prior to 2010, competitive electronic gaming in India was limited to small events at engineering colleges. With the introduction of capable and less-expensive smart phones, 4G technology, mobile games, better content, better graphics and significant prize money, the active esports community grew from 4 million in 2018 to 17 million in 2020.3
A 2021 report from Ernst & Young (“EY”) projects that by 2025 10% of the global esports audience of 725 million4 will be from India, providing a focused audience for MOGO’s advertisers, sponsors and merchandise sales. Although still relatively underdeveloped, India’s esports industry, which is distinct from online gaming in India (gaming includes fantasy sports, games of chance and card games), has already quickly grown to $40 million in 2021 and is projected by EY to grow by a factor of 3.7x to $147 million in 2025. The much larger economic flow-through impact of esports in India over this four-year period is projected by EY to be $1.3 billion.5 EY predicts that the number of active professional players in India will grow to 1.5 million and the number of viewers will grow to 85 million by 2025.6
| 1 | https://www.dawn.com/news/1590486. |
| 2 | https://www.statista.com/statistics/516754/gaming-video-content-viewer-number-global/ |
| 3 | https://inc42.com/datalab/esports-market-in-india-trends-opportunities-and-gaps/ |
| 4 | Audience size reference is from the consulting firm, Activate. Activate Tech and Media Outlook, 2022. |
| 5 | “Ready. Set. Game ON!” Esports in India. Mumbai: EY. June 2021. Pp 5, 41. This includes investments, in-app purchases, winnings, taxes and related consumption. |
| 6 | “Ready. Set. GAME ON. Esports in India.” EY. June 2021. |
1
The 32 teams in the championship event were the survivors of the divisional tournaments MOGO organized before the national event. Over 400 teams participated in the divisional tournaments across India.
2
Management believes that MOGO will be the first company specifically focused on mobile esports to become a publicly listed company in the United States.
LPU teammates wait for the results at the first Inter-University Esports Championship in India in 2017. The event was sponsored by MOGO’s predecessor, SII and its EUSAI subsidiary, which were operating the business at that time.
MOGO’s esports business began in 2016 when SII introduced esports to the Association of Indian Universities (“AIU”), an academic and sports body that represents 854 major universities. AIU sanctioned esports as a championship event in a unique and exclusive 10-year renewable agreement with SII. SII has assigned most of its esports rights under these and other agreements involving esports to MOGO under a series of contracts between the two companies (see “Material Agreements” in this Prospectus).
The first SII esports championship was held at Lovely Professional University (LPU) in 2017, the second at Maharshi Dayanand University in 2018 and the third at SRM Institute of Science and Technology in 2019. The 2020 championships were cancelled during the covid lockdowns. MOGO sponsored the 2021-2022 championships at LPU in April 2022. During the period of May through December 2021, MOGO, with the help of SII and SII’s subsidiaries pursuant to their mutual contracts, organized and commercialized a total of 27 virtual esports tournaments in India. These events included inter- and intra-university competitions that reached an aggregate audience of over 450,000 viewers (most of whom were added in the last quarter of calendar year 2021, reflecting recent momentum in interest in university esports), according to SII’s YouTube channel analytics. There are 14 events scheduled through the Summer of 2022, including the National University Mobile Esports Championship.
3
The intensity of the players was an essential part of the excitement conveyed through the live streaming and broadcasting for both the arena audience and viewers in India and around the world.
SII licensed to MOGO exclusive rights to develop, organize, promote and monetize mobile esports events in collaboration with AIU and with a second major university sports association, Elite University Sports Alliance of India Pvt. Ltd. (“EUSAI”), a for-profit subsidiary of SII. EUSAI itself has direct contracts with 73 leading Indian universities pursuant to which EUSAI is granted exclusive rights to organize and monetize a range of sports, including esports.
Although some AIU or EUSAI members may choose to not participate in MOGO’s esports business, the combination of AIU and EUSAI’s member universities potentially gives MOGO access to students attending these 854 Indian universities. MOGO’s exclusive esports access to the major Indian universities is significant because the market is large, underdeveloped and evolving quickly. The university system in India has over 37 million students, 993 universities, 39,931 colleges within the university system and 10,725 institutions. For example, of the EUSAI-member universities, the 14th largest Indian university, the University of Mumbai, has 549,432 students, and the 31st largest university, Osmania University, has over 300,000 students7 and 500 affiliated colleges.8 MOGO’s management believes it will be able to derive significant revenues and profits from these SII-MOGO Agreements over time. The exclusive rights licensed to MOGO pursuant to the SII-MOGO Agreements will provide MOGO with a significant working base of universities and potential players as the younger students reach university age (there are 315 million students at all levels in India’s education system)9 to pursue the promotion and commercialization of esports across India.
4
In addition to the benefits to MOGO generated by the SII-MOGO Agreements, MOGO’s business plan contemplates the following:
| ● | MOGO will focus primarily on mobile esports. Mobile is the highest-growth digital games segment and has surpassed personal computers and consoles as the choice of players due to improvements the mobile gaming experience, faster 5G technology and lower costs, according to Niko Partners.10 The game publishers of Fortnight and PUBG have shifted to mobile applications, and Activision Blizzard’s World of Warcraft announced a mobile version will be available later in 2022.11 Global revenue of mobile games is expected to show an annual growth rate of 8.7% from 2022 to 2026 to $174.5 billion and India’s segment is projected to grow from $3.8 billion in 2022 to $5.0 billion in 2026.12 |
| ● | MOGO’s initial focus is on India, one of the fastest-growing mobile games markets in the world.13 India is the largest English-speaking country in the world, and already the second-largest smart phone market14 with an aggressive 5G roll-out initiative that provides a faster, more stable game experience. |
| ● | Management believes that MOGO’s early activities (27 virtual events in 2021 with between 16 and 125 university teams participating in each event as well as the 14 events already scheduled through the Summer of 2022, including the officially-sanctioned national university championship, give MOGO an early mover advantage to build out its university esports relationships and to secure additional contracts to build its esports business. | |
| ● | MOGO intends to utilize the exclusive rights it has licensed from SII to finance, acquire an ownership interest in, and manage a national championship esports team for international events. In addition, management believes there is an opportunity to position MOGO as a channel for game development companies in India to test and launch new mobile esports games, perhaps permitting MOGO to negotiate for a participation in game development revenue streams. | |
| ● | MOGO’s software and management agreement with Artemis Avenue gives MOGO a license to use compression technology developed by affiliates of Artemis that MOGO believes can mitigate India’s poor connectivity, uneven bandwidth and game platform performance problems. This can be a valuable capability in India where bandwidth may be insufficient for high-speed video gaming. Artemis has advised MOGO that its compression technology reduces video file size by up to approximately two-thirds. When implemented by MOGO, this software is expected to reduce costs for the streaming and storage of MOGO’s content. (See the discussion under “Material Agreements.”) | |
| ● | According to Forbes Magazine, values for the top esports teams have risen considerably in the last few years.15 MOGO’s business plan contemplates the development of esports teams and management of esports players, utilizing rights licensed by SII, with the expectation of participating in potential financial benefits from team ownership. According to EsportsEarnings, an industry data service, the top two global esports teams earned $24.7 million in 2021, and the tenth highest-earning esports team earned $2.2 million.16 The top two global teams are valued over $300 million.17 |
| 7 | All India Survey on Higher Education 2018-19. Government of India. Ministry of Human Resource Development. Department of Higher Education. New Delhi. 2019; https://www.livemint.com/education/news/india-s-higher-education-student-population-grows-by-8-lakh-hrd-ministry-1569081600712.html; and https://en.wikipedia.org/wiki/List_of_largest_universities_and_university_networks_by_enrollment |
| 8 | https://www.osmania.ac.in/academics-affiliatedcolleges.php |
| 9 | https://timesofindia.indiatimes.com/india/at-315-million-india-has-the-most-students-in-world/articleshow/37669667.cms |
| 10 | https://nikopartners.com/news/india-is-the-fastest-growing-games-market-in-asia/. 2019 report updated in 2021. |
| 11 | https://www.washingtonpost.com/video-games/2022/02/03/activision-blizzard-call-duty-warcraft-quarterly-earnings/ |
| 12 | https://www.statista.com/outlook/dmo/digital-media/video-games/mobile-games/india. |
| 13 | https://www.dawn.com/news/1590486. |
| 14 | https://www.statista.com/chart/25207/countries-with-the-highest-number-of-smartphone-users/, and https://newzoo.com/insights/rankings/top-countries-by-smartphone-penetration-and-users/. |
| 15 | The Forbes report was cited by InsiderIntelligence. https://www.insiderintelligence.com/insights/esports-ecosystem-market-report/. |
| 16 | https://www.esportsearnings.com/history/2021/teams. |
| 17 | https://www.insiderintelligence.com/insights/esports-ecosystem-market-report/. |
5
The first Inter-University Esports Championship in India was held in a sold-out campus arena at Lovely Professional University in 2017. The event was sponsored by SII and its subsidiary, EUSAI.
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This summary highlights certain information about this offering and selected information contained elsewhere in or incorporated by reference into this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in shares of our Common Stock. For a more complete understanding of our company and this offering, we encourage you to read and consider carefully the more detailed information in this prospectus, including the information incorporated by reference into this prospectus, and the information referred to under the heading “RISK FACTORS” in this prospectus on page 10, and in the documents incorporated by reference into this prospectus.
| Issuer | Mobile Global Esports Inc., was originally incorporated in the State of Delaware under the name Elite Esports Inc. on March 11, 2021, and changed its name to Mobile Global Esports Inc. on April 21, 2021. It is the successor to an esports business started by SII in 2016 in India, and the two companies have a combined history of seven years in the esports industry.
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Common Stock offered by us
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We are offering (1) 1,500,000 shares (the “Company Offering Shares”) of our common stock, par value $0.0001 (“Common Stock”), assuming an offering price of $4.00 per share (the low point of the initial public offering price range reflected on the cover page of this prospectus), assuming the underwriter does not exercise its over-allotment option, or 225,000 shares of Common Stock, assuming the underwriter exercises its over-allotment option in full. In addition, the Selling Stockholders are offering 2,300,000 shares of Common Stock (the “Selling Stockholder Shares”). The underwriter is not underwriting any shares offered by Selling Stockholders, and there is no over-allotment with respect to the shares sold by the Selling Stockholders.
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Common Stock outstanding prior to the offering
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16,809,800. |
| Common Stock to be outstanding after this offering | Expected to be 18,309,800 total shares, of which 1,500,000 shares will be held by the public, 2,650,000 shares will be held by SII, and the balance of 14,159,800 shares will be held by other MOGO shareholders, assuming the over-allotment is not exercised.
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| Common Stock Trading symbol | Our Common Stock is expected to be quoted for trading on the Nasdaq Stock Market, and may trade under the symbol “MGAM” once and if we receive authorization.
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| Use of proceeds | We intend to use the net proceeds from the offering to purchase additional software licenses, establish facilities in India, expand our staff in India, increase our marketing in India and other South Asian countries, expand our esports leagues and players, and for working capital purposes. See “Use of Proceeds.”
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| Risk factors | This investment involves a high degree of risk. See “Risk Factors” and other information included in this prospectus for a discussion of certain factors you should carefully consider before deciding to invest in shares of our Common Stock.
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| Lock-up | All of our directors, officers and principal shareholders (defined as owners of 5% or more of our common shares), and perhaps certain other shareholders, have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common shares or securities convertible into or exercisable or exchangeable for our common shares held at the conclusion of this offering for a period of 6 months after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information. |
Proposed Stock Exchange Symbol |
We anticipate receiving conditional approval to list our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “MGAM,” provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering. |
| (1) | Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters’ over-allotment option, the representative’s warrants, warrants presently outstanding, and is based on 16 ,809,800 common shares outstanding as of June 30, 2022. |
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Corporate Information
Our principal executive office is located at 616 South El Camino Real, Suite H, San Clemente, California 92672-4294. Our telephone number is 949-573-0628 and our hotline telephone number is 203-400-2007.
We also share office space with Elite Sports India Pvt. Ltd. (“ESI”), the operating subsidiary of SII in India, located at Office No. 431, 3rd Floor, Orchard Corporates, Royal Palms Estate, Aarey Colony, Goregaon East, Mumbai, India, 400065.
Our agent for service of process in the United States is National Registered Agents, Inc. The registered office of the Corporation in the State of Delaware is located at 160 Greentree Drive, Suite 101, Dover, DE 19904. County of Kent.
Our website is located at http://www.mogoesports.com. Information contained on, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this prospectus.
Summary of Certain Financial Data
For the period from inception through December 31, 2021 and again in Q1 2022 we did not recognize any income from our esports tournaments. Our expenses over this period consisted of legal, auditing, underwriting and filing fees and expenses associated with the organization and presentation of 27 esports tournaments and initial expenditures associated with organization of an additional 14 esports tournaments in 2022.
In the period from January 1, 2022 through March 31, 2022, our expenses included $45,000 to support the organization of the esports events in India, $25,000 in legal fees, $6,814 in filing fees, $20,000 in audit fees, $10,000 in investor relations advisory fees and $17,500 in Nasdaq filing advisory fees.
MOBILE GLOBAL ESPORTS
INC.
BALANCE SHEET
As of March 31, 2022 and December 31, 2021
| Mar 31, | Dec 31, | |||||||
| 2022 | 2021 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 113,886 | $ | 238,202 | ||||
| Deferred offering costs | 110,498 | 62,998 | ||||||
| Total current assets | 224,384 | 301,200 | ||||||
| TOTAL ASSETS | $ | 224,384 | $ | 301,200 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | - | $ | 31,814 | ||||
| Total current liabilities | - | 31,814 | ||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock; $0.0001 par value; 10,000,000 shares authorized; nil shares issued and outstanding | ||||||||
| Common stock; $0.0001 par value; 100,000,000 shares authorized; 16,809,800 shares issued and outstanding | 1,681 | 1,681 | ||||||
| Additional paid-in capital | 576,545 | 530,065 | ||||||
| Accumulated deficit | (353,842 | ) | (262,360 | ) | ||||
| Total stockholders’ equity | 224,384 | 269,386 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 224,384 | $ | 301,200 | ||||
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The Poornima Panthers were one of the 24 teams competing in the Battlegrounds Mobile India (BGMI). The Mumbai University Shark teams won both the BGMI and Valorant championships. Islamic University took second place and St. Wilfred University took third place in the BGMI events. Team Bennett University took second place and the Mumbai Red team took third in the Valorant championship.
9
Investing in our Common Stock involves a high degree of risk. Before deciding whether to invest in our Common Stock, you should consider carefully the risks and uncertainties and assumptions discussed under the heading “Risk Factors” and elsewhere in this prospectus. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. If any of these risks occurs, our business, business prospects, financial condition or results of operations could be seriously harmed. Assuming our common shares are publicly traded, this could cause the trading price of our Common Stock to decline, resulting in a loss of all or part of your investment. Please also read carefully the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Our business plan contemplates the expansion and development of an existing business in the new area of mobile esports competition, or “esports gaming,” and we may not be successful in realizing a profitable business.
Mobile sports competitions, utilizing mobile cell phones, laptops, and tablets to gather audiences and upon which players compete, is a relatively new industry. Our Management believes there is a great opportunity to create a large and profitable sports franchise out of this industry, generating substantial revenues from ticket sales, live streaming video, sponsors, advertisements, sales of merchandise associated with university and professional teams, and other revenue sources. But there is no assurance there will be market acceptance or great public interest in this new sport, or that we can generate significant revenues and profits from esports competitions, tournaments and associated streams of revenues.
Our initial focus will be on expanding a business to deliver mobile esports tournaments, games and activities in association with 73 Indian universities. Although interest in mobile esports programming is growing in South Asia, university mobile esports are new to Indian sub-continent audiences and broadcasts/streaming of our university league’s esports games and tournaments may not resonate with these audiences. As a result, we may not generate sufficient viewership to attract advertisers and increase the value of the media rights we intend to expand and promote. You should consider our business and prospects in light of the challenges, risks and difficulties we may encounter in this new and rapidly evolving mobile esports content market.
We rely on information technology and other systems and services provided by third parties, primarily by Artemis Avenue; any failures, errors, defects or disruptions in these systems or services could diminish our brand and reputation, subject us to liability, disrupt our business and adversely affect our operating results and growth prospects. The third-party platforms upon which these systems and software are made available could contain undetected errors.
The challenges presented in India to deliver and receive content for MOGO are significant for four reasons: (i) the infrastructure for both broadband and mobile bandwidth is not evenly available; (ii) users may access our digital content on an older smart phone with lower processing power and a slower connection; (iii) our content will often be live and may involve teams bunched together in specific geographic areas, which means that they will be accessing content from the same place, at the same time; and (iv) the latency, or the delay between when a player does something and that action is seen by another player or viewer, must be negligible in order to have exciting real time competition.
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Our technology infrastructure is critical to the performance of our offerings and to user satisfaction. However, the systems provided by Artemis Avenue, on which we will rely, may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. Further, we may be subject to cyber-attacks and we may find it difficult to protect our systems, data and user information and to prevent outages, data or information loss, fraud, security breaches. We may in the future experience website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. Such disruptions from unauthorized access, fraudulent manipulation, tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of which could materially adversely affect our business, financial condition, results of operations and/or prospects.
The women’s team from Lovely Professional University celebrated at the closing ceremony. LPU was the host university and the efforts of the campus student organizations in the planning and management of the three-day event were a significant factor in the tournament’s success. Massive screens, LED displays, live casting and live broadcasts were all elements that contributed to the excitement.
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We cannot be certain that our business initiatives and operations will maintain regulatory approval, and without regulatory approval we will not be able to market and grow our business.
We believe esports to be fairly defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck. We believe that “cash-based” tournaments involving games of skill should not be considered gambling because the generally accepted definition of gambling involves three specific things: (i) the award of a prize, (ii) paid-in consideration (meaning entrants pay to compete) and (iii) an outcome determined on the basis of chance.
We believe that in India and other countries our mobile esports games, which permit players and teams to play against each other with prize money distributed to the last remaining competitors as cash prizes, will be considered games of skill. We do not intend to offer any facility for players to wager on the outcome of the games or events.
This is relevant because online gaming has gained significant scrutiny in India. Games of chance in India are considered gambling and are expressly prohibited. Seven Indian states have amended their laws to ban fantasy sports gambling and other real money gambling games. But the High Court in the Indian state of Rajasthan dismissed a plea to ban Dream11 in October 2020 and ruled that the format of an online fantasy game is a game of mere skill and is protected under the State’s Constitution. Rajasthan is one of 28 states and 8 union territories in India, and the other states and the national government have not addressed this issue. It remains uncertain as to how other Indian states and the Indian national government will define or regulate our esports games in the future, if at all. And it is uncertain whether other South Asian countries, or countries elsewhere, will adopt laws banning or regulating our esports games despite our position that they do not involve gambling. Prospective investors should assess this risk of government regulations or prohibition in assessing an investment in our shares, as negative government regulation at any level could destroy our markets or severely limit operations, thereby reducing our revenues and the value of our business and the value of your investment.
Risks to our commercialization of licensed rights involving 73 Indian universities.
SII has granted to MOGO a license to commercially exploit certain rights held by SII through SII’s subsidiary, EUSAI, associated with the development, organization, promotion, marketing and distribution of esports leagues, games, tournaments, products and programing in India in participation with 73 EUSAI-member universities with whom SII or EUSAI has contractual or correspondence relationships. We are relying on the commercialization of these rights to jumpstart the expansion of our esports business.
However, one or more or all of such universities, for whatever reason, could decide to withdraw from their arrangement with EUSAI and/or SII, either dropping the pursuit of esports altogether, or nominating new third parties to assist in their development of esports leagues and teams, or placing restrictions on use of Brand Elements. If a number of universities withdrew, it could have a significant negative impact on our Company and successful implementation of our business plan.
The agreements with SII provide that SII is obligated to compensate participating universities and their players, including payment of any royalties or participations, for MOGO’s use of logos, trademarks and names and likenesses associated with the universities and their players, and SII is also obligated to pay for lodging, food and transportation of Participating University players. Further, SII has agreed to invest capital in the manufacture, marketing, distribution and sale of merchandise associated with esports programs. SII has agreed to provide consulting services to MOGO with regard to development of its esports business, through at least December 31, 2022. SII is not a public company, does not have substantial capital reserves, and conceivably could default in performance of one or more of these obligations. Any SII default would likely have a material negative effect on our Company and our successful implementation of our business plan.
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The rights assigned to MOGO by SII under the license of rights and/or correspondence relationships by SII to MOGO associated with the 73 universities are limited; SII may support MOGO competitors or become a competitor of MOGO in the future.
The limited License granted by SII to MOGO excludes material areas of esports commercial exploitation that are retained by SII. SII retains all esports rights associated with games between Indian teams and Pakistani teams. But MOGO is free to develop its own esports content revolving around such competition, provided that such development does not conflict with the rights of SII or obligations of MOGO, including without limitation the obligation of MOGO not to interfere with SII’s relationship with Participating Universities, making any claim against any Participating University without SII’s prior written approval, or interfering with Licensor’s relationships with its vendors, customers, clients, partners, employees, licensees, licensor, consultant or supplier to Licensor. For “Excluded Games,” which are defined as games or tournaments between Indian and Pakistani teams that would be transmitted or streamed by brand-name networks, such as Sony Ten, NEO Sports, ESPN, DSport, DDSports, Star Sports, Fox Sports, Netflix, youtube.com, twitch.com or other similar linear or streaming networks, both MOGO and SII are free to separately negotiate and stream esports games and programing, including content licensed to MOGO by SII under collective agreements between the parties. SII retains all rights to license, manufacture and distribute merchandise that bears university team Logos and Name and Likeness with MOGO’s name and logos; however, MOGO is entitled to receive a merchandise royalty of one-third of profits from sales of such merchandise. Sponsorship Rights with respect to such merchandise are retained solely by SII. There are various other limitations on the rights assigned to MOGO under the License of Rights Agreements.
The License is limited to rights SII has or ‘obtains’ from the Association of Indian Universities (AIU) or from so-called “Participating Persons,” defined as participating universities, esports athletes, esports competing students, faculty members, other employees, and alumni or fans of a participating university in that capacity, rather than in their capacities as members of the general public. Although SII is obligated to use best efforts to acquire such rights, it has no liability to the extent that AIU or Participating Persons terminate or limit such person’s grant of rights to SII.
The License is for a limited term and expires on December 31, 2026, provided that if MOGO completes a public offering during 2022, the term will continue for seven years after the date MOGO shares start publicly trading following a public offering (per Third Supplement to founders Agreement).
Nothing in the Assignment of License agreement prohibits SII from using, licensing or granting online rights, gaming rights or similar rights pertaining to Esports Games, transmitted or streamed, by brand-name networks, or virtual play on a live or delayed basis, of sports events organized by SII or for its universities, or with avatars representing the athletes who play in such events. SII may elect to grant such rights to competitors of MOGO. SII may itself elect to commercially exploit such rights and thereby become a competitor of MOGO. SII has specifically retained for itself, all esports rights associated with its universities and India-Pakistan competition and has set up a separate company to commercially exploit this opportunity in which we have no interest. As a result, the long-term relationship with SII is uncertain and SII or its current or future affiliates, may become significant competitors of MOGO and limit or reduce MOGO’s opportunities to expand its esports business, thereby reducing our revenues, the value of our business and the value of your investment.
Because we are newly organized, we are a development-stage company without significant revenues and have a limited operating history.
Mobile Global Esports (“MOGO” or “Mogo,” or the “Company”) was organized in March of 2021 to carry on and expand an esports business (the “Business”) started by Sports Industry of India (“SII”), in 2016. Through a series of contracts, the rights to the Business were assigned to MOGO by SII and its affiliates beginning in August of 2021. We are in the process of expanding this Business, but to date we do not have significant revenues. Despite some five years of operations, the Business has many of the risks of a new business because the entire industry of esports is so new and still in many ways undefined. You should consider the Company’s prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered by companies in this early stage of development. In particular, you should consider that we cannot provide assurance that we will be able to:
| ● | Successfully implement our business plan and expand our esports business to develop significant streams of revenue; |
| ● | Maintain our management team; |
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| ● | Maintain licensed rights associated with SII’s universities to which we have gained access pursuant to a license of rights agreement with SII; |
| ● | Raise sufficient funds in the capital markets to implement our business plan; |
| ● | Attract, enter into and/or maintain contracts with players and sponsors; and |
| ● | Compete effectively in the competitive environment in which we will operate. |
If we cannot successfully accomplish these objectives, our business and your investment are likely to be negatively impacted.
The future success we might enjoy will depend upon many factors, several of which may be beyond our control, or which cannot be predicted at this time, and which could have a material adverse effect upon our financial condition, business prospects and operations and the value of an investment in our company. We will incur initial operating losses as we expand our business, and it may be some time before we achieve positive cash flow and/or profitability, and we may never reach such goals. There is of course no assurance that significant revenues will be generated, or that gross revenues will be sufficient to cover our out-of-pocket expenses, or that we will realize profits.
We will require additional financing if we are successful, and cannot be certain that such additional financing will be available on reasonable terms when required, or at all.
As of March 31, 2022, we had a bank balance of approximately $113,886. While this amount is sufficient to continue with operating activities on a limited basis for at least the next six months, we need to raise additional capital to fund our operations while we implement and execute our business plan and expand our business, hence this public offering. But we will likely require additional capital beyond this offering if our business is to be successful.
We currently do not have any contracts or commitments for additional financing beyond this offering. Any future equity financing may involve substantial dilution to existing shareholders. There can be no assurance that such additional capital will be available on a timely basis, or on terms acceptable to the Company. If adequate funds are not available or are not available on acceptable terms when needed, the Company may not be able to fund its business or its expansion, take advantage of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability to obtain additional financing when needed could have a material adverse effect on the Company’s business, results of operations, cash flow, financial condition and prospects.
If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or privileges senior to those possessed by our then-existing stockholders and/or note holders. Additionally, future sales of a substantial number of shares of our Common Stock or other equity-related securities could depress the future market price of our Common Stock if and when we create a public market, and could impair our current or future ability to raise capital through the sale of additional equity or equity-linked securities or the sale of debt. There is no assurance that a public market for our securities will develop. We cannot predict the effect that future sales of our Common Stock or other equity-related securities would have on the price of our Common Stock.
Since we have broad discretion in how we use the proceeds from this offering, we may use the proceeds in ways with which you disagree.
We have not allocated specific amounts of the net proceeds from this offering for any specific purpose, other than we plan to use such net proceeds for working capital, general corporate purposes and in furtherance of our corporate strategy. Accordingly, our management will have flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these 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 the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.
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The current and potential effects of the coronavirus may impact our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus (Covid-19) emerged in China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread and infections have been reported globally. Due to the outbreak of Covid-19, almost all major sports events and leagues were postponed or put on hold for a significant period. Travel restrictions and border closures have materially impacted our ability to manage and operate the day-to-day functions of our business. Management has been able to operate with less efficiency in a virtual setting. However, if such restrictions become more severe due to a surge of virus infections, they could negatively impact those activities in a way that would harm our business over the long term. Travel restrictions can restrain our ability to operate, but at present we do not expect these restrictions on personal travel to be material to our business operations or financial results since the initial esports events will be held online.
The ultimate impact of the Covid-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the Covid-19 outbreak, new information which may emerge concerning the severity of the Covid-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material adverse impact on our business, financial condition and implementation of our business plans.
Actual or threatened epidemics, pandemics, outbreaks or other public health crises may materially and adversely impact our operations, adversely affecting the local economies where we operate and negatively impacting our customers’ spending in the impacted regions.
The interactive entertainment industry is intensely competitive. Mobile Global Esports faces competition from a growing number of interactive companies and, if the Company is unable to compete effectively, its business could be negatively impacted.
The industry we are addressing is “mobile” esports. Our market is part of a much larger interactive entertainment market. There is intense competition among Interactive Entertainment Companies for the consumer’s dollar. There are a number of established, well-financed companies producing esports and interactive entertainment products and systems that will compete with the products and services planned by the Company. Many of these competitors have financial resources much greater than ours. They may spend more money and time on developing and testing product and services, undertake more extensive marketing campaigns, adopt more aggressive pricing policies or otherwise develop more commercially successful products and services than the Company. This could impact the Company’s ability to win new business and retain business. Furthermore, new competitors may enter the Company’s key market areas. If the Company is unable to obtain significant market share or if it loses market share to its competitors, the Company’s results of operations and future prospects would be materially adversely affected. The Company’s success depends on its ability to develop new products and services, and enhance existing products and services, at prices and on terms that attract and retain customers.
In addition, SII, which has assisted us in our organization and has licensed to us certain commercialization rights associated with 73 universities in India, is not precluded from establishing its own esports business once its consulting services to us are concluded. It is possible it, or its affiliates, could become significant competitors to us in the mobile esports markets in South Asia on which we are focused.
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Our revenues and profitability depend upon many factors for which no assurance can be given.
Our ability to achieve expanded revenues will depend, in large part, upon our ability to attract mobile esports users and viewers to our offerings, retain users and viewers, and reactivate users and viewers in a cost-effective manner. Achieving growth may require us to increasingly engage in sophisticated and costly sales and marketing efforts, which may not make sense in terms of return on investment. In addition, our ability to increase the number of users and viewers of our offerings will depend on continued user adoption of mobile esports. Growth in the mobile esports industry and the level of demand for and market acceptance of our mobile esports products and services will be subject to a high degree of uncertainty. We cannot assure the consumer adoption of our mobile esports product and service offerings.
Further, revenues do not assure profitability. Profitability depends upon many factors, including the ability to develop, commercialize, market, sell and maintain valuable mobile esports products and services at reasonable profit margins, our ability to identify and obtain the rights to additional mobile esports products and services to add to our existing lines, success and expansion of our sales programs, expansion of our player and fan bases, and obtaining the right balance of expense levels and the overall success of our business activities.
Once, and if, we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate sufficient revenues, or to become and remain profitable, would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or even continue our operations. It could result in a decline in the value of our stock and you could lose all or part of your investment.
Litigation costs and the outcome of litigation could have a material adverse effect on the Company’s business.
From time to time, the Company may be subject to litigation claims through the ordinary course of its business operations regarding, but not limited to, employment matters, security of consumer and employee personal information, contractual relations with suppliers, marketing and infringement of trademarks and other intellectual property rights, and other matters. Litigation to defend the Company against claims by third parties, or to enforce any rights that we may have against third parties, may be necessary, which could result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition and results of operations.
The Company is not aware of any current material legal proceedings outstanding, threatened or pending as of the date hereof by or against the Company.
If we are unable to build and enhance our brands and reputation or if events occur that damage our brands and reputation, our ability to expand our players, university teams, sponsors and commercial partners may be impaired.
The success of our business depends on the value and strength of our esports media brands and the audiences who watch on television, cell phones, or stream on the internet. The strength of our esports media brands determines our ability to expand our player and fan bases and attract sponsors and advertisers. To be successful, we believe we must preserve, grow and leverage the value of our brands across all of our revenue streams. Unfavorable publicity regarding our esports properties could negatively affect our brands’ reputations. Failure to respond effectively to negative publicity could also erode our brands’ reputations. In addition, events in the industry as a whole, even if unrelated to us, may negatively affect our brands’ reputations. A failure to build brand awareness or negative events that damage our brands’ reputations could interfere in the growth of, or result in a decline in players, television and social media audiences, fan loyalty or corporate sponsors to support our esports media properties. As a result, we might not be able to obtain revenues sufficient to attain profitability, or there might be a material adverse effect on our business, results of operations, financial condition and cash flow, causing us to sustain losses. We might not then be able to obtain the resources or time that would be needed to attempt to rebuild our brands and reputation.
Our insurance coverage may not adequately protect us against all possible risks of loss. Further, our business exposes us to potential liabilities that may not be covered by insurance.
The operation of university athletic events, and specifically a mobile esports league and teams, are subject to a number of risks that could expose us to substantial liability for personal injury. We intend to purchase insurance against certain of these risks, but our insurance may not be adequate to cover our liabilities.
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We do not have any business liability, disruption or litigation insurance coverage for our operations in the US or in India. Accordingly, a business disruption, litigation or natural disaster may result in substantial costs and divert management’s attention from our business, which could have an adverse effect on our results of operations and financial condition.
The Company’s results of operations could be affected by natural events in the locations in which it operates or where its customers or suppliers operate.
Mobile Global Esports, its customers and its suppliers are expected to have operations in locations subject to natural occurrences such as severe weather and other geological events, including monsoons, earthquakes or outbreaks of pestilence that could disrupt operations. Any serious disruption at any of the Company’s facilities or the facilities of its customers or suppliers due to a natural disaster could have a material adverse effect on our revenues and increase our costs and expenses.
We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of March 31, 2022, we had 12 full-time employees and 6 key advisors. The employees in India work a majority of their time to organize events for our operations in India. Of the 18-member team, nine are located in the US, eight are located in India, and one is in Pakistan. None of the employees or advisors are taking a salary prior to project funding. As our company grows, we plan to expand our employee base. In addition, we intend to grow by expanding our business, increasing market penetration and developing new products and services. Future growth will impose significant additional responsibilities on our management, including the need to develop and improve our existing administrative and operational systems and our financial and management controls and to identify, recruit, maintain, motivate, train, manage and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our organization, give rise to operational mistakes, loss of business opportunities, loss of employees and/or reduced productivity. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and grow revenue could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to effectively manage the expansion of employees and manage future growth.
An economic downturn and adverse economic conditions may harm our business.
Any economic downturn and adverse conditions in South Asian regional and global markets may negatively affect our operations. Our projected future broadcasting/streaming revenue in part will depend on consumers’ availability of personal disposable income and on our corporate marketing and operating budgets. Further, projected future sponsorship and commercial revenues are contingent upon the expenditures of businesses across a wide range of industries, and if these industries cut costs in response to any economic downturn, our revenue may similarly decline. Continued weak economic conditions could cause a reduction in our anticipated corporate sponsorships, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
In this regard, the Covid-19 pandemic has adversely affected our ability to generate revenues, raise capital, negotiate new business arrangements in India and adequately staff and manage our business. The extent to which Covid-19 in the future impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain, rapidly changing and cannot be predicted, including new information that may emerge concerning the severity of Covid-19 and the actions taken to contain it or treat its impact, and the success and availability of vaccines to prevent it.
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Risks Related to Laws, Regulations and Offshore Operations
Regulations that may be adopted with respect to the internet and electronic commerce may decrease the growth in the use of the internet and lead to the decrease in the demand for the Company’s products and services.
In addition to regulations pertaining to the esports industry in general, the Company may become subject to any number of laws and regulations that may be adopted with respect to the internet and electronic commerce. New laws and regulations that address issues such as user privacy, pricing, online content regulation, taxation, advertising, intellectual property, information security, and the characteristics and quality of online products and services may be enacted. As well, current laws, which predate or are incompatible with the internet and electronic commerce, may be applied and enforced in a manner that restricts the electronic commerce market. The application of such pre-existing laws regulating communications or commerce in the context of the internet and electronic commerce is uncertain. Moreover, it may take years to determine the extent to which existing laws relating to issues such as intellectual property ownership and infringement, libel and personal privacy are applicable to the internet. The adoption of new laws or regulations relating to the internet, or particular applications or interpretations of existing laws, could decrease the growth in the use of the internet, decrease the demand for the Company’s mobile esports products and services, increase our cost of doing business or could otherwise have a material adverse effect on our business, revenues, operating results and financial condition.
The risks related to international operations could negatively affect the Company’s results.
Most all of the Company’s operations will be conducted in foreign jurisdictions including, but not limited to India. It is expected that the Company will derive all of its revenue from transactions denominated in currencies other than the United States dollar, and the Company expects that receivables with respect to foreign sales will account for all of its total accounts and receivables outstanding for some time.
As such, the Company’s operations may be adversely affected by changes in foreign government policies and legislation or social instability and other factors which are not within the control of the Company, including, but not limited to, recessions in foreign economies, expropriation, nationalization and limitation or restriction on repatriation of funds, assets or earnings, longer receivables collection periods and greater difficulty in collecting accounts receivable, changes in consumer tastes and trends, renegotiation or nullification of existing contracts or licenses, changes in policies, regulatory requirements or the personnel administering them, currency fluctuations and devaluations, exchange controls, economic sanctions and royalty and tax increases, risk of terrorist activities, revolution, border disputes, implementation of tariffs and other trade barriers and protectionist practices, taxation policies, including royalty and tax increases and retroactive tax claims, volatility of financial markets and fluctuations in foreign exchange rates, difficulties in the protection of intellectual property particularly in countries with fewer intellectual property protections, the effects that evolving regulations regarding data privacy may have on the Company’s online operations, adverse changes in the creditworthiness of parties with whom the Company has significant receivables or forward currency exchange contracts, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are conducted.
The Company’s operations may also be adversely affected by social, political and economic instability and by laws and policies of such foreign jurisdictions affecting foreign trade, taxation and investment. If the Company’s operations are disrupted and/or the economic integrity of its contracts is threatened, its business would be harmed.
The Company’s international activities may require protracted negotiations with host governments, national companies and third parties. Foreign government regulations may favor or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. In the event of a dispute arising in connection with the Company’s operations in a foreign jurisdiction where it conducts its business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of United States or enforcing American judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company’s activities in foreign jurisdictions could be substantially affected by factors beyond the Company’s control, any of which could have a material adverse effect on it. The Company believes that management’s experience to date in commercializing other products and services may be of assistance in helping to reduce these risks. Some countries in which the Company may operate may be considered politically and economically unstable.
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The Company is subject to foreign exchange and currency risks that could adversely affect its operations, and the Company’s ability to mitigate its foreign exchange risk through hedging transactions may be limited.
The Company expects that it will derive all or most of its revenues in currencies other than the United States dollar for the foreseeable future; however, a significant portion of the Company’s operating expenses for its corporate activities are likely to be incurred in United States dollars. Fluctuations in the exchange rate between the U.S. dollar, the rupee and other currencies may have a material adverse effect on the Company’s business, financial condition and operating results. The Company’s financial results are affected by foreign currency exchange rate fluctuations. Foreign currency exchange rate exposures arise from current transactions and anticipated transactions denominated in currencies other than United States dollar and from the translation of foreign-currency-denominated balance sheet accounts into United States dollar-denominated balance sheet accounts. The Company is exposed to currency exchange rate fluctuations because portions of its revenue and expenses are denominated in currencies other than the United States dollar, particularly in the Indian rupee to start.
The risks of operating as an American company in India are an issue for every foreign investor.
The risks of operating as an American company in India are an issue for every foreign investor. The Company will mitigate some of this risk by maintaining a locally-recruited management and staff, and relying through its relationship with SII, on SII’s political and business relationships, such as the Association of Indian Universities (AIU), the Sports Authority of India (SAI), the SII universities, for whom the company plans to develop, promote and commercialize mobile esports, and by the protection afforded by India’s comprehensive commercial law structure, particularly in the areas of intellectual property law, trademark law, contract law, tax law and the uniform commercial code, and similar laws in other South Asian jurisdictions.
Business interruptions due to terrorism or civil unrest could adversely affect us.
Our business and our assets are planned to be primarily located in India, a country with examples of terrorism and civil unrest, and as a result, we and our affiliates could be potential targets of terrorism. In addition, any prolonged business interruption at any of the arenas where we host our events could result in a decline in mobile esports revenue. We currently do not have business interruption insurance in place. If and when we do have business interruption insurance coverage it may only cover some, but not all, of these potential events, and even for those events that are covered, it may not be sufficient to compensate us fully for losses or damages that may occur as a result of such events, including, for example, loss of market share and diminution of our trademarks, reputation and player and fan loyalty. Any one or more of these events could have a material adverse effect on our business, results of operation, financial condition and/or cash flow.
Changing laws, rules and regulations and legal uncertainties, including adverse application of tax laws and regulations, may adversely affect our business and financial performance.
Our business and financial performance could be adversely affected by unfavorable changes in or interpretations of existing, or the promulgation of new laws, rules and regulations applicable to us and our business, including those relating to the internet, e-commerce, consumer protection and privacy. Such unfavorable changes could decrease demand for our services and products, increase costs and/or subject us to additional liabilities. Furthermore, the growth and development of e-commerce may result in more stringent consumer protection laws that may impose additional burdens on online businesses generally.
Risks Related to the Company’s Management
Failure to attract, retain and motivate key employees may adversely affect the Company’s ability to compete and the loss of the services of key personnel could have a material adverse effect on the Company’s business.
The Company depends on the services of a few key executive officers. The loss of any of these key persons could have a material adverse effect on the Company’s business, results of operations and financial condition.
The unexpected loss of services of one or more of these individuals could also adversely affect the Company. The Company is not protected by key man or similar life insurance covering members of senior management but is contemplating obtaining key man insurance.
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The Company’s success is also highly dependent on its continuing ability to identify, hire, train, motivate and retain highly qualified technical, marketing and management personnel. Competition for such personnel can be intense, and the Company cannot provide assurance that it will be able to attract or retain highly qualified technical, marketing and management personnel in the future. The Company’s inability to attract and retain the necessary technical, marketing and management personnel may adversely affect its ability to carry forward its business plan, and may limit future growth and profitability.
Our current management team has limited prior experience managing university esports businesses.
Our current executive management team has limited experience managing esports business, but does not have experience in managing university esports teams or leagues. In fact, practically no one has such experience because this segment of the industry is so new. This lack of experience could adversely affect our ability to run our business properly or to raise additional capital that may be necessary for our continued operations. We will endeavor to recruit seasoned executives, as and if capital is available to fund their hiring.
Risks Related to Intellectual Property and Technology
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure our trademarks.
We are susceptible to brand infringement such as counterfeiting and other unauthorized uses of our intellectual property rights. However, it is not possible to detect all instances of brand infringement in a timely manner. Additionally, where instances of brand infringement are detected, we cannot guarantee that such instances will be prevented as there may be legal or factual circumstances which give rise to uncertainty as to the validity, scope and enforceability of our intellectual property rights in the brand assets.
We also may license our intellectual property rights to third parties. In an effort to protect our brands, we will try in such event to enter into licensing agreements with such third parties which govern the use of our intellectual property and which require our licensees to abide by quality control standards with respect to such use. Although we will make efforts to monitor our licensees’ use of our intellectual property, we cannot assure you that these efforts will be sufficient to ensure their compliance. The failure of our licensees to comply with the terms of their licenses could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Our business will be subject to online security risk, and loss or misuse of our stored information, including the exposure of customers’ personal information, could lead to government enforcement action or other litigation, potential liability, or otherwise harm our business.
We will receive, process, store and use personal information and other customer data as a part of our business. There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us which could have an adverse impact on our business. In the area of information security and data protection, many jurisdictions have passed laws requiring notification to customers when there is a security breach for personal data or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement. The costs of compliance with these types of laws may increase in the future as a result of changes in interpretation or changes in law. Any failure on our part to comply with these types of laws may subject us to significant liabilities.
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We will rely on other third-party data and live-streaming providers for real-time and accurate data and/or live streams for mobile esports events, and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business, financial condition and results of operations could be adversely affected.
We will rely on third-party sports data and live streaming providers to obtain accurate information regarding schedules, results, performance and outcomes of mobile esports events and the live streaming of such events. We may experience errors in this data and/or streaming feed. If we cannot adequately resolve the issue with our end users, our end users may have a negative experience with our offerings, our brand or reputation may be negatively affected and our users may be less inclined to continue or resume utilizing our products and services, or recommend our platform to other potential users. As such, a failure or significant interruption in our service would harm our reputation, business and operating results.
Furthermore, once we establish a relationship with a data and/or live streaming partner, if it terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate provider, and may not be able to secure similar terms or replace such providers in an acceptable time frame. Any of these risks could increase our costs and adversely affect our business, financial condition and results of operations. Further, any negative publicity related to any of our selected third-party partners, including any publicity related to regulatory concerns, could adversely affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
Systems, network or telecommunications failures or cyber-attacks may disrupt the Company’s business and have an adverse effect on the Company’s operations.
Any disruption in the Company’s network or telecommunications services could affect the Company’s ability to operate its mobile online esports offerings, which would result in reduced revenues and customer down time. The Company’s network and databases of players, fans, and sponsors information, including intellectual property, trade secrets, and other proprietary business information and those of the third parties the Company utilizes, will be susceptible to outages due to fire, floods, power loss, break-ins, cyber-attacks, hackers, network penetration, data privacy or security breaches, denial of service attacks and similar events, including inadvertent dissemination of information due to increased use of social media. Despite implementation of network security measures and data protection safeguards, including a disaster recovery strategy for back-office systems, the Company’s servers and computer resources will be vulnerable to viruses, malicious software, hacking, break-ins or theft, third-party security breaches, employee error or malfeasance, and other potential compromises. Disruptions from unauthorized access to or tampering with the Company’s computer systems, or those of the third parties the Company utilizes, in any such event could result in a wide range of negative outcomes, including devaluation of the Company’s intellectual property goodwill and/or brand appeal, increased expenditures on data security, and costly litigation, and can have a material adverse effect on the Company’s business, revenues, reputation, operating results and financial condition.
Risks Related to Our Common Stock
There is no assurance the Offering Price of our Common Shares will be at the low point of our Estimated Price Range, or $6.00 per Share; We may not be able to list our Common Stock on Nasdaq.
The estimated public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock or that the common stock will trade in the public market at or above the initial public offering price. If we cannot realize a per share offering price of at least $6.00 per share in this offering, we will not proceed with this offering.
We have applied to list our common shares on the Nasdaq Capital Market under the symbol “MGAM,” and anticipate receiving conditional approval to so list our common shares, provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering.
Our officers, directors and 5% stockholders may exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
As of the date of this prospectus, our officers, directors and more than 5% shareholders own in the aggregate approximately 41% of our outstanding Common Stock. As a result, when acting together, although such individuals will not have a controlling interest in our Company, they still will have a significant impact on the election of our directors and in determining the outcome of any corporate action, including corporate actions requiring stockholder approval, such as: (i) a merger or a sale of our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This concentration of voting power and influence could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests different from those individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
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We currently do not intend to pay dividends on our Common Stock. As a result, your only opportunity to achieve a return on your investment is if the price of our Common Stock appreciates.
We currently do not expect to declare or pay dividends on our Common Stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our Common Stock. As a result, your only opportunity to achieve a return on your investment will be if we are able to establish a public market for our stock, the market price of our Common Stock appreciates and you sell your shares.
Shareholders will likely experience dilution of their ownership interest due to the future issuance of additional shares of our Common Stock.
We are in a capital-intensive business and we do not have sufficient funds to finance the growth of our business without issuing additional securities beyond the shares to be sold in this offering, resulting in the dilution of the ownership interests of holders of our Common Stock. We are currently authorized to issue 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. Additionally, the Board may subsequently approve increases in authorized Common Stock or Preferred Stock. The potential issuance of such additional shares of common or Preferred Stock or convertible debt may create downward pressure on the trading price of our Common Stock once and if a public market for our stock is established. We may also issue additional shares of Common Stock or other securities that are convertible into or exercisable for Common Stock in future public offerings or private placements for capital-raising purposes or for other business purposes. The future issuance of a substantial number of common shares into the public market, or the perception that such issuance could occur, could adversely affect the prevailing market price of our common shares. A decline in the price of our common shares could make it more difficult to raise funds through future offerings of our common shares or securities convertible into common shares.
Our amended and restated certificate of incorporation allows for our board of directors to create new series of Preferred Stock without further approval by our stockholders, which could have an anti-takeover effect and could adversely affect holders of our Common Stock.
Our authorized capital includes Preferred Stock issuable in one or more series. Our board has the authority to issue Preferred Stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. The issuance of additional Preferred Stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of Common Stock of a premium that they might otherwise realize in connection with a proposed acquisition of our company.
We expect to incur significant additional costs as a result of being a public company, which may adversely affect our business, financial condition and results of operations.
Upon completion of this offering, we expect to incur costs associated with corporate governance requirements that will become applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Exchange Act, as well as the rules of the Nasdaq. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time-consuming. We also expect these rules and regulations to make it more expensive for us to obtain and maintain directors’ and officers’ liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Accordingly, increases in costs incurred as a result of becoming a publicly traded company may adversely affect our business, financial condition and results of operations.
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If and when a trading market for our securities develops, the market price of such securities is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to sell your securities at or above the price at which you acquired them.
The stock market in general and the markets for smaller companies in particular have experienced extreme volatility that may be unrelated to the operating performance of particular companies. Once and if our common shares become publicly traded, the market price for our securities may be influenced by many factors that are beyond our control.
The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. These factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our Common Stock and warrants.
We are a Delaware corporation and the anti-takeover provisions of Delaware law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that some stockholders may consider favorable.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.
Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
| ● | Failure of future market acceptance of our mobile esports products and services; |
| ● | Increased levels of competition; |
| ● | Changes in political, economic or regulatory conditions generally and in the markets in which we operate; |
| ● | Our ability to retain and attract senior management and other key employees; |
| ● | Our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| ● | Other risks, including those described in the “Risk Factors” discussion and elsewhere in this prospectus. |
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.
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We estimate that the gross proceeds to us from the sale of the shares that we are offering will be approximately $6,000,000, based upon the initial public offering price of $4.00 per share (which is the low point of the estimated offering price range set forth on the cover page of this prospectus), assuming no over-allotment of shares are sold. On this basis, we estimate that the net proceeds, after deducting the underwriters’ $600,000 discount, the $120,000 non-accountable cost allowance and the payment of an estimated $300,000 in offering expenses, will be approximately $4,980,000. If the underwriter exercises its over-allotment option in full, we estimate that our net proceeds on this basis will be approximately $5,790,000.
We intend to use the net proceeds in the first two years as follows:
| ($000) | ||||||||
| Offering | ||||||||
| Gross Proceeds* | $ | 6,000 | 100 | % | ||||
| Less: Fees | (600 | ) | -10 | % | ||||
| Less: Underwriters’ Non-Accountable Reimbursement | (120 | ) | -2 | % | ||||
| Less: Estimated Incremental Expenses of the offering for which we are responsible ($330) | (300 | ) | -5 | % | ||||
| Net Proceeds | 4,980 | 83 | % | |||||
| Operating Expenses | ||||||||
| Merchandise Cost of Sales, Licensing Fees | 98 | 2 | % | |||||
| Marketing and Advertising | 186 | 1 | % | |||||
| Third Party Event Coordination / Scheduling / Judging Fees | 70 | 1 | % | |||||
| Streaming Expenses | 314 | 5 | % | |||||
| Site Expenses (Championship Venues, Facility Upgrades, Officials, Team Travel, VIP, Trophies) | 219 | 4 | % | |||||
| Total Operating Expenses | 787 | 13 | % | |||||
| Sales, General & Administrative Expenses | ||||||||
| Retention of additional staff in India | 1,183 | 36 | % | |||||
| US Corporate Expenses | 92 | 2 | % | |||||
| India Operating Expenses | 361 | 6 | % | |||||
| Total SG&A | 2,636 | 44 | % | |||||
| Total Operating, SG&A Expenses | 3,423 | 57 | % | |||||
| Other Uses | ||||||||
| Capital Expenditures (Technology Development) | 1,482 | 25 | % | |||||
| Contingency | 75 | 1 | % | |||||
| Total Uses | $ | 6,000 | 100 | % |
We believe the net proceeds of this offering will be sufficient to meet our cash, operational and liquidity requirements for approximately two years.
As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. Accordingly, our management will have broad discretion in the application of these proceeds. Net offering proceeds not immediately applied to the uses summarized above will be invested in short-term investments such as money market funds, commercial paper, U.S. treasury bills and similar securities investments pending their use.
We intend to use the net proceeds from this offering for operating expenses, marketing, event expenses, streaming, retention of additional staff in India, working capital and general corporate purposes, including perhaps acquisitions of game licenses, technology platform agreements and strategic partnerships. Investors are cautioned, however, that expenditures may vary substantially from these uses. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of cash generated by our operations and the amount of competition we face and other operational factors. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.
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We have never declared or paid any cash dividends on our Common Stock and do not currently anticipate paying cash dividends in the foreseeable future. We currently intend to retain our future earnings, if any, for use in our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2022 on:
| ● | An actual basis; and |
| ● | A pro forma reflecting the sale of 1,500,000 shares of our Common Stock in this offering, based on a public offering price of $4.00, (which is the low point of the estimated offering price range set forth on the cover page of this prospectus) and our receipt of the estimated $4,980,000 in net proceeds from this offering, after deducting the underwriter’s discounts and non-accountable cost allowance and estimated offering expenses payable by us. |
You should read this capitalization table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors”, and our financial statements and the related notes appearing elsewhere in this prospectus.
| Actual March 31, 2022 |
Pro Forma After the Public Offering |
|||||||
| Cash and cash equivalents | $ | 113,886 | $ | 5,093,886 | ||||
| Stockholders’ equity: | – | – | ||||||
| Preferred Stock, $0.0001 par value: 10,000,000 authorized, 0 shares issued and outstanding | ||||||||
| Common Stock, $0.0001 par value: 100,000,000 shares authorized, actual and pro forma; 16,809,800 shares issued and outstanding, actual and 18,309,800 shares issued and outstanding, pro forma | $ | 1,681 | $ | 1,831 | ||||
| Additional paid-in capital | $ | 576,545 | $ | 5,556,395 | ||||
| Accumulated deficit | $ | (353,842 | ) | $ | (353,842 | ) | ||
| Total stockholders’ equity | $ | 224,384 | $ | 5,204,384 | ||||
| Total capitalization | $ | 224,384 | $ | 5,204,384 | ||||
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Purchasers of our Common Stock in this offering will experience an immediate dilution of net tangible book value per share from the initial public offering price. Dilution in net tangible book value per share represents the difference between the amount per share paid by the purchasers of shares of Common Stock and the net tangible book value per share immediately after this offering.
As of March 31, 2022 our net tangible book value was $224,384, or $0.01 per share of Common Stock. Net tangible book value per share represents our total tangible assets, less our total liabilities, divided by the number of outstanding shares of our Common Stock.
Dilution represents the difference between the amount per share paid by purchasers in this offering and the pro forma net tangible book value per share of Common Stock after the offering. After giving effect to the sale of 1,500,000 shares of Common Stock in this offering at the offering price of $4.00 per share, (which is the low point of the price range set forth on the cover page of this prospectus), and after deducting underwriting commissions and estimated offering expenses payable by us, but without adjusting for any other change in our net tangible book value subsequent to March 31, 2022, our pro forma net tangible book value would have been $0.28 per share. This represents an immediate increase in pro forma net tangible book value of $0.27 per share to our existing stockholders and immediate dilution of $3.71 per share to new investors purchasing shares at the proposed public offering price.
The following table illustrates the dilution in pro forma net tangible book value per share to new investors as of March 31, 2022 on this basis:
| Assumed initial public offering price per share | $ | 4.00 | ||
| Net tangible book value per share at March 31, 2022 | $ | 0.01 | ||
| Increase in net tangible book value per share to the existing stockholders attributable to this offering | $ | 0.27 | ||
| Adjusted net tangible book value per share after this offering | $ | 0.28 | ||
| Dilution in net tangible book value per share to new investors | $ | 3.71 |
The following table sets forth, as of March 31, 2022, the number of shares of Common Stock purchased from us, the total consideration paid to us and the average price per share paid by the existing holders of our Common Stock and the price to be paid by new investors at the estimated public offering price as described above:
| Shares Purchased | Total Consideration | Average Price | ||||||||||||||||||
| Number | Percent | Amount | Percent | Per Share | ||||||||||||||||
| Existing stockholders | 16,809,800 | 91.81 | % | $ | 224,384 | 4.31 | % | $ | 0.01 | |||||||||||
| Investors purchasing shares in this offering | 1,500,000 | 8.19 | % | $ | 4,980,000 | 95.69 | % | $ | 3.32 | |||||||||||
| Total | 18,309,800 | 100.00 | % | $ | 5,204,384 | 100.00 | % | |||||||||||||
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SELECTED HISTORICAL FINANCIAL DATA
MOGO was formed on March 11, 2021 to acquire an existing esports business from SII. There is only limited historical financial data for MOGO.
The audited financial statements as of December 31, 2021 are included beginning on page F-1. A summary is outlined below:
Results of Initial Operations as of December 31, 2021
| Assets | Liabilities | |||||||||
| Cash and Cash Equivalents | $ | 238,202 | Current Liabilities | $ | 31,814 | |||||
| Deferred Offering Costs | $ | 62,998 | Total Liabilities | $ | 31,814 | |||||
| Common Stock @ $0.0001, 16,809,800 Shares Issued and Outstanding | $ | 1,681 | ||||||||
| Additional Paid-In Capital | $ | 530,065 | ||||||||
| Accumulated Deficit | $ | (262,360 | ) | |||||||
| Total Stockholders’ Equity | $ | 269,386 | ||||||||
| Total Assets | $ | 301,200 | Total Liabilities and Stockholders’ Equity | $ | 301,200 | |||||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in this prospectus. The following discussion contains forward-looking statements. Actual results could differ materially from the results discussed in the forward-looking statements. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” above.
For the period from inception (March 11, 2021) to December 31, 2021 we did not recognize any revenue and incurred expenses (including accrued expenses) of $262,360 associated with the expansion of our esports business, the organizing and staging of 27 tournaments, the acquisition of technology for our Indian market, and for accounting services, legal fees and bank charges. For the period covering Q1 2022, we incurred additional auditing, legal, advisory and filing expenses and funded our esports championship events in India.
Liquidity and Capital
A summary and discussion of our cash flow for the period from inception to December 31, 2021 and for the Q1 2022 period:
| Inception Through December 31, 2021 (Audited) Total | Q1 2022 January 1 Through March 31, 2022 (Unaudited) Total | |||||||
| Opening Balance | $ | 0.00 | $ | 238,202.27 | ||||
| Cash Raised | $ | 345,824.00 | $ | 0.00 | ||||
| Bank Charges | $ | (705.00 | ) | $ | (2.50 | ) | ||
| Legal Fees and Advisors’ Fees | $ | (23,500.00 | ) | $ | (52,500.00 | ) | ||
| Trademark Legal Fees | $ | (2,870.00 | ) | $ | 0.00 | |||
| Auditing Fees | $ | (12,500.00 | ) | $ | (20,000.00 | ) | ||
| Underwriting Fees | $ | (60,000.00 | ) | $ | 0.00 | |||
| Filing Fees | $ | (8,046.73 | ) | $ | (6,814.00 | ) | ||
| Event Operating Expenses in India | $ | 0.00 | $ | (45,000.00 | ) | |||
| Total Expenses | $ | (107,621.73 | ) | $ | (124,316.50 | ) | ||
| Balance | $ | 238,202.27 | $ | 113,885.77 | ||||
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We spent $107,621.73 in operating activities during the ten-month period from inception (March 11, 2021) to December 31, 2021. This mostly consisted of legal and consulting fees relating to the incorporation of the Company, and legal and underwriting fees relating to the preparation of the registration statement and prospectus. We spent $124,316.50 in Q1 to continue the preparation of the prospectus and fund our activities in India.
We have not engaged in any investing activities.
We raised $345,824.00 from a private placement during the summer of 2021 from the sale of common stock at par value of $0.0001 per share to Founders and $0.03 per share to early-stage investors.
Cash Resources and Going Concern
We have no significant revenue-generating operations from which we have internally generated funds through March 31, 2022. The Company’s ongoing operations have been financed by the sale of its equity securities by way of private placements. The Company believes that it will be able to secure additional public financings in the future, although it cannot predict the size or pricing of any such financings. This situation is unlikely to change until such time as the Company can successfully build out its business to the point where it experiences positive cash flow from operations. When acquiring technology, software and hardware, and in retention of additional employees and consultants, the Company may elect to issue restricted common shares to the purveyor, vendor, employee or consultant, in order to conserve its cash.
At March 31, 2022, we had $224,384 in working capital. The continuing operations of MOGO are dependent upon obtaining necessary financing to meet MOGO’s commitments as they come due and to finance future development and implementation of its business.
We anticipate that the proceeds of this offering will fund our capital requirements for the next 24 months. See “Use of Proceeds.” The Company expects that it will operate at a loss for the foreseeable future and believes the current cash and cash equivalents plus the proceeds from this offering will be sufficient for the development and implementation of its business plan to a point past breakeven, and fund its currently anticipated general and administrative costs. In any event, the Company will be required to raise additional funds, again through public or private equity financings in the future in order to continue and expand its business. Should such financing not be available in that time-frame, the Company will be required to reduce its activities.
There is significant uncertainty that the Company will be able to secure any additional financing in the current or future equity markets. See “Risk Factors.” Failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern. The quantity of funds to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of proceeds will be devised once financing has been completed and management knows what funds will be available for these purposes.
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Mobile Global Esports (“MOGO” or “Mogo”, or the “Company” was organized in March of 2021 to carry on and expand an esports business (the “Business”) started by Sports Industry of India (“SII”), in 2016. Through a series of contracts, the rights to the Business were assigned to MOGO by SII and its affiliates beginning in October of 2021. MOGO is now building out and expanding the business created by SII, which is focused on the rapidly-growing esports industry, with special emphasis on India and other South Asian markets.
Management believes that MOGO is the first company specifically focused on mobile esports to seek a public listing in the United States.
The esports industry’s global revenue is projected to grow from $1.08 billion in 2021 to $1.6 billion in 2023,18 making esports one of the fastest-growing industries in the world.
With the esports industry experiencing rapid growth, our strategy is to expand and build our technology platform to enhance users’ experience and encourage a wide audience in India and other South Asian countries. We also intend to introduce an updated version of our web site, www.mogoesports.com, that we believe will offer an enhanced user experience, including expanded interactive offerings. We intend to avoid the business of online gambling.
Our long-term strategy is to differentiate ourselves in the mobile esports industry by developing our own intellectual property in the form of new esports gaming models, predictive consolidated data feeds, and new platform and software services based on recent advances in the development of artificial intelligence.
We believe our intellectual property, once expanded and combined with the features we will endeavor to secure from third-party intellectual property vendors, will allow us to offer users expanded mobile esports offerings. We also intend to partner with other game developers to generate revenue from their access to our expanding player base, through licensing arrangements in which we share in new game revenue. There is of course no assurance such agreements can be successfully negotiated.
Esports are the competitive playing of video games by amateur and professional teams for cash and other monetary or non-monetary prizes. Esports typically take the form of organized, multiplayer video games that include real-time strategy and competition, including virtual fights, and first-person shooter and multiplayer online battle arena games. Esports are defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck. Mobile esports are defined as esports that are streamed on an electronic esports platform and played by individuals or teams on mobile devices, usually smartphones.
Online esports tournament play consists of two or more people playing against each other in a game from their mobile devices or computers, where such players do not necessarily have to be playing in real time. These events can be held over the course of a day, a week or even a month and the winner will be the one with the top score or the fastest time at the conclusion of the event.
According to Statista, the global esports market revenue is estimated to be $1.08 billion in 2021 and is projected to grow to $1.62 billion by 2024. India is the fastest-growing mobile games market in the world.19
Industry analysts estimate that the esports segment of the mobile games market has an estimated 495 million-strong and growing global audience.20 Tournaments, ranked play and matchups encourage continuous and repeat game play as players compete to earn status, cash and virtual rewards and prizes. Creating a global community with competitive game play through an esports platform enables gamers to connect and play together, creating a community that is intended to maintain player loyalty.
| 18 | https://www.statista.com/statistics/490358/esports-revenue-worldwide-by-segment/. Most of the industry’s revenue is from sponsorships (59%) and media rights (18%). Activate Consulting’s 2025 estimate is for $5 billion, with consumer spending making up 66% of the total. Activate Tech and Media Outlook, 2022. https://activate.com/#outlook. |
| 19 | https://www.dawn.com/news/1590486. |
| 20 | https://www.brighttalk.com/webcast/12339/477571/monetizing-the-esports-boom-how-to-launch-an-esports-platform. |
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The free-to-play games generated 78% of the game revenue in 2020, according to SuperData’s 2020 Digital Game Review, with purchased in-game content and paid upgrades, and Asian markets contributed 59% of those earnings. Mobile revenues for Honor of Kings and Peacekeeper Elite, both published by Tencent, each exceeded $2 billion.21
According to SuperData, Gaming Video Content (GVC) reached 1.2 billion viewers in 2020 with competitive titles, social games and brand crossovers, including Fortnite X Marvel and Among Us. Virtual Reality (VR) and Extended Reality (XR) games grew 25% with new headset technology and more affordable headset prices.
SuperData also reported, as of December 2020, the three largest selling esports games were Dota 2, League of Legends (each multiplayer online battle arena games) and Counter Strike: Global Offensive (CS:GO, a first-person shooter game). Other popular games include Smite, StarCraft II, Call of Duty, Heroes of the Storm, Hearthstone and Fortnite. Esports includes games which can be played by amateurs in multiplayer competitions on the Sony PlayStation, Microsoft Xbox and Nintendo Switch. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv, azubu.tv, ustream.tv, Facebook and YouTube.
Real Money Games: Skill or Chance
So-called real money esports games let players win cash. They are either games of skill or games of chance. Skill games determine the reward based on the player’s knowledge, practice, attention and experience. In games of chance, the outcome is based on luck.
Cash-based tournaments involving games of skill are not considered gambling in most U.S. states because the generally accepted definition of gambling involves three specific things: (1) the award of a prize, (2) paid-in consideration (meaning entrants pay to compete) and (3) an outcome determined on the basis of chance.
We anticipate that many of our mobile esports games will permit players and teams to play against each other with prize money distributed to the last remaining competitors as cash prizes.
This is relevant because online gaming has gained significant scrutiny in India. For instance, games of chance in India are considered gambling and are expressly prohibited. Apps such as Dream11, Mobile Premier League and My11Circle, which are backed by major investors, allow fans to create their own cricket “dream teams” and win cash prizes based on how players do in real matches. Seven Indian states have amended their laws to ban such fantasy sports and other real money games. But the High Court in the Indian state of Rajasthan dismissed a plea to ban Dream11 in October 2020 and ruled that the format of an online fantasy game is a game of mere skill and is protected under the State’s Constitution.
We currently offer users esports play in a tournament setting, and intend to expand to a wide selection of video games of skill to be played online for real prizes by individuals or teams and in major tournaments. Cash prizes or scholarships may be awarded to universities, university teams or individual players in the formats and platforms we promote and develop for universities. In all cases winning will be based on established multi-player games that are won or lost on the players’ abilities, quick responses, teamwork, experience and playing skills. As a result, we do not believe our mobile esports games will deemed games of chance or constitute gambling in most jurisdictions, under current laws, but laws may change and/or regulatory authorities may disagree with our conclusions. We intend to adhere to the any legal guidelines in each jurisdiction where an award of cash prizes or merchandise to winning players is involved.
| 21 | https://www.statista.com/statistics/516754/gaming-video-content-viewer-number-global/. |
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According to SuperData’s 2020 Year in Review, the mobile esports market represents an estimated 70% of the total esports market in South Asia, defined as the countries of India, Pakistan, Sri Lanka, Bangladesh, Nepal and Bhutan. South Asia offers an addressable market of an estimated 400 million players.
Historically, the region’s poor online infrastructure has made it difficult for players to gain broad access to the largest personal computer-oriented esports platforms, such as LoL (League of Legends), Overwatch and CS:GO (Counter Strike: Global Offensive). Now, however, there is increasing wide broadband access and lower access costs, and we believe esports players in South Asia have embraced mobile platforms since the mobile esports segment already represents 70% of the total esports market.
We believe there will be strong growth in university esports in the future in India and South Asia as a trend of university adoption of varsity and club esports programs continues. According to a report by Stream Hatchet, an esports business intelligence firm, university esports hours watched in 2020 were an estimated 1.5 million hours world-wide, and this is less than 0.1% of the total esports hours watched.
In the U.S., three companies, CEX, PlayVS and CSL, have created a structure for organized university esports. Both university varsity and club teams compete at partnered schools. Also, Riot Games created the Riot Scholastic Association of America to manage their own properties and Gaming Community Network (GCN) and Van Wagner (an advisory group representing 110 colleges) announced in March 2021 national collegiate esports tournaments across multiple games. In April 2021, Collegiate Sports Management Group announced its first national collegiate championship with 48 teams from 40 schools. There are 175 colleges and universities in the U.S. that are members of the National Association of Collegiate Esports (NACE) with varsity-level esports programs. In the U.K., 14 universities and 7 colleges are offering BTEC esports degree programs, according to the British Esports Association. Globally, The Global Sport Institute at Arizona State University estimates perhaps as many as 200 more universities sponsor varsity esports programs of some kind, but this underestimates the real number since there are already 51 Indian universities who have committed to sending teams to MOGO’s virtual esports events.
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India is the largest English-speaking country in the world, Asia’s third largest economy and currently accounts for only 2.7% of global consumption. Growth rate projections for the next 30 years place India as the third-largest economy behind China and the US.
This growth is driven by an increase in disposable income, changes in demographics as cities attract more people from the rural areas and the rural areas develop economically, the entry of foreign investors, the liberalization of foreign investment policies and the government’s concerns about India’s global competitiveness. India offers global investors a rapidly-expanding middle class of enthusiastic consumers, an improving infrastructure and a young, well-educated, motivated labor force.
The growth of the digital infrastructure has eliminated many of the barriers to esports participation. It is estimated the number of smartphone users in India is now 845 million with the introduction of low-cost telephones with many features, reduced access fees and wider geographic coverage. India surpassed the U.S. in 2019 to become the second-largest smartphone market, according to Statista. The number of internet users reached 565 million in 2020.
The Indian esports industry is fragmented and in its early stages of development. Its explosive growth has attracted over 250 game development companies and created competing platforms. The leading platform, Nazara, has a 13.9% share of the esports company revenues in FY2019, according to Esports in India’s Market Landscape Report 2020, published by Inc42Plus. The “mobile” esports market in India can be considered a potentially large and as yet mostly undeveloped subset of India’s esports industry.
There are three types of esports games played in India. The real money games charge entry fees from players and depend on these fees for revenue. Both Indian-developed games and foreign games are available in this category, and they include poker, slots and jackpot games.
The second category includes casual games which have a wide audience and depend on advertising revenue. Again, both Indian-developed games and foreign games are available, and these games include Teen Patti (“Three Cards” in English, a gambling card game) and Minecraft.
The third type is the organized, multi-player video games that may be played with teams. Indian developers have not yet contributed any esports games in this category. It is in this category that MOGO currently operates, and will expand operations, organizing an ever-increasing number of university events to be played on mobile phones.
India already features established esports traditions and university sports rivalries. Furthermore, the demographics of the Indian university students (educated, proficient in technology and social media, often middle class or sufficiently affluent to afford mobile phones, data consumption charges and game subscriptions, and are 18-24 years old) are an almost-exact profile of the primary esports players in the other markets that have grown rapidly, including China, the U.S. and South Korea. Globally, the percentage of women who play is 23%. In India, a significant number of women (17%) are already competitive esports participants22 and women’s teams have competed in MOGO’s events.
| 22 | Activate Consulting. https://activate.com/#outlook. |
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The rapid growth of esports and mobile applications in India create an opportunity for us to expand our business. Initially, while continuing to use the current tournament structure, we plan to license and utilize existing technology platforms to increase our esports business, thereby avoiding the expense and risk of developing our own technology. Our principal revenue sources will continue to be sponsorships, advertising, event registration fees and the sale of merchandise that includes our trademarks and the logos and other trademarks of university teams that compete on our platforms.
Our strategy is to differentiate our Company as the go-to platform for university esports enthusiasts and to create increasingly exciting events for large audiences with state-of-the-art video coverage and interactive options for players and fans in South Asia and the Indian diaspora. We also plan to create revenue from project content, merchandising and licensing of brand elements, name and likeness rights and similar rights. (Merchandising rights associated with the SII universities are retained by SII under our License Agreement with SII, but we share in resulting revenues. See “Material Agreements” herein.)
The esports events we have held or are currently planning include the following:
| ● | Open tournaments to create awareness; |
| ● | Intra-university tournaments; |
| ● | Rivalry inter-university tournaments; |
| ● | Conference and divisional championship tournaments; |
| ● | National university championships; and |
| ● | International friendlies. |
We also plan to position MOGO as one of the primary channels for game development companies to launch new mobile esports games for the Indian and South Asian markets, with the expectation we can negotiate sharing arrangements covering new game revenue streams with these companies in exchange for their access to our players.
In the past the business we acquired from SII has not conducted significant marketing activities. Once we have updated our website and apps, we intend to pursue an aggressive affiliate marketing program focused on professional esports teams and individual social media influencers. As part of our efforts to market our mobile esports platform, tournaments and activities, we will attempt to enter into affiliate marketing agreements with additional university esports teams, professional esports teams and other influential individuals and groups within the esports community.
If we contract with affiliate marketing partners, they will likely be paid fees based on the net player profits that the affiliate partners generate through their client base or fan base, depending upon the system they employ. Instead of directly incurring significant costs related to online advertising, which must be paid in advance, this system allows us to spend fewer resources on advertising directly because our affiliate partners market to their client or fan bases for us.
Our first-mover advantages in the university segment of the esports market in India are significant. There have been 27 virtual events co-branded by MOGO and/or its predecessor, SII, with 138 Indian university teams, including women’s teams. (Some universities have multiple teams).
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HOW ESPORTS WILL GENERATE REVENUES
The revenue stream for esports includes naming and media rights, in-app purchases (including branded merchandise), pay-per-download, subscriptions, in-app advertisements, incentive-based advertising, event advertising and sponsorships, event admission fees, team entry fees, ticket fees for streamed events (pay-per-download), game and hardware manufacturers’ sponsorship and revenue from streaming (advertising, sponsorships and subscriptions).
Of these segments, media rights are currently growing faster than the other segments in the esports market. Sponsorships and advertising account for most of the traditional revenues. Manufacturers of gaming equipment and accessories are usually the largest source of the sponsorship revenue, and sponsorship has been a long-term recurring revenue stream for many esports companies. Globally, broadcast and streaming revenue is still relatively underdeveloped as broadcasters look for esports content with the widest demographic appeal. ESPN, Disney and ABC are involved in television broadcasts of the esports events, and Twitch, YouTube and Facebook have become important streaming platforms. Sports Industry of India has streamed esports events on YouTube and Facebook. In June and September 2021 MOGO-ESI-EUSAI jointly-promoted esports events were streamed live on ESI’s Facebook channel, ESILive, and on the Company’s social media app, ESI Sports. Future revenue from streaming can be generated by naming rights, sponsorships, advertising, app subscriptions and merchandise sales that are coordinated with the events.
We expect to generate revenues for MOGO from registration fees, and add as revenue sources admission fees to venues, sponsorships, advertising, license fees for content, and from shared royalties from the sale of MOGO event-specific merchandise. As we build brands, we plan to generate revenue by licensing the use of Brand Elements, name and likeness rights and similar rights in our games and in players.
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Event organizers typically collect a tournament fee from each player or team in the tournaments, and from these funds cash prizes are paid. Tournament expenses are also paid out of these funds. Organizers also collect a tournament sponsor’s fee (sponsor’s fees are typically 10% of total tournament entry fees).
In the future we intend to offer users a wide selection of video games of skill to be played online for real money to small groups and in major tournaments. Our tournament platform will also serve as a tool to help us determine which markets deliver the largest number of esports players. We believe using the tournament platform to penetrate the university market will allow us to grow our brand within the esports community and lead to lower customer-acquisition costs for our expanded social media platforms.
We envision our event participants will be an important part of our business. MOGO’s gamers will be educated, affluent and dedicated to mastering esports. It is for this reason MOGO believes that gamers are an attractive audience for game development companies that are looking for a large, organized and focused user group to serve as an easily-delivered market for launching new games and revenue-generating game enhancements. Many new games are offered as free-play, and the game development companies earn most of their revenue from additional downloadable content and game upgrades.
MOGO’s longer term business plan, subject to availability of capital and personnel, contemplates entering in to the business of developing and owning teams and managing players. The National Basketball Association and Formula 1 own leagues, FIFA operates a major tournament and professional teams are owned by the Golden State Warriors, Galatasaray, PSG, SK Telecom, Asus and NetEase.23 According to Forbes Magazine, values for the top esports teams have risen considerably in the last few years. The top two global teams are valued over $300 million and have annual revenues of over $30 million.24
Management believes that MOGO will be able to promote and encourage game companies to introduce games and enhancements at MOGO events and use the Company’s built-in user group both as a media lab and as a vibrant market for new products and enhancements. This may give MOGO an opportunity to share in some of the game development company revenue as a licensee or collaborator.
We also plan to expand into new geographic markets as capital is available and opportunities present themselves.
| 23 | Activate Consulting. https://activate.com/#outlook. |
| 24 | https://www.insiderintelligence.com/insights/esports-ecosystem-market-report/. Another source states the revenue is over $24 million. |
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Given that we will operate in the entertainment and on-line esports industries, we consider any type of discretionary leisure and entertainment provider to be a competitor with respect to the consumers’ time and disposable income.
The Indian esports industry is fragmented and in its early stages of development, but it is becoming increasingly competitive. There are 32 esports companies operating in India. Its explosive growth has attracted over 250 game development companies and created competing platforms. The leading platform, Nazara Technologies, has only a 13.9% share of the esports company revenues in FY2019, but by FY2021, revenues increased 84% to $61 million. In the online esports gaming space, (excluding online gambling), our competitors are UCypher, an esports league, Newgen Gaming/Penta Esports, Gaming Monk, WinZO and Gamerji. Gamerji has conducted more than 6,000 esports tournaments, with 150,000 new users per month during the Covid lockdown, according to Inc42, an analytical firm that covers the startup ecosystem in India.
Krafton, a South Korean gaming company, launched Battlegrounds Mobile India (BGMI) in July 2021. Promoted as an exclusive new battle royale game for fans in India, it is little more than a modified version of PUBG, which had been banned in India after clashes between Indian and Chinese troops along the common border two years ago. China moved PUBG to a Korean subsidiary to bypass the Indian restrictions, and it has already drawn 34 million players and is the top-ranked free game on the Google Play Store, according to VCCircle.
With relatively low barriers to entry, new competitors may easily enter the esports video game tournament segment on which we are focused. The competitors may offer an equivalent or superior product to that of the Company. We expect the number of companies offering products and services in our market segment to increase. Most of our current competitors have far greater resources than we have.
SII has assisted us in our organization and has licensed to us certain commercialization rights associated with 73 universities in India. But under this license of rights, SII reserves sole power to interface exclusively with participating universities. SII has also specifically reserved all esports rights associated with India-Pakistan esports games and rivalries. Nothing precludes SII from establishing its own esports business and competing with MOGO. It is possible SII could become a significant competitor for us in the mobile esports markets in South Asia in the future.
Our Competitive Strengths
We believe the following differentiates us from our competitors:
| ● | We are focused initially on university mobile esports in India, a market segment that has only just begun to be commercialized. |
| ● | We have obtained a license to certain rights to promote and commercialize university esports programs in association with 73 leading universities in India and with the Association of Indian Universities (AIU). |
| ● | We have a management team with some experience in university sports in India. This team introduced and organized the first competitive university esports events in India, beginning in 2017. |
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TECHNOLOGY AND SERVICES REQUIRED
To implement its business plan, MOGO intends to license the rights to one or more established games or esports gaming platforms, social media applications and compression technology. $1.5 million has been budgeted for these expenses in the first two years of operations. MOGO also intends to enter into one or more licensing arrangements to support streaming and other methods for play and exhibition of its games. To date, MOGO has engaged in preliminary discussions with a range of potential licensors and licensees and has negotiated preliminary potential terms with certain technology providers. Though the commercial arrangements MOGO seeks are generally available and MOGO believes the proceeds of this Offering will be sufficient for its commencement of commercial services, there can be no assurance as to the financial terms of these arrangements or the aggregate impact on MOGO’s capital requirements, margins or profitability.
MOGO’s Plan for the Technical Challenges in India
To address the technical challenges in India that include poor connectivity, uneven bandwidth and platform performance stability for esports games, MOGO has entered into a software licensing and management agreement with Artemis Avenue, LLC (“ART”) for its ZuCasa video platform and access to the underlying EVE transcoding process. ART is a Delaware company with well-established capabilities in developing and delivering video content, social media, e-commerce and online engagement.
An important component of the agreement is that the ART technical team will function as MOGO’s CTOs. Their experience in entertainment and technology with companies such as Samsung, SiriusXM, China Telecom, Siemens, Intel and Tata provide MOGO with experience and expertise in a critical area of the Company’s market development. Their biographical data are included in the “Senior Advisors” section.
ZuCasa’s API/SDK suite includes the proprietary EVE transcoding software, which reduces video file size by roughly two-thirds, providing MOGO with a distinct market advantage for bandwidth restricted areas, as well as reducing costs significantly for the streaming and storage of its content. This is a critical factor in India where bandwidth can be insufficient for high-speed video gaming.
The EVE proprietary compression engine delivers a video stream that is equal to or better than any commercial streaming company while using only one-half to one-third of the bandwidth.
For comparison, a Netflix 1080p stream is between 4-6 Mbps, almost double that needed by ZuCasa’s streams. ZuCasa is also codec agnostic,25 therefore, its proprietary encode works on standard or non-standard codec such as AVC (h.264) HEVC (h.265), VP8, VP9 & AVI.
The decode is based on standards that avoid any requirements to address adoption. Not only does the compression ease the server-side demands, allowing existing infrastructure to carry up to three times the amount of traffic but, it does the same on the client-side, reducing battery and bandwidth needs, and this can be a game-changer for players using a mobile phone.
ZuCasa’s backend consists of web-sockets, user and room services that were tailor-built from the bottom up to serve ZuCasa’s video ecosystem, with the ability to “braid” streams together so additional participants do not increase bandwidth demands, and this represents a significant advantage. On other video platforms, for example, each additional participant adds several Mbps of bandwidth needs, increasing the chance of frozen video or dropped audio with each new stream. The ZuCasa platform streams cap out at about 3-4 Mbps, so connectivity will be far stronger, even over cellular networks.
| 25 | Codec stands for “coder/decoder.” It is a tool for making video files smaller by compressing them using mathematical algorithms to discard data that is not important. |
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MOGO is an entertainment company, not a technology company, and any technology required to stream, promote and enhance our business will be licensed or purchased from third parties, at least initially. In the event we develop technology in the future, this technology will be patented.
The trade secrets, copyrights and trademarks of the Company’s business, such as user lists, logos, names of events and other designs and images are or will be registered and defended as appropriate. India is a common law country that follows not only the codified law, but also common law principles, and as such provides for infringement as well as passing off actions against violation of trademarks. India also recognizes the concept of a “well-known trademark” and the “principle of trans-border reputation,” so we believe that the legal structure in India will support the Company’s initiatives.
MOGO has not initiated any R&D. In the future, there is an opportunity to enhance the players’ personalized game experience through augmented reality (AR) and virtual reality (VR), and we will follow developments in these areas closely. These are areas in which the Company will license the technology, but the MOGO players may provide an attractive media lab for AR and VR development companies. If this is the case, the Company may be able to share the financial benefits.
In order to effectively penetrate regional markets, we intend to translate our websites and apps into several additional languages (Sinhala and Tamil in Sri Lanka and Nepali, for example) and offer customer service and technical support in the local language of key markets, as funds are available to do so. India alone, for instance, has 22 scheduled languages with official status, and although English is widely spoken, regional languages such as Bengali, Punjabi, Tamil, Telugu and Marathi are widely spoken.
The Company is also discussing with ZuCasa its capacity to offer multi-lingual feeds for events.
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As of March 31, 2022, we had 12 full-time employees and 6 key advisors. The employees in India work a majority of their time to organize events for our operations in India. Of the 18-member team, nine are located in the U.S., eight are located in India, and one is in Pakistan. None of the employees or advisors are taking a salary prior to project funding. The Indian team is projected to grow to 19 full-time employees as the business develops over the next 24 months. It is likely that the ramp-up of headcount will accelerate as we focus on gaining market share, cash flow increases, and the dynamics of the esports business continue to change. Key personnel are esports and technology specialists, university relationship managers and marketing staff
| Name | Title | Location | |||
| 1 | David Pross | CEO | U.S. | ||
| 2 | Kiki Benson | CFO | U.S. | ||
| 3 | Nicholas Svarnias | COO | U.S. | ||
| 4 | Gregory Butler | Director, Technology | U.S. | ||
| 5 | Anthony Rennert | Director, Technology | U.S. | ||
| 6 | Martha Chang | Director, Technology | U.S. | ||
| 7 | Sunny Bhandarkar | VP, India | India | ||
| 8 | Pranav Prabhu | VP, Operations | India | ||
| 9 | Mohit Singh Rajawat | Director, Operations | India | ||
| 10 | Rohit Singh Rajawat | Field Director | India | ||
| 11 | Himanshu Swami | Field Director | India | ||
| 12 | Ashish Sharma | IT Director | India | ||
| 13 | Kenin Spivak | Senior Advisor | U.S. | ||
| 14 | William (Bill) Brown | Senior Advisor | U.S. | ||
| 15 | Phil Ofili | Advisor | U.S. | ||
| 16 | Dr Vir Ji Koul | Advisor | India | ||
| 17 | Dr. Madhu V. Bhandarkar | Advisor | India | ||
| 18 | Muhammad Jamal Qureshi | Advisor | Pakistan |
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Our corporate offices are in located in a leased facility in San Clemente, California.
We also maintain facilities with Elite Sports India Pvt. Ltd. (“ESI”), the operating subsidiary of SII in India, which is located at Office No 431, 3rd Floor, Orchard Corporates, Royal Palms Estate, Aarey Colony, Goregaon East, Mumbai, India, 400065.
Our employees and consultants mostly work remotely and typically do not require office space. We believe our facilities are sufficient to meet our current needs and that additional suitable space is available as and when needed at reasonable rates. We do not own any real property.
We are subject to and must comply with various Indian and international sales, use, occupancy, value-added and other tax laws, rules and regulations which relate to our services and products, as in place in each Indian jurisdiction, and as interpreted by the applicable taxing authorities.
In addition, we may be subjected in the future to new laws adopted in one or more jurisdictions where we will be deemed to be doing business, which regulate esports and esports gaming, or sweep our esports gaming together with games of chance and forms of gambling which are then heavily regulated, taxed, or even outright banned.
We believe our esports games to be fairly defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck. We believe that “cash-based” tournaments involving games of skill should not be considered gambling because the generally accepted definition of gambling involves three specific things: (i) the award of a prize, (ii) paid-in consideration (meaning entrants pay to compete) and (iii) an outcome determined on the basis of chance.
Currently there are no laws in India or in other countries in South Asia which preclude us from the organization, commercialization and promotion of our esports games, tournaments and events. We anticipate that in India and other countries, our mobile esports games, which permit players and teams to play against each other with prize money distributed to the last remaining competitors as cash prizes, will be defined as games of skill. We do not intend to offer any facility for players to wager on the outcome of the games or events.
But online gambling has gained significant scrutiny in India. Games of chance in India are considered gambling and are expressly prohibited. Seven Indian states have amended their laws to ban fantasy sports and other real money gambling games. But the High Court in the Indian state of Rajasthan dismissed a plea to ban Dream11 in October 2020 and ruled that the format of an online fantasy game is a game of mere skill and is protected under the State’s Constitution. Rajasthan is one of 28 states and 8 union territories in India, and the other states and the national government have not addressed this issue as it pertains to the esports games we intend to offer.
Thus, it remains uncertain as to how other Indian states and the central government will define or regulate our esports games in the future, if at all. And it is uncertain whether other jurisdictions in South Asia, or in countries elsewhere, will adopt laws banning or regulating games of chance, and whether our esports games will be swept into and made subject to such future legislation.
We are also subject to various U.S. and other foreign laws and regulations that affect our ability to organize and operate our planned mobile esports business. These laws and regulations, particularly in foreign markets, are often subject to extensive and evolving regulations that could change based on political and social norms and/or that could be interpreted in ways that could negatively impact our business.
We will be subject to existing laws and regulations and likely new laws and regulations that address user privacy, pricing, online content regulation, taxation, information security, user privacy, and the characteristics and quality of online products and services.
We will have to comply with the Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws which generally prohibit U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Violations of the FCPA and other anti-corruption laws can result in severe criminal and civil sanctions and other penalties.
We also expect to deal with significant amounts electronic financial transactions in our operations and will be subject to various reporting and anti-money laundering regulations.
We may also be subject to laws and regulations directed toward the gambling industry in general and specifically to online gambling.
In order to establish and grow our business, we will adhere to the government laws and regulations and recognized licenses that are required.
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The Company is not aware of any current material legal proceedings outstanding, threatened or pending as of the date hereof by or against the Company.
The material agreements summarized below are attached as exhibits to the Registration Statement of which this prospectus is a part. Such summaries by necessity do not include all provisions of such agreements, but rather are intended to fairly present the terms and conditions we believe to be material from a business and operating perspective.
The SII-MOGO Founders Agreement and Supplements Thereto
MOGO entered into a Founders Agreement (“Founders Agreement”) dated as of July 1, 2021 with Sports Industry of India, Inc. (“SII”) and thereafter three supplements thereto with SII and two Indian subsidiaries of SII, Elite University Sports Alliance of India Private Limited, (“EUSAI”) and ESI Sports India Private Limited (“ESI”): a Supplement to Founders Agreement (“First Supplement”) dated as of October 15, 2021 with SII, a Second Supplement to Founders Agreement (“Second Supplement”) dated January 14, 2022 with SII, EUSAI and ESI, and a Third Supplement to Founders Agreement dated February 22, 2022 (“Third Supplement”) with SII, EUSAI and ESI. SII, EUSAI and ESA sometimes are collectively referred to herein as “Licensor,” the First Supplement, Second Supplement and Third Supplement sometimes are collectively referred to herein as the “Supplements,” and the Founders Agreement, as supplemented by the Supplements, is sometimes collectively referred to herein as the “Supplemented Founders Agreement.” Pursuant to the Supplemented Founders Agreement, Licensor has granted to MOGO a license to commercially exploit most esports rights licensed or granted to SII by the Association of Indian Universities (“AIU”) or by Indian universities pursuant to existing or future agreements, as more fully described below.
The following sets forth a summary of the material terms of the Supplemented Founders Agreement. Capitalized terms below that are not previously defined have the meanings set forth at the end of this summary.
| 1. | Founders Agreement |
Pursuant to the Founders Agreement, MOGO issued 2,650,000 restricted common shares of MOGO to SII in consideration for the amounts expended by SII to develop and form MOGO, including the expense of providing certain consulting services described below, the waivers and license of certain intellectual property rights described below, the grant of certain first negotiation and refusal rights described below, and the additional price of one dollar.
Consulting Services: SII has agreed to provide consulting services to MOGO during the term commencing March 11, 2021 through December 31, 2022 and thereafter until the first to occur of June 30, 2023 or the date on which MOGO receives gross proceeds from financings since its formation of at least $5,000,000, with respect to: (i) esports opportunities in the Territory (defined as India, Pakistan, Nepal, Sri Lanka, Bangladesh and Bhutan); (ii) global esports opportunities with universities; (iii) global esports opportunities with the diaspora of individuals born in the Territory and their descendants; (iv) how to organize, manage and promote esports tournaments and other esports events; (v) sponsorship, production and branding opportunities in the Territory; (vi) MOGO’s administrative, corporate and organizational development; (vii) introductions to licensed investment bankers, auditors, counsel and other professionals, including government officials and administrators in the education and sports associations; and (viii) introductions to individuals and companies that could assist MOGO to implement its business plan. SII may provide similar services to others.
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Waivers: On its behalf and on behalf of its subsidiaries, predecessors and affiliates (collectively, “SportsCo”), SII waived the following rights:
1. In perpetuity, any rights it might have in and to the contributions to MOGO’s business, financial, legal and marketing plans contributed during the period from prior to the formation of MOGO through December 31, 2022 by Special Persons (each of Kiki Benson, Sunny Bhandarkar, Pranav Prabhu, David Pross, Muhammad Jamal Qureshi, Kenin M. Spivak, Muzammal Khan Wazeeri, Richard Whelan and any other individual mutually agreed in writing by the parties to the Founders Agreement to be a Special Person) or any other individuals who participate in providing SII’s consulting services to MOGO pursuant to the Founders Agreement.
2. Until December 31, 2022, unless extended by mutual agreement, any covenants in favor of SII are waived that might restrict the right of each Special Person to (i) consult with MOGO, (ii) serve as a member of MOGO’s Board of Directors, and/or (iii) serve as an officer, employee or representative of MOGO. Such covenant will continue in perpetuity for David Pross.
License: On its behalf and on behalf of its subsidiaries, SII granted to MOGO a non-exclusive license in perpetuity to utilize the written and oral contributions made by the Special Persons or any other individuals who participate in providing SII’s consulting services to MOGO.
First Negotiation Rights: Provided MOGO complies with the Founders Agreement and secures any necessary financing, SII granted the following first negotiation rights to MOGO:
Until June 30, 2023, in each instance in which SII seeks to organize individual esports games or a discrete esports tournament with universities in the Territory, SII will negotiate first with MOGO to act as SII’s principal licensee, co-venturer or service provider with respect to organizing the foregoing, seeking sponsors, providing all required technology and otherwise licensing and distributing program content created in connection therewith, prior to entering into negotiations with any company to do the foregoing. This right does not pertain to “Excluded Games,” which are defined as games or tournaments that would be transmitted or streamed by brand-name networks, such as Sony Ten, NEO Sports, ESPN, DSport, DDSports, Star Sports, Fox Sports, Netflix, youtube.com, twitch.com or other identifiable linear or streaming networks. As to these and similar platforms, both MOGO and SII are free to separately negotiate and stream esports games and programing, including content licensed to MOGO by SII under these collective agreements. Rights held by SII involving competition between Pakistani and Indian teams are retained by SII, and have not been licensed to MOGO. But MOGO is free to develop its own esports content revolving around such competition.
1. With respect to a potentially broad, long-term collaboration to develop and monetize esports involving athletes, universities in the Territory and rights pertaining to esports granted by the AIU and universities located in India to SII, commencing promptly after MOGO secures financing of at least $3,500,000 and thereafter for a period of at least 90 days, SII and MOGO shall engage in exclusive negotiations with respect to SII selecting MOGO to be its principal licensee, co-venturer or service provider with respect to SII’s monetization of the foregoing rights, provided that if MOGO does not secure financing of at least $3,500,000 by December 31, 2022, SII shall have no further obligation with respect to the foregoing. The Supplements described below were entered into in accordance with this obligation.
Refusal Right: With respect to any individual game or tournament for which SII and MOGO do not reach an agreement pursuant to MOGO’s first negotiation rights, provided MOGO secures any necessary financing with respect thereto, SII will not accept an offer from a third party to provide the services MOGO offered to provide if the terms thereof are less favorable to SII than MOGO’s last written offer without first giving to MOGO a right of refusal. This refusal right will expire on September 30, 2023, and does not pertain to Excluded Games.
Certain Restrictions on MOGO: MOGO may not directly or indirectly engage in communications or other conduct that interferes in the rights of SII or its subsidiaries under its agreements with AIU or universities in the Territory. In addition, until the second to occur of the completion of any games or tournaments undertaken by MOGO pursuant to the Founders Agreement or December 31, 2023, MOGO will not, except on behalf of, at the request of, or with the approval of SII: (i) employ or solicit the employment of any person who is then, or has been within six months prior thereto, an employee of, or advisor to, SII or its subsidiaries, or (ii) do any act or thing to cause, bring about, or induce any interference with, disturbance to, or interruption of any of the then-existing relationships of SII or its subsidiaries with any vendor, customer, client, partner, employee, licensee, licensor, consultant or supplier to SII or its subsidiaries.
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SII’s Reserved Rights: All rights not specifically licensed or otherwise granted by SII to MOGO are reserved by and owned by SII.
Release: As a material inducement to the Special Persons to continue to contribute to the development of SII or its subsidiaries and MOGO, except as specified below, to the maximum extent permitted by law, each of SII and MOGO on its behalf and on behalf of all companies owned or controlled by such party, and on behalf of all persons claiming through such party and such companies, and (to the extent permitted by law) on behalf of its and each of their respective owners, directors, officers, agents, representatives, employees and spouses, forever releases and discharges the Special Persons and any companies providing their services and their respective owners, directors, officers, agents, representatives, employees and their spouses from all claims, rights demands, damages and causes of action whatsoever, whether known or unknown, liquidated or unliquidated, contingent or not contingent, matured or not matured, which have arisen or may have arisen or may arise from the beginning of time through the end of time from or related to: (i) the negotiation, drafting, execution or performance of the Founders Agreement; (ii) the negotiation, drafting or execution of any agreement (oral or written) contemplated by the Founders Agreement; or (iii) decisions, acts or omissions that are asserted to be the result of any conflict between that Special Person’s interests in SII and its subsidiaries and that Special Person’s interests in MOGO. Each releasing person agrees that his or its release extends to all claims of every nature and kind, known or unknown, suspected or unsuspected, vested or contingent.
The release does not include: (i) any conflicts that do not pertain to matters described or referenced in the Founders Agreement; (ii) any breach of contract or duty after the date of the execution of the Founders Agreement, other than a breach involving potential conflicts that is released above; (iii) any claim that arises from the failure of a Person to accurately in all material respects describe that Person’s interest in the parties to the Founders Agreement, if requested to do so by a party thereto; or (iv) any conflict that as a matter of unwaivable law may not be released.
Other: The Founders Agreement includes standard representations and warranties, indemnification and similar provisions.
| 2. | Supplements |
With respect to Participating Universities, SII on its behalf and on behalf of Licensor licensed to MOGO, to the extent Licensor has or acquires such rights and subject to any exceptions or limitations in the rights granted to Licensor of which Licensor notifies MOGO: (i) during the Term, except as otherwise provided in the Supplements, (A) the exclusive, worldwide right and license to develop, organize, create, record, finance, manufacture, license, distribute, advertise and promote esports tournaments and games and television (including all forms of technology by which end users can hear audio and/or see visuals with or without a display device) content based on or incorporating MOGO Games and (B) solely with respect to MOGO Products and licensing, distribution, advertising and promotion of MOGO Products, the worldwide non-exclusive right to use Team Logos and Name and Likeness rights, including the right to provide hosts and commentators with respect thereto; (ii) during and after the Term in perpetuity, the exclusive rights to create derivations, compilations, remakes, edited versions, translations and the like, as well as advertising and promotions based on or incorporating MOGO Content created during the Term; (iii) during and after the Term in perpetuity, the exclusive, worldwide right and license to license, distribute, advertise and promote MOGO Products and to exercise Sponsorship Rights with respect thereto; and (iv) during and after the Term, the non-exclusive right to use Team Logos and Name and Likeness for athletes who participate in the Project (A) globally to promote MOGO Merchandise manufactured during the Term and (B) solely for corporate activities for which there are is no charge to users, in MOGO corporate websites, investor relations and similar corporate activities of MOGO to promote MOGO. Each initial use of Team Logos and Name and Likeness pursuant to the above is subject to Licensor’s approval.
MOGO’s rights to use Team Logos and Name and Likeness rights is subject to Licensor having or obtaining the right to grant such rights to MOGO. The rights granted to MOGO do not include competitions between Pakistani teams and Indian teams. But MOGO is free to develop its own esports content revolving around such competition, provided that such development does not conflict with the rights of SII or obligations of MOGO, including without limitation the obligation of MOGO not to interfere with SII’s relationship with Participating Universities, making any claim against any Participating University without SII’s prior written approval, or interfering with Licensor’s relationships with its vendors, customers, clients, partners, employees, licensees, licensor, consultant or supplier to Licensor. Nothing in the Supplements prohibits Licensor from using, licensing or granting online rights, gaming rights or similar rights pertaining to Esports Games transmitted or streamed by brand-name networks or virtual play on a live or delayed basis of sports events organized by or for Participating Universities or Licensor with avatars representing the athletes who play in such events.
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In addition, (i) MOGO may exercise Sponsorship Rights with respect to MOGO Products, (ii) Sponsorship Rights with respect to Merchandise, including MOGO Merchandise, are reserved by SII, (iii) the license to MOGO for MOGO Content is limited to MOGO Content that incorporates or is based on MOGO Games, or background stories of MOGO Games or the athletes who participate therein, or the advertising or promotion thereof, (iv) MOGO may directly exercise any or all of the rights licensed or granted to MOGO by the Supplements or may authorize some or all of such rights to be exercised by its licensees, distributors, sub-distributors and other designees, and (iv) MOGO has licensed back to Licensor the right to use excerpts from MOGO Content, each not to exceed five minutes running time for audio or visual content or 5,000 words for print or digital content, in Licensor corporate websites, advertising, promotion, investor relations and similar corporate activities.
As between the parties: (i) Licensor owns all Team Logos and Name and Likeness rights; (ii) Licensor owns all rights pertaining to MOGO Content it creates and MOGO Merchandise, subject to MOGO’s ownership of its intellectual property rights used therein; (iii) MOGO owns all technology, templates and creative formats and methods it creates; (iv) subject to Licensor’s ownership of Team Logos and Names and Likeness rights, MOGO owns the intellectual property rights in MOGO Content; and (v) Licensor reserves all rights to license, manufacture and distribute Merchandise that includes Team Logos and Name and Likeness. MOGO may exercise Sponsorship Rights with respect to MOGO Products. Sponsorship Rights with respect to Merchandise, including MOGO Merchandise, are reserved by Licensor.
MOGO will pay or retain amounts equal to the Gross Receipts from the Project in the following order on a continuing, cumulative basis:
| ● | First, MOGO will retain all Gross Receipts until such amount is equal to its distribution fee of 20% of all Gross Receipts through the end of the applicable accounting period. |
| ● | Next, MOGO will retain all further Gross receipts until the amount retained by MOGO is equal to all of its deductible costs through the end of the applicable accounting period. |
| ● | Next, MOGO will pay to SII an amount equal to all further Gross Receipts until such amount is equal to all of Licensor’s reimbursable costs through the end of the applicable accounting period. |
| ● | The balance (i.e., net proceeds) will be allocated 60% to MOGO and 40% to SII. |
The amounts payable to SII above are referred to as the “Licensor Participation.”
In addition, SII agrees to pay MOGO a Merchandise royalty equal to one-third (1/3) of cumulative Merchandise Net Proceeds (as defined) received from sales of MOGO Merchandise.
Licensor has obligations to account to AIU and Participating Universities for a percentage of its profits related to its collaboration with such Participating Universities. If one or more of AIU or Participating Universities become entitled as a result of a judgment, order, award or settlement to a participation computed on a basis that exceeds Licensor’s actual receipts from MOGO under the Supplements, MOGO will reimburse Licensor 50% of such amount until such reimbursement equals 20% of the Licensor Participation received for the shorter of the period of the dispute or the prior three years.
Pursuant to the Supplements, the parties have agreed to promote and grow awareness of the Project, Team Logos and participating persons; and to develop and administer scholarship and support programs for the Participating Universities and seek proper venues. If Participating Universities do not provide or pay for venues and related facilities, the parties will cooperate to identify alternatives.
In connection with significant events organized by MOGO, if requested to do so by MOGO upon sufficient advance notice, Licensor will cooperate with MOGO to provide MOGO Merchandise and Team Logos for display. MOGO shall pay for the purchase price of such items at a 30% discount to established wholesale prices, as well as freight and storage thereof. MOGO may sell such MOGO Merchandise on site and online and may retain the retailer’s profit for doing so, without any obligation to account to Licensor.
Except as otherwise expressly provided or authorized by Licensor, Licensor, at Licensor’s expense, will be the sole liaison between MOGO and the Project, on the one hand, and participating persons and government, sports and non- profit organizations pertaining to participating persons, including AIU and the Sports Authority of India, on the other. As between the parties, Licensor has the lead responsibility for arranging the venues for games and lodging and transportation within the Territory for the participation of participating University athletes in tournaments that occur in the Territory.
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At Licensor’s expense, Licensor shall endeavor to increase the number of Participating Universities and to obtain the participation of Participating University teams and Athletes in MOGO Games and promotional events arranged by MOGO and to obtain cooperation and support of participating persons with respect to the Project. Licensor is not liable if despite endeavoring to do so, it is unable to do all or any of the foregoing. As between the Parties, Licensor is responsible for arranging lodging and transportation within the Territory for the participation of Athletes from Participating Universities located in the Territory in MOGO Games that occur in the Territory.
Except for Licensor’s obligations, MOGO is solely responsible for executing the business plan, including creating, producing, recording, licensing and distribution of MOGO Games, MOGO Content and for all advertising, promotion and other activities related to the development, execution, marketing and success of the Project.
The “Term” of the Supplements commenced on September 1, 2021 and will continue until December 31, 2026, provided that if MOGO completes a public offering of its common stock during 2022, the Term will continue until the date seven (7) years after MOGO’s Shares start publicly trading after such event. If MOGO secures funding of at least $5,000,000 by the end of 2022 and is not in breach of the Founders Agreement or Supplements, at the option of either MOGO or Licensor, to be exercised no later than March 30, 2023, the Term will continue until December 31, 2032. In any event: (i) commencing not later than one (1) year before expiration of the Term, the parties will in good faith negotiate for a potential extension of the Term prior to negotiating for similar rights with third persons; (ii) the Term may be terminated by mutual agreement of the parties; and (iii) the Term may be terminated by either party on 30 days’ prior notice if the other party breaches a material provision of the Supplemented Founders Agreement and fails to cure that breach within 90 days after receipt of a cure notice describing the breach in reasonable detail.
Certain of Licensor’s agreements with universities grant to Licensor the first right to act as manager and agent for any Athlete who contemplates becoming a professional athlete (“Management Rights”). Pursuant to the Supplements, during the “Management Term” Licensor will sub-contract or assign to MOGO that portion of Management Rights acquired by Licensor pursuant to current or future agreements that pertain to esports. The Management Term is from January 14, 2022 through the first to occur of (i) December 31, 2025, or (ii) the termination or expiration of the Term, provided that upon mutual agreement of the MOGO and Licensor, the Management Term may be extended. As to any Athlete for whom MOGO enters into a management agreement, MOGO’s rights will continue until the second to occur of seven (7) years after the commencement of the relevant management agreement, or until the end of the Management Term, subject to any shorter period agreed with the particular Athlete.
MOGO may not seek management agreements with Athletes introduced to MOGO pursuant to the Agreement, other than in accordance with the Second Supplement.
For any management agreement entered into by MOGO directly with an Athlete pursuant to the Second Supplement, MOGO will pay to SII a referral fee of fifteen percent (15%) of its net revenues therefrom. For any management agreement entered into by MOGO with Licensor, SII will pay to MOGO a services fee of eighty percent (80%) of its net revenues derived from MOGO’s esports management services for the relevant Athlete. As between the parties, MOGO is responsible for all costs and expenses of exercising esports Management Rights pursuant to management agreements.
The Supplements include standard representations and warranties, indemnification and similar provisions.
For further information, please refer to the copies of the Supplemented Founders Agreement included as Exhibits to the registration statement of which this prospectus is a part. The representations and warranties contained in the Supplemented Founders Agreement were made solely for the benefit of the parties to such Supplemented Founders Agreement, and should not be deemed to be a representation, warranty or covenant to you.
| 3. | Certain Definitions |
The following are certain relevant definitions used in the Supplemented Founders Agreement and in this discussion of the Supplemented Founders Agreement:
“AIU Agreement” means the agreement dated April 5, 2016 between AIU and Elite eSports of India, Inc. (“EESI”), pursuant to which AIU exclusively granted to EESI, for and during the term, all rights for exploitation and monetization of esports for AIU university teams and players, including the right to appoint sponsor(s) and exercise television rights, internet rights, audio rights, mobile rights or any variants or future technologies. The rights granted to EESI also include the right to monetize the merchandising and logos, intellectual property rights relating to the or arising out of the exploitation by EESI of the rights licensed to EESI and from advertising, licensing, photography, use of name, photograph and likeness (including of AIU university teams and AIU university players), the right to conduct and exploit interviews, undertake marketing, promotion and publicity for the exercise of the foregoing rights, the right to sell products at the venues where esports game occur, or at retail stores (including online retail stores) owned, operated or authorized by EESI or its affiliates.
| ● | AIU’s grant does not include any rights AIU does not have, but AIU will use its best efforts to acquire all rights described in the AIU Agreement and will cooperate with EESI to develop and implement a plan to do so. On the expiry of the term of the AIU Agreement, all licenses granted by EESI during the term remain in effect, but EESI will cease entering into further licenses. If EESI is notified that an individual has ceased involvement with the participating universities and/or AIU, EESI will cease entering into further licenses pertaining to that individual. |
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| ● | In consideration for the rights granted, EESI must contribute per year an amount equal to 15% of the net profit from the revenues received by EESI from its advertisers and license fees from its use of the rights granted by AIU to EESI, other than from “Commercial Licenses” and 25% of the net profit from Commercial Licenses. (A “Commercial License” is a license granted by EESI to use the names, photographs, likenesses, logos and/or trademarks of AIU, the universities, players, coaches and/or other individuals who render services in connection with the rights granted to AIU as an endorsement of a product or service, excluding a license to use the names, photographs, likenesses, logos and/or trademarks as an endorsement, or otherwise in support of, the rights, parties, universities, tournaments and those distributing or exhibiting the foregoing.) |
| ● | EESI will promote the esports games, university teams, university players and participating universities, provide all necessary production related equipment and professionals required to broadcast the esports games, and assist AIU and the participating universities in developing business relationships with such preferred vendors. AIU will co-operate with EESI in selection of the venues for the esports games and in ensuring that participating universities provide dedicated facilities and space with adequate internet and power for the players and teams to practice and conduct the esports games, will ensure that each participating university provides an esports coach and outfits for each player, will co-operate with EESI to obtain all the required approvals and permissions, and is responsible that venues will meet specifications for power, technology and other requirements. |
| ● | EESI is entitled to enter into any arrangement for sub-licensing of any of its rights, provided EESI shall remain liable to AIU. EESI may assign the AIU Agreement, or any rights and obligations thereunder to any of its affiliates. Any assignment by EESI to any person other than an affiliate of EESI requires the prior written consent from AIU. |
| ● | The term of the AIU Agreement expires in April 2025, and is automatically extended for ten (10) years if not terminated by a party at least six (6) months prior thereto. The term also may be terminated by a party following the bankruptcy or breach of the other party. |
As permitted by the AIU Agreement, in 2017 the AIU Agreement was assigned by EESI to SII (which at that time was known as Elite Sports India, Inc.) as part of a “C reorganization” whereby substantially all of the assets of EESI were exchanged for stock of SII. As a result, all references above to the rights and obligations of EESI pursuant to the AIU Agreement now refer to the rights and obligations of SII.
“Athlete” means an individual who plays Esports on behalf of a Participating University or Participating University team, or who is a manager or coach for the foregoing individuals or a Participating University team.
“Esports” means a form of competition using video games.
“Esports Game” means any type of Esports game or similar event, whether physical, virtual or both, that includes players, Team Logos and/or Name and Likeness rights for which AIU or Participating Universities have granted Licenses or other rights to SII Group. Games may include competitive play, demonstration events and other forms of play. Esports Games do not include inter-collegiate play between Pakistani and Indian teams or players representing Participating Universities.
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“Gross Receipts” means the total of all non-refundable monies actually received by MOGO or its subsidiaries from exercising licensing, distribution, or Sponsorship Rights licensed to MOGO pursuant to the Supplements, excluding: (i) rebates, refunds, discounts and monies held as deposits and subject to refunds; (ii) sales tax, VAT or equivalent; (iii) credit card fees, PayPal fees and the like; and (iv) import or export duties, fees, costs or expenses and costs of currency conversion and transfer. Without limitation, Gross Receipts includes in person admission fees, registration fees, subscription fees, sponsorship revenue, advertising revenue, product placement revenue, concession revenue, in kind contributions and any other tangible, intangible or virtual benefit of value arising from or pertaining to MOGO’s exercise of all or any rights in or pertaining to MOGO Products, including licensing, distribution and Sponsorship Rights with respect thereto. Gross Receipts do not include: (x) any corporate financings or any portion of any receipts fairly allocable to activities other than the Project; or (y) receipts from MOGO Merchandise included in the computation of Merchandise Net Proceeds.
“Merchandise” means (i) tangible, intangible and virtual products, goods and services, including products such as clothing, accessories, furniture, games, including online, mobile, social and wagering games of chance, skill or otherwise, and whether digital, virtual reality, board games, toys, dolls, souvenirs, art, or otherwise; social media; sporting equipment and other goods and services; (ii) endorsements of the foregoing or otherwise; and (iii) branding, co-branding, and trademark use related thereto; but (iv) excluding MOGO Games and other live MOGO Esports events that are part of the Project, and MOGO Content.
“Merchandise Net Proceeds” means the total of all non-refundable monies actually received by Licensor from exercising licensing, distribution or sponsorship rights in MOGO Merchandise, excluding: (i) rebates, refunds, discounts and monies held as deposits and subject to refunds; (ii) sales tax, VAT or equivalent; (iii) credit card fees, PayPal fees and the like; (iv) import or export duties, fees, costs or expenses and costs of currency conversion and transfer, (v) any corporate financings or any portion of any receipts fairly allocable to activities other than the Project, and (vi) all fees, costs and expenses actually paid or reimbursed by Licensor directly in connection with: (a) creating, producing or manufacturing any MOGO Merchandise; (b) licensing or distributing MOGO Merchandise; (c) collection of amounts due and payable, (d) royalties paid to Athletes by Licensor to secure Name and Likeness rights for MOGO Merchandise, and (e) as reimbursement for indirect overhead, twenty percent (20%) of the items in (a), (b) and (c). Where the distribution or license of MOGO Merchandise is combined with other brands, products, services or goods, Licensor shall allocate its receipts on a consistent basis.
“MOGO Content” means any live or recorded audio, visual, digital, analog, printed or other content recorded or created by MOGO or Licensor, or at their direction, that incorporates MOGO Games, Participating Persons, Team Logos and/or Name and Likeness for Athletes who participate in the Project, or otherwise uses rights licensed to MOGO pursuant to the First Supplement. In addition to all other requirements, MOGO Content must pertain to the Esports rights licensed pursuant to the First Supplement.
“MOGO Game” means an Esports Game undertaken by or on behalf of, or in cooperation with, MOGO that includes participating persons, Team Logos and/or Name and Likeness for Athletes who participate in the Project, or otherwise uses rights licensed by Licensor or Athletes to MOGO hereunder. MOGO Games may include competitive play, demonstration events and other forms of play and may include Athletes playing as part of a Participating University team, and/or individually representing a Participating University, or otherwise by utilizing rights licensed from a participating person. A MOGO Game may include players who do not represent a Participating University. In addition to all other requirements, a MOGO Game must pertain to the Esports rights licensed pursuant to the First Supplement.
“MOGO Merchandise” means Merchandise that recognizably includes, whether by name, as part of its advertising and/or promotion, or as the product, part of the product, embedded in the product, included in the design elements of the product, endorsing the product, good or service, or otherwise, imagery of MOGO, MOGO Games and/or MOGO Content. In addition to all other requirements, MOGO Merchandise must pertain to the Esports rights licensed pursuant to the First Supplement.
“MOGO Product” means any MOGO Game or MOGO Content. MOGO Merchandise is not a MOGO Product.
“Name and Likeness” means an Athlete’s name, sobriquet, photographs, caricatures, pseudonyms, actual or simulated likeness, voice, signature, biography and derivations thereof and all logos, trademarks, copyrights, trade names and other intellectual property rights associated with the Athlete’s name, voice, signature, likeness, or any of them.
“Participating Person” means a Participating University, an Athlete, and any student, faculty member, other employees, alumni or fans of a Participating University in that capacity, rather than in their capacities as members of the general public.
“Participating University” means a college or university located in the Territory during the period that college or university has an agreement with Licensor that Licenses or grants to Licensor rights with respect to all or any of Esports, Team Logos, Name and Likeness rights or Sponsorship Rights.
“Project” means the Parties’ efforts pursuant to the Supplements relating to MOGO Products and MOGO Merchandise.
“Sponsorship Rights” means the right to seek and secure revenues for or related to MOGO Products or MOGO Merchandise from advertisers, marketing partners, promotion partners, cross-promotion partners, endorsements, Name and Likeness rights, regardless of the format or form in which the foregoing is delivered and whether now know or hereafter devised and regardless of whether the foregoing appears in, adjacent to, or separate from MOGO Products or MOGO Merchandise.
“Team Logos” means the audio and/or visual name(s), web address/URLs, logo(s), mascot(s), designs, social media platforms and similar designs and elements now known or hereafter created associated with a Participating University and/or its sport program or teams.
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| 4. | Allocation of Esports Revenues under the Supplemented Founders Agreement |
The following table summarizes how the esports revenue will be allocated between MOGO and SII under the Supplemented Founders Agreement:
| REVENUE TYPE | MOGO | SII | NOTES | |||
| Revenues from Indian-Pakistani university events | Excluded | Reserved by SII | ||||
| Revenues from esports events carried on major platforms (i.e., youtube.com) | Included but not Exclusive | SII can also carry esports on major platforms and/or license such rights to others | ||||
| Gross Receipts from the commercialization of university esports, all sources, except as limited below | First, MOGO retains 20% of all Gross Receipts plus an amount equal to its deductible costs Thereafter, MOGO allocates the balance (i.e., net proceeds) 60% to MOGO and 40% to SII |
Next, MOGO reimburses SII reimbursable costs | MOGO is responsible for all esports activities, except merchandising, and collects all related revenues. | |||
Naming, media rights |
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
| Game/hardware manufacturers sponsorship | Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
| In-app purchases | Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
In-app advertising
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Pay-per-download
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Subscriptions
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Incentive-based ads
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Event advertising |
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Event sponsorships
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Event admission fees
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Team entry fees
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
Ticket fees for streamed events
|
Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above |
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| REVENUE TYPE | MOGO | SII | NOTES | |||
| Streaming advertising, sponsorships and subscriptions | Subject to Gross Receipts allocation above | Subject to Gross Receipts allocation above | ||||
| MOGO event merchandise not university branded, sold by SII | 1/3 cumulative net proceeds royalty paid to MOGO | SII is responsible for merchandising and collects all merchandising revenues | This is merchandise that does not carry university logos, names or likenesses | |||
| SII Merchandise university branded, sold by MOGO | MOGO buys from SII at a 30% discount from wholesale prices, plus freight/storage. MOGO retains profits | SII is responsible for merchandising and collects all merchandising revenues | This is university logo merchandise. SII retains ownership of team logos, names and likenesses, and sole right to produce | |||
| MOGO management agreements with Athletes | MOGO pays SII a referral fee of 15% of net revenues from such agreements | MOGO is responsible for all costs and expenses with respect thereto | ||||
| MOGO management agreements with Licensor | SII will pay MOGO a services fee of 80% of its net revenues from such agreements | MOGO is responsible for all costs and expenses with respect thereto |
MOGO and EUSAI entered into a Services Agreement dated December 15, 2021 (the “Services Agreement”), pursuant to which MOGO engaged EUSAI to assist MOGO as an independent contractor to arrange, manage and implement a series of esports tournaments in India. (The Services Agreement is separate from the Supplemented Founders Agreement.)
Under this Services Agreement, EUSAI assisted MOGO to arrange, manage and implement on MOGO’s behalf, 14 esports events from January through April 2022, culminating in the National Esports Championship at Lovely Professional University in April. These events included open tournaments (9 events), inter-university tournaments (2 events), a rivalry tournament (1 event) and the divisional tournament (1 event). MOGO and EUSAI shared the costs of these events. MOGO does not expect to realize and has not realized material net revenues from its activities in such early-stage tournaments but is building support for it Esports program.
The completed 2022 tournaments are:
| Name | Number of Separate Events | Number of Days for the Events | Date(s) of Events (2022) | Notes | ||||||||
| Open Tournaments | 9 | 25 | Jan 22 – Apr 30 | Selected Weekends | ||||||||
| Inter-University Tournaments | 2 | 3 | Jan 28 – Jan 30 | GLA University | ||||||||
| Rivalry Tournaments | 1 | 3 | Mar 10 | Completed | ||||||||
| Divisional Tournaments | 1 | 2 | Mar 29 | Completed | ||||||||
| Final National Championship University Tournaments | 1 | 7 | Apr 8 – Apr 9 | National Esports Championship | ||||||||
The parties agreed to continue to mutually develop a plan consisting of the dates, venues and other specifications for each event (upon mutual agreement thereof, an “Event Plan”). The Event Plan will specify the respective responsibilities of each party, with EUSAI having primary responsibility for executing the event and MOGO having primary responsibility for arranging technology and marketing for the event. Upon agreement of an Event Plan, the parties then will develop a budget for the event and MOGO will fund the budget. MOGO reserves the right to cancel events. MOGO will determine the amount of prize money for an event. For each event for which EUSAI renders services pursuant to the Services Agreement, MOGO will pay EUSAI a fee equal to the aggregate of (i) the lesser of 10% of the event budget for that event or INR 450,000, (approximately $5,879 based on current exchange rates) plus (ii) 5% of MOGO’s share of any in person admission fees, plus (iii) 5% of MOGO’s share of any concession income at the venue, plus (iv) a bonus based on the profitability of the tournaments as a group and EUSAI’s performance, to be determined by MOGO in its sole discretion but targeted as up to 10% of MOGO’s net profit with respect to the tournaments (exclusive of profits related to merchandise).
As between the parties, MOGO owns all intellectual property rights in the tournaments, each event and all advertising and marketing related thereto and all merchandising related thereto.
The Services Agreement will terminate (i) as mutually agreed by the Parties, (ii) for material uncured breach, or (iii) upon completion of all EUSAI services required pursuant to the Services Agreement and the Event Plans. If a party sends the other party a notice that specifies a material breach of the Services Agreement and the other party does not cure the breach within thirty (30) days thereafter, the non-breaching party may thereafter terminate the term of the Services Agreement by notice to the breaching party sent before there is any cure of the breaches specified in the notice to cure.
The Services Agreement includes standard representations and warranties, indemnification and similar provisions.
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The list of ESI and/or EUSAI member universities follows:
| # | UNIVERSITY | AGREEMENT WITH | DATE | LOGO AGREEMENT SIGNED | ||||
| 1 | Acharya Nagarjuna University | EUSAI | September 1, 2018 | |||||
| 2 | Alliance University | EUSAI | February 1, 2017 | April 28, 2017 | ||||
| 3 | Apex University | ESI Sports | October 11, 2021 | December 26, 2021 | ||||
| 4 | Arya Institute of Engineering and Technology | EUSAI | December 18, 2021 | January 8, 2022 | ||||
| 5 | Auro University | EUSAI | November 1, 2018 | |||||
| 6 | BAM (Dr. Babasaheb Ambedkar Marathwada University) | EUSAI | September 21, 2018 | October 6, 2018 | ||||
| 7 | Bengaluru North University | EUSAI | November 15, 2018 | November 15, 2018 | ||||
| 8 | C V Raman University | EUSAI | July 1, 2018 | |||||
| 9 | Chandigarh University | EUSAI | October 1, 2016 | March 28, 2017 | ||||
| 10 | Chaudhary Bhansilal University | EUSAI | November 1, 2018 | February 10, 2017 | ||||
| 11 | Chhatrapati Shahu Ji Maharaj University | ESI Sports | March 1, 2020 | |||||
| 12 | Chitkara University | EUSAI | October 17, 2016 | |||||
| 13 | C T University | EUSAI | November 2, 2017 | January 3, 2018 | ||||
| 14 | DAV University | EUSAI | August 1, 2016 | December 21, 2016 | ||||
| 15 | Dibrugarh University | EUSAI | February 1, 2018 | |||||
| 16 | DIT University | EUSAI | February 1, 2020 | February 20, 2020 | ||||
| 17 | GLA University | ESI Sports | January 3, 2020 | February 16, 2021 | ||||
| 18 | GNA University | EUSAI | December 1, 2017 | |||||
| 19 | Gondwana University | EUSAI | December 1, 2018 | |||||
| 20 | Gujarat Technological University | EUSAI | September 1, 2019 | September 18, 2019 | ||||
| 21 | IIS University | EUSAI | September 27, 2019 | February 8, 2021 | ||||
| 22 | ITM University | EUSAI | April 1, 2017 | |||||
| 23 | Jadavpur University | EUSAI | February 1, 2017 | |||||
| 24 | Jaipur National University | ESI Sports | May 1, 2019 | May 7, 2019 | ||||
| 25 | Janardhan Rai Nagar Rajasthan Vidyapeeth University | EUSAI | January 1, 2017 | |||||
| 26 | JECRC University | EUSAI | May 1, 2017 | November 5, 2016 | ||||
| 27 | J K Lakshmipat University | ESI Sports | August 1, 2019 | |||||
| 28 | Kakatiya University | EUSAI | November 1, 2017 | |||||
| 29 | Kalinga University | EUSAI | November 1, 2019 | |||||
| 30 | Kavikulaguru Kalidas University | EUSAI | October 1, 2018 | |||||
| 31 | KIIT University | EUSAI | November 1, 2019 | |||||
| 32 | K L University | EUSAI | August 1, 2017 | December 10, 2017 | ||||
| 33 | Kuvempu University | EUSAI | November 1, 2019 | |||||
| 34 | LPU (Lovely Professional University) | EUSAI | July 1, 2017 | October 15, 2018 | ||||
| 35 | M G Kashi University | EUSAI | July 1, 2018 | |||||
| 36 | Manipur University | EUSAI | March 1, 2018 | |||||
| 37 | MATS University | EUSAI | July 2, 2019 | |||||
| 38 | MDU (Maharshi Dayanand University) | EUSAI | March 1, 2017 | March 11, 2017 | ||||
| 39 | MGM University | EUSAI | October 30, 2021 | |||||
| 40 | MIT University | EUSAI | January 16, 2018 | July 30, 2018 | ||||
| 41 | Mohan Lal Sukhadia University | EUSAI | January 1, 2017 | March 8, 2017 | ||||
| 42 | Noorul Islam Centre for Higher Education | EUSAI | February 4, 2020 | |||||
| 43 | OPJS University | EUSAI | February 1, 2017 | |||||
| 44 | Osmania University | EFLI | March 1, 2017 | March 18, 2017 | ||||
| 45 | P P Savani University | EUSAI | February 1, 2020 | |||||
| 46 | Parishkar College of Global Excellence | ESI Sports | November 4, 2019 | |||||
| 47 | PDK Vidyapeeth | EUSAI | August 1, 2018 | |||||
| 48 | Poornima University | EUSAI | February 10, 2017 | |||||
| 49 | Punjabi University | EUSAI | November 1, 2016 | November 23, 2016 | ||||
| 50 | Ram Krishna More | SII INC | June 1, 2019 | |||||
| 51 | RIMT University | EUSAI | March 1, 2017 | |||||
| 52 | RTM (Rashtrasant Tukadoji Maharaj) University | EUSAI | April 15, 2017 | April 17, 2017 | ||||
| 53 | Sanskriti College | ESI Sports | December 27, 2019 | |||||
| 54 | Sathyabama University | EUSAI | February 1, 2018 | January 25, 2018 | ||||
| 55 | Shakambhar College | ESI Sports | December 18, 2019 | February 12, 2021 | ||||
| 56 | Sharda University | EUSAI | August 1, 2017 | July 30, 2018 | ||||
| 57 | Solapur University | EUSAI | September 1, 2018 | December 6, 2018 | ||||
| 58 | Somaiya Vidyavihar University | EUSAI | January 20, 2022 | |||||
| 59 | Sri Venkateswara University | EUSAI | March 1, 2017 | August 26, 2017 |
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| # | UNIVERSITY | AGREEMENT WITH | DATE | LOGO AGREEMENT SIGNED | ||||
| 60 | SRM University | EUSAI | December 1, 2017 | December 27, 2017 | ||||
| 61 | SRTM University (Swami Ramanand Teerth Marathwada) | EUSAI | October 27, 2017 | |||||
| 62 | St. Wilfred’s Group of Colleges | ESI Sports | December 26, 2019 | |||||
| 63 | Swarnim Gujarat Sports University | EUSAI | July 1, 2019 | July 23, 2019 | ||||
| 64 | TMV (Tilak Maharashtra Vidyapeeth) University | EUSAI | April 1, 2017 | |||||
| 65 | UKA Tarsadia University | EUSAI | August 1, 2019 | |||||
| 66 | University of Calcutta | EUSAI | March 1, 2017 | April 18, 2017 | ||||
| 67 | University of Jammu | EUSAI | December 27, 2019 | |||||
| 68 | University of Kota | EUSAI | November 20, 2019 | |||||
| 69 | University of Mumbai | EUSAI | September 26, 2018 | |||||
| 70 | University of Technology | ESI Sports | November 22, 2021 | |||||
| 71 | Vels Institute of Science, Technology & Advanced Studies | EUSAI | August 1, 2019 | |||||
| 72 | Veltech University | EUSAI | September 27, 2019 | October 2, 2019 | ||||
| 73 | VGU (Vivekanada Global University) | EUSAI | July 1, 2019 | August 10, 2019 |
Retention of Mr. Butler, Mr. Rennert and Ms. Chang as Directors, Technology for MOGO
On October 21, 2021, MOGO entered into a binding agreement, entitled Memorandum of Understanding, whereby it retained the team of Gregory Butler, Anthony Rennert and Martha Chang (hereinafter the “Team”) as consultants, to act as its Directors, Technology for MOGO.
The Team is charged with advising MOGO on developing, establishing, operating, commercializing, marketing, promoting, and expanding MOGO’s esports business with an aim to commercialize esports tournaments, esports sponsorships, esports advertising revenues, esports merchandise revenues, esports broadcast revenues, esports video revenues, esports game development and marketing and distribution revenues, and all other manner of esports revenue streams for the benefit of MOGO.
The tasks and services to be accomplished under the direction of the Team include design of product and services offerings and features, budgets, timelines, real time assessment of the marketplace, competition, tech and user trends and direction on customer habits across social and gaming media, and methods, strategies and approaches to capture and retain customers and users and new emerging trends in marketing and closing new customers and users.
Initial consideration paid under this Agreement consists of the issuance of 1,000,000 Warrants to acquire Common stock of MOGO at an exercise price of $1.00 per share, exercisable on or before December 15, 2026. 250,000 of these warrants were issued to the Team and declared vested immediately, in exchange for execution of the Consulting Agreement and for 2021 services rendered. An additional 62,500 warrants were vested on April 1, 2022, in recognition of the quarterly vesting schedule.
MOGO will consult with the Team and reach agreement on Team goals and milestones at the beginning of each calendar quarter over the term of the Agreement.
MOGO and the Team will negotiate a mutually agreeable compensation package as additional compensation in mid-2022, based on time, effort and progress. The Team will also be eligible to receive bonuses on business developments deals the Team is instrumental in originating.
Either party may terminate the Agreement at the end of any calendar quarter, in which event any unvested warrants will expire, and outstanding vested warrants will also expire if not excised within 30 days after termination of the Agreement.
The Agreement is tied to and automatically terminates upon the termination of a separate agreement with Artemis Ave, LLC, the team’s separately owned software development and licensing company. (See below)
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Licensing Software Agreement with Artemis Avenue, LLC
On December 13, 2021, MOGO entered into a software licensing agreement with Artemis Ave, LLC, a software development and licensing company owned by the Team referenced above. Artemis has developed the software for a live esports platform. The Software Agreement grants to MOGO a non-exclusive, non-transferable license to use the Artemis gaming software. The software agreement calls for a $50,000 payment as a security deposit upon beginning use of the software, and a provision for equal sharing of savings Artemis provides to MOGO as compared to costs charged by other commercially available solutions. MOGO will pay all third-party vendors for services provided, such as cloud services, hosting services and software subscriptions. The License Software Agreement continues for a year and automatically renews yearly thereafter, unless either party terminates the agreement.
MOGO Core Platform Agreement with Artemis Avenue, LLC
In a second agreement, entitled Memorandum of Understanding, (the “Memorandum”), by and between MOGO and Artemis Ave, LLC, the parties agreed to use Artemis’s services to develop for MOGO a new Core Platform. These services include ideation, architecture and development services, licensing of Artemis’ platform (see above agreement), and integration of third-party software. The Memorandum provides that Artemis will supply integrated use of Artemis’ EVE proprietary transcoding via its platform. EVE transcoding is a codec agnostic process that reduces file size by at least 50% with no file degradation.
Artemis will supply in advance for approval to MOGO, its rates for general contracted work and other tasks, and will obtain MOGO’s written approval prior to proceeding. Artemis will also deliver all third-party hardware, technology, software, and licensing which it obtains or negotiates for, for MOGO’s use, at Artemis’s cost and without markup. MOGO agrees to set aside an estimated $1,200,000 from the proceeds of this offering, to be used to fund development services by Artemis and other 3rd party vendors in connection with the development of its business. The agreement remains in full force and effect until written notice of termination is received from either party, or both parties enter into a new contractual agreement.
Experience of MOGO’s Directors, Technology
The Gregory Butler, Anthony Rennert and Martha Chang Team: Directors, Technology for MOGO.
Gregory Butler. Mr. Butler, the CEO of ZuCasa, previously served as the acting CEO of ROWL/ReChain, a company that has three apps covering music, ecards and reminders, serving over 12 million users. Mr. Butler has over 20 years of experience driving strategies and partnerships for engagement and revenue related to content, media and IP and has established partnerships across multiple verticals for new e-commerce initiatives in media and retail. In addition, Mr. Butler has composed music for several TV series and has multiple Grammy nominations. He earned his BS in digital technology (distinction) at the Dublin Institute of Technology and a graduate diploma at the London School of Economics.
Martha Chang. Ms. Chang, the COO of ZuCasa, is a co-founder and managing director of Evemeta, a company that develops image and video compression algorithms, data compression algorithms, image processing algorithms, technology platforms, mobile apps and technology solutions. As an intellectual property owner/film and television producer, Ms. Chang is working with Lionsgate Films to develop franchisable IP such as 3 Ninjas, Barney, the Purple Dinosaur and The Last Unicorn. She has also worked with Disney, Sony, Universal, 20th Century Fox Television and Lionsgate to develop, produce, distribute and market IP in ancillary products such as publishing, video games and merchandising. Ms. Chang earned her BA at the University of California, Berkeley and studied at the University of Paris.
Anthony Rennert. Mr. Rennert, the CTO of ZuCasa, is also the CTO of Evemeta, where he developed IP including compression algorithms for images, video and data, including a process that enabled physicians to compare images automatically and longitudinally from different modalities, image formats and time frames identifying and highlighting changes in images over time. He has also developed an Over the Top (OTT) television offering, online advertising tools including demand side platforms (DSP), supply side platforms (SSP), real time bidding (RTB) and data management platforms (DMP) and numerous mobile apps.
Other Consulting Agreements
MOGO has entered into the following additional Consulting Agreement:
James Knopf. Mr. Knopf is an entertainment sales executive with over 25 years of experience negotiating and selling large-scale content distribution deals across multiple platforms. On June 1, 2021 the Company entered into a consulting agreement with Mr. Knopf for consulting services to be rendered through May 31, 2024. The Company privately issued to Mr. Knopf 50,000 restricted shares of its common stock, vesting quarterly over three years, for the services to be rendered, and agreed to negotiate a monthly compensation payment for consulting services to be rendered after this offering is closed.
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Directors and Executive Officers
The following table sets forth the names and ages of all of our directors and executive officers as of March 31, 2022. Our officers are appointed by, and serve at the pleasure of, the Board of Directors.
| Name | Age | Position | ||||
| Marco Welch | 68 | Chairman | ||||
| David Pross | 69 | Co-Founder, CEO and Corporate Secretary | ||||
| Kiki Benson | 62 | Chief Financial Officer | ||||
| Jay Madan | 56 | Director | ||||
| Jim Knopf | 58 | Director | ||||
| Willy Verhaegen | 81 | Director | ||||
| Alexander Alexandrov | 39 | Director | ||||
The following are biographical summaries of those individuals who serve as our executive officers and directors:
Marco Welch, Chairman. Mr. Welch, age 68, has over 30 years of investment banking experience and was the owner of the commodities firm, BD Alpha3 Corp., where he has served as a consultant for more than the past five years. As a specialist on the Chicago Stock Exchange, he held Series 3, 7 and 63 licenses. In addition, he was CMO for Cabrera Capital, where he marketed a $10 billion bond deal for the State of Illinois. This was the largest bond deal in the state’s history. Previously, he was CMO for Medtech Detect. Mr. Welch was classically trained at The Chicago Conservatory College.
David Pross, Co-Founder, Chief Executive Officer and Company Secretary. Mr. Pross, age 69, is an international business development specialist with experience in consumer products and media. MOGO is his fourth new business initiative in India. For the last five years, and in fact from 2015, through April 2021, he has been employed by SII, first as vice president, business development, and then as a senior advisor, assisting the company in developing financial projections and business plans in India. In April of 2021 he became the Chief Executive Officer of MOGO.
After earning an MA in Near Eastern Studies from the University of Michigan, he began his career as an assistant editor for an Arabic-language magazine and then worked as the editor of Middle East Business in New York. Then, after earning an MBA in finance/international business at New York University, he joined Pepsi-Cola USA, where he held several positions in the financial planning groups, including the mergers and acquisitions team. He then joined Pepsi-Cola International, where he had planning responsibility for the Middle East region and India. Following the Indian government’s approval of Pepsi’s investment proposal, he was a manager in Pepsi’s Indian joint venture in New Delhi.
Following his assignment in India, Mr. Pross formed his own international business development firm. Clients included Pepsi in Bulgaria, Romania and Russia, Eastman Chemicals for a project in Belarus and Constar for a packaging project in Brazil. He joined RJ Reynolds International (a division of RJR Nabisco), based in Geneva, as a director of business development for the Middle East, Africa and South Asia. He led the company’s market entry initiative for the Indian market, which was the last major consumer market not yet developed by multinational tobacco companies. After the Indian government rejected RJRI’s initial proposal, he was able to gain the first and only new foreign investment in India’s tobacco industry in over 80 years. He served as general manager in India and was the joint venture’s managing director. Mr. Pross also opened the market in Pakistan for RJR International by creating a joint venture with a Karachi-based consumer products company and purchasing a manufacturing facility in Mardan, in the North-West Frontier Province, now known as Khyber Pakhtunkhwa.
Prior to earning his MA and MBA degrees, Mr. Pross earned his BA in political science/international relations from the College of Wooster and studied at the American University of Beirut. He has lived in Lahore, Cairo, Beirut, New Delhi and Geneva.
Kiki Benson, Chief Financial Officer. Ms. Benson, age 62, is an experienced financial professional with a diverse background as controller of Temenos USA, a bank software company, as an accountant with Newgistics, an e-commerce development company, and Nanogen, an advanced microelectronics and molecular biology platform company. Ms. Benson was also a division controller with NEC Technologies, a provider of software-based enterprise telecommunications. Ms. Benson was the corporate controller for LUSA Holdings from January 2013 to January 2020, a financial operations consultant for Bridgepoint Consulting from January 2020 to January 2021 and is currently the statutory controller of the North American region since August 2020 for Temenos, Inc. Ms. Benson earned her BS and MBA (finance/accounting) at Northern Illinois University.
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Jay Madan, Director. Mr. Madan, age 56, is an advisor, board member and operational executive with 30 years combined top-management consulting and C-suite experience in the biotechnology, life sciences and technology industries. Mr. Madan founded Innovate Biopharmaceuticals, Inc. in 2012, where he served as president and chief business officer, took the company public in 2018 (Nasdaq: INNT) and merged it with RDD Pharma in 2020 to create the GI-focused 9 Meters Biopharma, Inc. (Nasdaq: NMTR). At Innovate Biopharmaceuticals, Mr. Madan was also the interim principal accounting officer and principal financial officer from March 2018 through June 2020. Mr. Madan served on the board of directors of Innovate Biopharmaceuticals from January 2018 through April 2020. Since May 2020, Mr. Madan has been an advisor to OakLabs GmbH, a Berlin-based precision medicine company, and the CEO of OakLife Ai Biopharma, Inc, a spin-off from OakLabs. He holds a BS in chemical engineering from the University of Mumbai and pursued an MS in chemical engineering from Washington State University.
Jim Knopf, Director. Mr. Knopf, age 58, is an entertainment sales executive with over 25 years of experience negotiating and selling large-scale content distribution deals across multiple platforms (TV, digital, mobile and OTT).
For the past seven years Mr. Knopf has been the founder/CEO of his own entertainment and media consulting firm called Pinstripe Entertainment Consulting. The firm works with studios, networks and production companies to help monetize their content for broadcast television, cable TV, digital media, mobile and connected television (CTV and OTT). Mr. Knopf and his firm also worked with ESPN to produce the first-ever NCAA College Esports Championship in 2019 that was streamed on ESPN3. Mr. Knopf earned his BS in sports management from the University of Massachusetts and completed two semesters of his MBA at the University of Colorado.
Willy Verhaegen, Director. Mr. Verhaegen, age 81, officially retired as a financial advisor in Antwerp, Belgium in 2000. Mr. Verhaegen is a non-resident Belgian citizen. He started his career as a private banker and then founded his own financial consulting company, W. P. Verhaegen & Associates. The company became one of the leading financial consulting firms in Belgium, specializing in niche financial markets and real estate investments in Spain, Switzerland, the Canary Islands, Canada and the United States. He also founded ROGIB, which was the largest real estate investment trust in Belgium. In his retirement, Mr. Verhaegen continues to serve as a managing director for a privately-owned real estate company, Arboo BV, and consults on an informal basis on current political, economic and financial trends with long-time contacts in his business network. He earned a degree in finance and economics from the University of Antwerp.
Alexander Alexandrov, Director. Mr. Alexandrov, age 39, is a Los-Angeles based director and cinematographer with a global clientele, including Lexus, Harley-Davidson, Ford, Land Rover Toyota, DeLorean, Tiffany, Vogue, Nikon, Sony, Nike SB, Columbia, UniQlo, Marc Jacobs, Alexander McQueen, Smirnoff, Beats by Dre, Amazon, Mercedes-Benz and many others. He has been self-employed as director and cinematographer since 2008.
Several of these clients have focused their campaigns on esports events. Feature films in which Mr. Alexandrov was the director of photography have premiered at TIFF, Tribeca, SXSW and the LA Film Festival. Alexander Alexandrov earned a Bachelor of Science degree in Math and Computer Science Magna Cum Laude in 2003 from Alcorn State University. From 2003 through 2006, he developed a web IT system for Moveable Cubicle, which rented shipping containers and was headquartered in Youngsville, (Raleigh) North Carolina. In November, 2006 Alex founded PeopleJar Inc. PeopleJar Inc. was a start-up software and website development company.
Mobile Global Esports’ Team in India
The following are biographical summaries of additional key individuals who are with MOGO, and are based in India:
Sunny Bhandarkar. Mr. Bhandarkar, age 28, leads MOGO’s management team in India. He joined Elite Sports India Pvt. Ltd., a Sports Industry of India subsidiary, in 2013 after being the first player drafted in the Elite Football League draft in 2012. As an accomplished athlete, Mr. Bhandarkar is the two-time state level boxing champion in the super heavy weight division and has been on the national handball team for 12 years. He played handball professionally in Germany in the Bundesliga with Barmstedter MTV. He earned his BA and MA in commerce/management studies from the University of Mumbai. Mr. Bhandarkar signed 50 of the EUSAI member universities and has secured sponsorship revenue.
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Pranav Prabhu. Mr. Prabhu, age 31, is the VP Operations. Mr. Prabhu joined Elite Sports India Pvt. Ltd. four years ago as senior business development manager and was promoted to VP operations in 2018. He was promoted to chief operating officer of Sports Industry of India in 2019, where he has operational oversight and budgetary supervision for multiple locations in India. He has developed the quarterly business plans and the sales and marketing strategies. He earned his MPEd from Chandrashekhar Agashe College of Physical Education (CACPE) in Pune, his BPEd from Vidyadhiraja College of Physical Education and Research (VCPER) in Navi Mumbai and his BA from Rizvi College in Mumbai.
Board of Advisors
The Company maintains the current Board of Advisors, whose members do not vote on Company matters, but lend advice to the Company’s Board of Directors and its Executive Officers. Members on its Advisory Board are as follows:
Kenin M. Spivak, Co-Founder and Senior Advisor. Mr. Spivak, age 64, has closed a broad range of complex transactions and led companies with operations in more than 30 countries, including serving as CEO of a NewsCorporation affiliate, and a wireless technology company, principal operating officer of a major studio (MGM/UA), and an officer and director of Merrill Lynch’s media and entertainment partnerships. He has significant experience in North America, Europe, India, Asia and the Middle East. Mr. Spivak is founder, chairman and chief executive officer of SMI Group LLC, a principal in, and advisor to, cross-border businesses. He also is chairman and chief executive officer of SMI Capital Markets LLC, an SEC-registered, FINRA-licensed U.S. broker-dealer engaged in investment banking activities, and chairman of companies engaged in biofuels, real estate and mineral financing. Mr. Spivak is a shareholder of, and advisor to, a number of companies affiliated with SII. Mr. Spivak received an AB, MBA and law degrees from Columbia University, each with honors. Mr. Spivak is a U.S. citizen.
Bill Brown, Senior Advisor. Mr. Brown is a seasoned corporate executive. His corporate career has spanned a wide range of functional disciplines, including general management, sales, marketing, and manufacturing operations, in both international and U.S. environments, with major consumer products companies. As president and CEO of Montblanc USA in the 1990s, Mr. Brown was the architect of that company’s transformation from a purveyor of high-quality writing instruments to a true luxury brand. Prior to joining Montblanc in 1990, he was vice president of Worldwide Marketing for Gucci Timepieces, and before that he held executive positions at Estee Lauder and Mattel. He is a former chair of the Board of Trustees of the Cornell University Rowing Association and continues to serve on that board as a life member. He has also served as a member of Cornell’s Athletic Advisory Council and was a committee chair on the initial Advisory Council for Cornell University’s Center for Entrepreneurship and Personal Enterprise. Mr. Brown holds a BS degree in engineering from Cornell University and an MBA from Cornell’s Johnson Graduate School of Management.
Phil Ofili, Advisor. Mr. Ofili comes to the Company from Navigate, where he was the manager of sports and entertainment business development. In this role developed business partnerships with ESPN, Fox Sports, AB-InBev, PepsiCo, the NFL and the NBA. Mr. Ofili earned his BS in management at the U.S. Air Force Academy and his MBA from Arizona State University. He served in the Air Force for five years, including responsibility as a procurement director for Air Force operations in Kabul, Afghanistan. In addition, he has been involved with Special Olympics Arizona, the Fiesta Bowl Committee and Junior Achievement.
Dr. Vir Ji Koul, Advisor. Dr. Koul is the sports director at Lovely Professional University (LPU), Phagwara, India. LPU is the largest single-campus university in India with 30,000 students and 200 programs. One of Dr. Koul’s students won an Olympic gold medal in track and field and six of his students were on the bronze medal field hockey team in the Tokyo Olympics. Dr. Koul earned his BA in physical education/sports, an MA in physical education/sports management and his PhD in physical education and sports. LPU hosted SII’s first esports championship in 2017 and then again in 2022.
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Dr. Madhu V. Bhandarkar, Advisor. Dr. Bhandarkar is an award-winning athlete, coach, sports official and administrator who has led teams in junior, university, state, regional, national, Pan-Asian and international competition. She earned her PhD in sports research and her Master’s degree in physical education at Nagpur University, two undergraduate degrees (BA and BPEd), sport certificates in basketball and swimming, a diploma in handball from the National Institute of Sports and a certificate in swimming from the Sports Authority of India.
She earned the best coach awards from the Government of Maharashtra, Mumbai Suburban Handball and the Sports Authority of India. Dr. Bhandarkar has coached sub-juniors, juniors, boys, girls, men’s and women’s teams and is an accomplished handball coach.
Muhammad Jamal Qureshi, Advisor. Mr. Qureshi is the CEO and MD of Elite Football League Pakistan Pvt Ltd., a Sports Industry of India affiliate. He earned his BA in economics/political science from Peshawar University, a senior diploma and MSc in health and physical education from Gomal University, an MSc in economics from the University of Peshawar and an MBA from Northern University. He has served on the Pakistan Rugby Union’s international tours and as an official of the Union at the Commonwealth Games in India.
The Company’s executive offices are located at 616 South El Camino Real, Suite H, San Clemente, California 92672.
Unless otherwise stated, the mailbox address for our executive officers and directors is in care of our company, Mobile Global Esports Inc., 427 N. Tatnall Street, Wilmington, DE 19801.
Director Independence
The rules of the Nasdaq Stock Market, or the Nasdaq Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Under the Nasdaq Rules, a director will only qualify as an independent director if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq Rules also require that audit committee members satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In considering the independence of compensation committee members, the Nasdaq Rules require that our board of directors must consider additional factors relevant to the duties of a compensation committee member, including the source of any compensation we pay to the director and any affiliations with the Company.
Our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of our directors are independent as defined under the Nasdaq Rules.
Committees of the Board of Directors
Prior to the effectiveness of the registration statement of which this prospectus forms a part, our board of directors will establish an audit committee, a compensation committee and a nominating and governance committee. Each of these committees will operate under a charter that will be approved by our board of directors, as set forth below.
Audit Committee. Our audit committee consists of three independent members. The members of the audit committee are Mr. Madan, Mr. Welch and Mr. Verhaegen. Mr. Verhaegen is the chairperson of the audit committee. The audit committee consists exclusively of directors who are financially literate.
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The audit committee responsibilities include:
| ● | Overseeing the compensation and work of and performance by our independent auditor and any other registered public accounting firm performing audit, review or attestation services for us; |
| ● | Engaging, retaining and terminating our independent auditor and determining the terms thereof; |
| ● | Assessing the qualifications, performance and independence of the independent auditor; |
| ● | Evaluating whether the provision of permitted non-audit services is compatible with maintaining the auditor’s independence; |
| ● | Reviewing and discussing the audit results, including any comments and recommendations of the independent auditor and the responses of management to such recommendation; |
| ● | Reviewing and discussing the annual and quarterly financial statements with management and the independent auditor; |
| ● | Producing a committee report for inclusion in applicable SEC filings; |
| ● | Reviewing the adequacy and effectiveness of internal controls and procedures; |
| ● | Establishing procedures regarding the receipt, retention and treatment of complaints received regarding the accounting, internal accounting controls or auditing matters and conducting or authorizing investigations into any matters within the scope of the responsibility of the audit; and |
| ● | Reviewing transactions with related persons for potential conflict of interest situations. |
Compensation Committee. Our compensation committee consists of three independent directors. The members of the compensation committee are Mr. Knopf, Mr. Alexandrov and Mr. Verhaegen. Mr. Alexandrov is the chairperson of the compensation committee. The committee has primary responsibility for:
| ● | Reviewing and recommending all elements and amounts of compensation for each executive officer, including any performance goals applicable to those executive officers; |
| ● | Reviewing and recommending for approval the adoption, any amendment and termination of all cash and equity-based incentive compensation plans; |
| ● | Once required by applicable law, causing to be prepared a committee report for inclusion in applicable SEC filings; |
| ● | Approving any employment agreements, severance agreements or change of control agreements that are entered into with the CEO and certain executive officers; and |
| ● | Reviewing and recommending the level and form of non-employee director compensation and benefits. |
Nominating and Governance Committee. The nominating and governance committee consists of three independent directors. The members of the nominating and governance committee are Mr. Welch, Mr. Alexandrov and Mr. Knopf. Mr. Knopf is the chairperson of the nominating and governance committee. The committee’s responsibilities include:
| ● | Recommending persons for election as directors by the stockholders; |
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| ● | Recommending persons for appointment as directors to the extent necessary to fill any vacancies or newly-created directorships; |
| ● | Reviewing annually the skills and characteristics required of directors and each incumbent director’s continued service on the board; |
| ● | Reviewing any stockholder proposals and nominations for directors; |
| ● | Advising the board of directors on the appropriate structure and operations of the board and its committees; |
| ● | Reviewing and recommending standing board committee assignments; |
| ● | Developing and recommending to the board Corporate Governance Guidelines, a Code of Business Conduct and Ethics and other corporate governance policies and programs and reviewing such guidelines, code and any other policies and programs at least annually; |
| ● | Making recommendations to the board as to the determination of director independence; and |
| ● | Making recommendations to the board regarding corporate governance based upon developments, trends and best practices. |
The Nominating and Governance Committee will consider stockholder recommendations for candidates for the board of directors.
Our bylaws provide that, in order for a stockholder’s nomination of a candidate for the board to be properly brought before an annual meeting of the stockholders, the stockholder’s nomination must be delivered to the Secretary of the Company no later than 120 days prior to the one-year anniversary date of the prior year’s annual meeting.
Code of Business Conduct and Ethics
We plan to adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following this offering, a copy of the code of business conduct and ethics will be made available on the Corporate Governance section of our website, which is located at www.mogoesports.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K filed with the SEC.
The following table shows the compensation awarded to or earned from March 11, 2021, our date of organization, by our executives. We do not have any officers who received compensation. Once the company has raised capital from this offering, the board of directors intends to carry on negotiations with the executive officers to set mutually acceptable salaries and benefit programs, scaled to milestones for performance. The terms for such compensation have not been established at this date.
| Name and Principal Position | Year | Salary ($) | All Other Compensation | Total | ||||||||||||
| Marco Welch, Chairman | 2021 | $ | 0 | $ | 0 | $ | 0 | |||||||||
| David Pross, CEO | 2021 | $ | 0 | $ | 0 | $ | 0 | |||||||||
| Kiki Benson, CFO | 2021 | $ | 0 | $ | 0 | $ | 0 | |||||||||
| All Others | 2021 | $ | 0 | $ | 0 | $ | 0 | |||||||||
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SECURITY OWNERSHIP OF MANAGEMENT
| Name and Address of Beneficial Owner | Shares Beneficially Owned Prior to Offering | % Owned Prior to Offering* | % Owned After Offering** | |||||||||
| David Pross, CEO and Secretary, 73 Blue
Spruce Circle Weston, CT 06883 | 650,000 | 3.9 | % | 3.6 | % | |||||||
| Kiki Benson, CFO, 4929 Pyrenees Pass, Austin, TX 78738 | 100,000 | 0.6 | % | 0.6 | % | |||||||
| Marco Welch, Chairman, Director, 9625 South Dobson Avenue, Chicago, IL 60628 | 20,000 | 0.1 | % | 0.1 | % | |||||||
| Jay Madan, Director, 1008 Andiron Lane, Raleigh, NC 27614 | 300,000 | 1.8 | % | 1.6 | % | |||||||
| James Knopf, Director, 42 Via Regaio, San Clemente, CA 92673 | 50,000 | 0.3 | % | 0.3 | % | |||||||
| Willy Verhaegen, Director, Alfons Servaislei 100/6,
Schoten, Belgium B-2970 | 140,000 | 0.8 | % | 0.8 | % | |||||||
| Alexander Alexandrov, Director, 722 Copeland Ct #2, Santa Monica, CA 90405 | 20,000 | 0.1 | % | 0.1 | % | |||||||
| Aggregate Shares owned by all Offices and Directors as a Group | 1,280,000 | 7.6 | % | 7.2 | % | |||||||
| * | Based on 16,809,800 shares. |
| ** | Based on 18,309,800 shares. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following shareholders of our Company own more than 5 percent of our outstanding Common Stock:
| Name and Address of Beneficial Owner | Shares Beneficially Owned Prior to Offering | % Owned Prior to Offering* | % Owned After Offering** | |||||||||
| Sports Industry of India, Inc.,(1) 616 South El Camino Real, Suite H, San Clemente, CA 92672 | 2,650,000 | 15.8 | % | 14.5 | % | |||||||
| William Brown, 333 D Street, Salt Lake City, UT 84103 | 1,025,000 | 6.1 | % | 5.6 | % | |||||||
| Kurt & Brenda Warner Revocable Trust,(2) 10105 East Via Linda Drive, Suite 103, Box 338, Scottsdale, AZ 85258 | 1,000,000 | 5.9 | % | 5.5 | % | |||||||
| Keith Delgreco, 23 Albergar, San Clemente, CA 92672 | 1,000,000 | 5.9 | % | 5.5 | % | |||||||
| * | Based on 16,809,800 shares. |
| ** | Based on 18,309,800 shares. |
| 1. | As shown above, Sports Industry of India, Inc. (“SII”), owns 15.8% of the outstanding shares of our Company, SII’s officers and directors are Richard Whelan (Director and CEO), Sunday Zeller (Director and Co-CEO), and Keith Fredriksen (Director). They thereby, as directors, control SII, although in the aggregate they do not own a controlling interest in SII (more than 50%). No shareholder of SII owns a controlling interest (more than 50%) in SII’s outstanding capital stock. |
| 2. | Kurt Warner and Brenda Warner are the sole Trustees of the Kurt & Brenda Warner Revocable Trust, and thereby control the Trust. |
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Set forth below is information on each related party transaction since the incorporation of the Company, and each currently proposed transaction, in which the amount involved exceeds 1% of the average of our total assets at December 31, 2021:
| 1. | On June 1, 2021, in connection with the acquisition by MOGO of the esports business conducted by Sports Industry of India, Inc. (“SII”), MOGO issued 2,650,000 shares of its common stock to SII, in consideration for SII’s execution of the Founders Agreement discussed at length under “Material Agreements” above, assigning certain rights to MOGO and essentially transferring the bulk of SII’s esports business to MOGO, subject to retention by SII of certain esports rights and SII’s right to receive certain continuing fees and royalties from MOGO associated with the esports business. This Agreement was supplemented with a series of Supplemental Agreements. (See “Material Agreements”) The issuance of the shares was booked by MOGO as the sale of common stock at a purchase price of $0.0001per share. The terms of the transaction were deemed fair and approved by the Board of Directors of both MOGO and SII.
MOGO also entered into a Services Agreement with Elite University Sports Alliance of India Private Limited (“EUSAI”), a wholly-owned subsidiary of SII, dated December 15, 2021 (the “Services Agreement”) pursuant to which MOGO engaged EUSAI to act as MOGO’s independent contractor to arrange, manage and implement a series of esports tournaments in India, subject to MOGO’s control and approvals. (See “Material Agreements” for a discussion of the terms of this Agreement.) The terms of the Services Agreement were deemed fair and approved by the Board of Directors of both MOGO and EUSAI. |
| As shown above, SII owns 15.8% of the outstanding shares of MOGO SII’s officers and directors are Richard Whelan (Director and CEO), Sunday Zeller (Director and Co-CEO), and Keith Fredriksen (Director). They thereby, as directors, control SII, although in the aggregate they do not own a controlling interest in SII (more than 50%). No shareholder of SII owns a controlling interest (more than 50%) in SII’s outstanding capital stock. | |
| 2. | In April through August of 2021, MOGO consummated a private placement of its 11,509,800 shares of restricted common stock at a cash purchase price of $0.03 per share to a limited number of accredited and/or sophisticated persons.
Marco A. Welch, the son of Marco Welch, the Chairman of the Board of Directors, participated in this private placement and acquired 150,000 restricted shares of common stock for $4,500.00, at a price of $0.03 per share. Both father and son have represented they act separately with respect to their MOGO common share holdings, and have no agreement to act or vote their shares in concert.
The following individuals who are either officers or directors of MOGO, or who currently own more than 5% of its outstanding common stock, participated in the private placement and acquired restricted common shares of MOGO as follows: |
| Name and Address of Beneficial Owner | Shares Purchased @ $0.03/Share | Cash Purchase Price | ||||||
| David Pross, CEO and Secretary, 73 Blue Spruce Circle, Weston, CT 06883 | 200,000 | $ | 6,000 | |||||
| William Brown, 333 D Street, Salt Lake City, UT 84103 | 1,000,000 | $ | 30,000 | |||||
| Jay Madan, Director, 1008 Andiron Lane, Raleigh, NC 27614 | 250,000 | $ | 7,500 | |||||
| Keith Delgreco, 23 Albergar, San Clemente, CA 92672 | 1,000,000 | $ | 30,000 | |||||
| Kurt & Brenda Warner Rev Trust, 10105 East Via Linda Drive, Suite 103, Box 338, Scottsdale, AZ 85258 | 1,000,000 | $ | 30,000 | |||||
| Aggregate Number of Shares as a Group | 3,450,000 | $ | 103,500 | |||||
Marco A Welch, the son of the Chairman of Mogo’s Board of Directors, participated in the private placement and acquired 150,000 restricted common shares for a cash price of $4,500.00 ($0.03 per share).
On January 20, 2022 and on March 7, 2022, MOGO wired $30,000 and $15,000 respectively to SII’s operating subsidiary in India, Elite Sports India Pvt. Ltd., to cover MOGO’s share of the expenses to organize and promote certain university esports events in India conducted by MOGO with SII’s assistance under the provisions of the licensing and consulting agreements between MOGO and SII. These expenses included social media coverage, prize pool, event host, judging, recording and staff expenses, and represented expenditures in the ordinary course of business.
AUDIT COMMITTEE
Our audit committee charter provides that our audit committee will be responsible for reviewing and approving in advance any related-party transaction. This will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $10,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person.
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In this offering, we are offering 1,500,000 shares of new Common Stock (subject to provision for over allotment sale of upto an additional 225,000 common shares). The material terms and provisions of our Common Stock are described here. Selling shareholders are offering an additional 2,300,000 shares of Common Stock.
Authorized Capital Stock
We are currently authorized to issue up to 110,000,000 shares of capital stock consisting of 100,000,000 shares of Common Stock, par value $0.0001 per share. As of December 31, 2021, there were 16,809,800 shares of Common Stock outstanding. We are also authorized to issue up to 10,000,000 shares of Preferred Stock. No Preferred Stock has been issued.
Common Stock
We are authorized to issue 100,000,000 shares of Common Stock. Holders of our Common Stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed; hence, the holders of a majority of our outstanding common shares can elect all directors.
Holders of our Common Stock are entitled to receive such dividends as may be declared by our board of directors out of funds legally available and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our board of directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Holders of our Common Stock do not have preemptive rights to subscribe to additional shares if issued. There is no conversion, redemption, sinking fund or similar provisions regarding the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock
We are authorized to issue 10,000,000 shares of Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series as may be determined by our board of directors. The voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each series will be established by the board of directors. Our directors may issue Preferred Stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our Common Stock. The issuance of Preferred Stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our management. At the effective date of this prospectus, no Preferred Shares have been issued.
Warrants
We have 1,000,000 warrants to purchase our common stock outstanding having an exercise price of $1.00 per share, and exercisable on or before December 15, 2026, all of which are fully vested. These warrants were divided and issued among Gregory Butler, Anthony Rennert and Martha Chan, our Directors, Technology.
As part of the compensation to the Underwriter, we have agreed to issue warrants to the Underwriter at the closing of this offering. Details of these warrants may be found under “Underwriting – Representatives’ Warrants.”
Authorized but Unissued Shares
Our authorized but unissued shares of Common Stock and Preferred Stock will be available for future issuance without shareholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
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Limitation on Directors’ Liability
The Delaware Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Amended and Restated Bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Delaware Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
The Nasdaq Capital Market Listing
Our Common Stock is expected to trade on The Nasdaq Capital Market under the symbol “MGAM” once we receive regulatory approval.
Transfer Agent
The transfer agent and registrar for our Common Stock is Vstock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
We are registering the Selling Stockholders Shares. The Selling Stockholders are offering an aggregate of 2,300,000 shares of Common Stock. (See Plan of Distribution.)
The table below lists the Selling Stockholders. The first column lists the number of shares of Common Stock beneficially owned by each of the by the Selling Stockholders, as of June 30, 2022. As of June 30, 2022, 16,809,800 shares of the Company’s Common Stock were issued and outstanding.
The second column lists the shares of common stock being offered by this prospectus by the Selling Stockholders. None of the Selling Stockholders are officers, directors, or 5% or more shareholders of the Company. The Company has agreed to pay all of the expenses of this registration, and the Selling Shareholders will not contribute to the costs. The underwriters are not underwriting the shares of the Selling Shareholders.
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| Name | Number of Shares of Common Stock Owned Prior to Offering | Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus* | Number of Shares of Common Stock Owned After Offering (if Sold) | % of Shares of Common Stock Owned After Offering (Excluding Over- Allotment) | % of Shares of Common Stock Owned After Offering Including Over Allotment @ 150,000 Shares | |||||||||||||||||||
| Schram, Peter | 800,000 | 196,690 | 603,310 | 3.3 | % | 3.3 | % | |||||||||||||||||
| Razor Legacy Investors LP | 618,000 | 151,943 | 466,057 | 2.5 | % | 2.5 | % | |||||||||||||||||
| Spivak, Kenin | 560,000 | 137,683 | 422,317 | 2.3 | % | 2.3 | % | |||||||||||||||||
| ANP Industries | 540,000 | 132,766 | 407,234 | 2.2 | % | 2.2 | % | |||||||||||||||||
| Greeny Legacy LLC | 520,000 | 127,849 | 392,151 | 2.1 | % | 2.1 | % | |||||||||||||||||
| Whelan, Richard | 516,667 | 127,029 | 389,638 | 2.1 | % | 2.1 | % | |||||||||||||||||
| Manz, Jeffrey | 500,000 | 122,932 | 377,068 | 2.1 | % | 2.0 | % | |||||||||||||||||
| Mast, Maynard | 500,000 | 122,932 | 377,068 | 2.1 | % | 2.0 | % | |||||||||||||||||
| Svarnias, Nicholas J. Living Trust | 500,000 | 122,932 | 377,068 | 2.1 | % | 2.0 | % | |||||||||||||||||
| Clawson, Robert | 250,000 | 61,466 | 188,534 | 1.0 | % | 1.0 | % | |||||||||||||||||
| Pickard, Kevin | 250,000 | 61,466 | 188,534 | 1.0 | % | 1.0 | % | |||||||||||||||||
| ST6 Investments | 250,000 | 61,466 | 188,534 | 1.0 | % | 1.0 | % | |||||||||||||||||
| Whelan, Sunday | 250,000 | 61,466 | 188,534 | 1.0 | % | 1.0 | % | |||||||||||||||||
| Damsker, Joseph | 210,000 | 51,631 | 158,369 | 0.9 | % | 0.9 | % | |||||||||||||||||
| Barry, Mark and Laurie | 200,000 | 49,173 | 150,827 | 0.8 | % | 0.8 | % | |||||||||||||||||
| Elliston, Gary | 200,000 | 49,173 | 150,827 | 0.8 | % | 0.8 | % | |||||||||||||||||
| Uygan, Viktor | 200,000 | 49,173 | 150,827 | 0.8 | % | 0.8 | % | |||||||||||||||||
| Svarnias, Nicholas | 190,000 | 46,714 | 143,286 | 0.8 | % | 0.8 | % | |||||||||||||||||
| Jita Ventures LLC | 150,000 | 36,879 | 113,121 | 0.6 | % | 0.6 | % | |||||||||||||||||
| Welch, David | 150,000 | 36,879 | 113,121 | 0.6 | % | 0.6 | % | |||||||||||||||||
| Welch, Marco A. | 150,000 | 36,879 | 113,121 | 0.6 | % | 0.6 | % | |||||||||||||||||
| Scheer, Richard | 107,000 | 26,307 | 80,693 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Bhandarkar, Sunny | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Brown, Eric | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Hitter, Steven Michael Trust | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Hogan, Brian | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Rich, Allison | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Taylor, Eugene | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Three Eagles LLC | 100,000 | 24,586 | 75,414 | 0.4 | % | 0.4 | % | |||||||||||||||||
| Thieleking, Michael | 65,000 | 15,981 | 49,019 | 0.3 | % | 0.3 | % | |||||||||||||||||
| Fredriksen, Keith | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Hynson, Eric | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Schram, Morgan | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Skrobowski, Anthony | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Triantafillou, Zoe | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Whelan, Jeffrey | 50,000 | 12,293 | 37,707 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Durant, Christopher | 40,000 | 9,835 | 30,165 | 0.2 | % | 0.2 | % | |||||||||||||||||
| Padilla, Richard | 33,333 | 8,195 | 25,138 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Ahlers, Dieter K. & Kathleen A. Rev Living Trust | 30,000 | 7,376 | 22,624 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Kirklys, John | 30,000 | 7,376 | 22,624 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Koester, Jeffrey | 30,000 | 7,376 | 22,624 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Brower, Meagan | 28,000 | 6,884 | 21,116 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Bouboulis, Melvin | 25,000 | 6,147 | 18,853 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Orlando, Chris | 25,000 | 6,147 | 18,853 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Schwartz, Larry | 25,000 | 6,147 | 18,853 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Deol, Phil | 24,000 | 5,901 | 18,099 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Pratuch, Jeffrey | 24,000 | 5,901 | 18,099 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Bhandarkar, Dr. Madhu V. | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| DuBeau, Carol | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Koul, Dr. Vir Ji | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Ofili, Phil | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Pranav, Prabhu | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Qureshi, M. Jamal | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Rajawat, Mohit Singh | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Sharma, Ashish | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Wazeeri, Muzammil Khan | 20,000 | 4,917 | 15,083 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Lovelady, Jason | 16,000 | 3,934 | 12,066 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Pirro, Albert | 16,000 | 3,934 | 12,066 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Wade, Darren | 16,000 | 3,934 | 12,066 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Grillo, Vincent | 15,500 | 3,811 | 11,689 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Svarnias, George L. | 15,000 | 3,688 | 11,312 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Stuart, David | 12,000 | 2,950 | 9,050 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Bhardwaj, Ashish | 10,000 | 2,459 | 7,541 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Buchalter, David | 10,000 | 2,459 | 7,541 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Malloch, Eric | 10,000 | 2,459 | 7,541 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Dyer, Mike | 8,000 | 1,967 | 6,033 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Lopes, Jorge | 8,000 | 1,967 | 6,033 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Pagano, Scott | 7,500 | 1,844 | 5,656 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Rajawat, Rohit Singh | 5,000 | 1,229 | 3,771 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Swami, Himanshu | 5,000 | 1,229 | 3,771 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Scaletta, Paul | 4,800 | 1,180 | 3,620 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Abbass, Paul | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Asmussen, Michael | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Mangold, Robert | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Martino, Gerard | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Partridge, Bradford | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Wade, Mark | 4,000 | 983 | 3,017 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Metzger, Mike | 1,000 | 246 | 754 | 0.0 | % | 0.0 | % | |||||||||||||||||
| Total Selling Shareholders | 9,354,800 | 55.7 | % | 2,300,000 | 7,054,800 | 38.5 | % | 38.2 | % | |||||||||||||||
| * | Assumes all shares registered for the selling shareholder are sold. |
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The following are the controlling principals in the non-human entities that are selling stockholders:
| Investor | Principal or Principal Officer | |
| Razor Legacy Investors LP | John Hogan | |
| ANP Industries | Julia Davis | |
| Greeny Legacy LLC | John Savastano | |
| Svarnias, Nicholas J. Living Trust | Nicholas Svarnias | |
| ST6 Investments | William Thompson | |
| Jita Ventures LLC | Brian Peterson, Will Meris | |
| Hitter, Steven Michael Trust | Steven Michael Hitter | |
| Three Eagles LLC | Robert Clawson | |
| Ahlers, Dieter K. & Kathleen A. Rev Living Trust | Dieter Ahlers |
The Selling Stockholders named above acquired their shares in an offering that was exempt from registration under Section 4(a)(2) of the Securities Act. There was no placement agent for that offering.
SHARES AVAILABLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market after this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. We are unable to estimate the number of shares of Common Stock that may be sold in the future.
Upon the closing of this offering, we will have:
| ● | 18,309,800 shares of Common Stock outstanding. |
All of the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by one of our affiliates as that term is defined in Rule 144 under the Securities Act, which generally includes directors, officers, 10% stockholders, and 5% or more shareholders who have signed a 6-month lockup agreement. None of the holders of shares of our Common Stock or securities exercisable for or convertible into shares of our Common Stock have any registration rights.
Rule 144
Shares of Common Stock held by any of our affiliates, as that term is defined in Rule 144 of the Securities Act, as well as shares held by our current stockholders, may be resold only pursuant to further registration under the Securities Act or in transactions that are exempt from registration under the Securities Act. In general, under Rule 144 as currently in effect, any person who is or has been an affiliate of ours during the 90 days immediately preceding the sale and who has beneficially owned shares for at least six months is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of: (i) 1% of the number of shares of Common Stock then outstanding, or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a Form 144 with respect to the sale.
Sales under Rule 144 by our affiliates will also be subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
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Under the terms and subject to the conditions of an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom WestPark Capital, Inc. is acting as the representative and sole book-running manager, have severally agreed to purchase, and we have agreed to sell to them, the number of our common shares at the initial public offering price, less the underwriting discounts, as set forth on the cover page of this prospectus and as indicated below:
| Underwriters | Number of Shares | |||
| WestPark Capital, Inc. | Total 1,500,000 |
The underwriters are offering the shares subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the common shares offered by this prospectus are subject to the approval of certain legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the common shares offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares described below. The underwriters are not underwriting the shares registered for the selling stockholders.
We have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 225,000 additional common shares at the initial public offering price listed on the cover page of this prospectus, less underwriting discounts. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional common shares as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares listed next to the names of all underwriters in the preceding table.
The underwriters will offer the shares to the public at the initial public offering price set forth on the cover of this prospectus and to selected dealers at the initial public offering price less a selling concession not in excess of $ per share. After this offering, the initial public offering price, concession and reallowance to dealers may be reduced by the representative. No change in those terms will change the amount of proceeds to be received by us as set forth on the cover of this prospectus. The securities are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part.
Discounts and Expenses
The underwriting discounts are equal to 10% of the initial public offering price set forth on the cover of this prospectus.
The following table shows the per share and total initial public offering price, underwriting discounts, and proceeds before expenses to us (based on the low point of the offering price range set forth on the cover page of this prospectus, of $6.00 per share). These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 225,000 common shares.
| Per Share | Total Without Exercise of Over- Allotment Option | Total With Full Exercise of Over- Allotment Option | ||||||||||
| Initial public offering price | $ | 4.00 | $ | 6,000,000 | $ | 6,600,000 | ||||||
| Underwriting discounts to be paid by us | $ | 0.40 | $ | 600,000 | $ | 660,000 | ||||||
| Proceeds, before expenses, to us | $ | 3.60 | $ | 5,400,000 | $ | 5,940,000 | ||||||
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We will also pay to the representative by deduction from the net proceeds of this offering, a non-accountable expense allowance equal to 2% of the amount raised in the offering (including verifying shares sold upon exercise of the underwriters’ over-allotment option). We have paid an aggregate of $60,000 in advance expenses toward this sum to the representative so far.
Any expense deposits paid will be returned to us to the extent the representative’s expenses are not actually incurred in accordance with FINRA Rule 5110(g)(4)(A).
1.1 We have agreed to pay expenses relating to the offering, , including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the shares of Common Stock to be sold in the Offering with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of our Securities on the Nasdaq Capital Market, and such other stock exchanges as the Company and the Representative together determine; (d) all fees, expenses and disbursements relating to the registration or qualification of the offered Securities under the “blue sky” securities laws of such states and other jurisdictions as the Company and the Representative together determine (including, without limitation, all filing and registration fees); (e) all fees, expenses and disbursements relating to the registration, qualification or exemption of the offered securities under the securities laws of such foreign jurisdictions as the Company and the Representative together determine; (f) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Company and the Representative together determine; (g) the costs and expenses of a public relations firm as the Company and the Representative together determine; (h) the costs of preparing, printing and delivering certificates representing the offered Securities; (i) fees and expenses of the transfer agent for our shares of Common Stock; (j) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (k) the fees and expenses of the Company’s accountants; (l) the fees and expenses of the Company’s legal counsel and other agents and representatives; (m) fees and expenses of the Representative’s legal counsel; and (o) such Underwriters’ accountable “road show” expenses as the Company and the Representative together determine..
The accountable expenses of the Representative we are obligated to pay as listed above, including its legal expenses, are currently assumed to be approximately $175,000, but subject to actual expenses incurred by the Representative.
We estimate that the total expenses of the offering payable by us, excluding the underwriting discounts and non-accountable expense allowance, will be approximately $300,000.
We have applied to list our common shares on the Nasdaq Capital Market under the symbol “MGAM.” and anticipate receiving conditional approval to so list our common shares, provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering.
Representative’s Warrants
In addition, we have agreed to issue the representative’s warrants to the representative of the underwriters to purchase a number of common shares equal to 10% of the total number of common shares sold by the Company in this offering. The representative’s warrants shall have an exercise price equal to 165% of the initial public offering price of the common shares sold in this offering. The representative’s warrants must be purchased in cash and will be exercisable commencing six months from the effective date of the registration statement of which this prospectus forms a part and will terminate on the fifth anniversary of the effective date of the registration statement of which this prospectus forms a part. The representative’s warrants and the underlying shares will be deemed compensation by FINRA, and therefore will be subject to FINRA Rule 5110(e)(1). In accordance with FINRA Rule 5110(e)(1), and except as otherwise permitted by FINRA rules, neither the representative’s warrants nor any of our shares issued upon exercise of the representative’s warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days beginning on the date of commencement of sales of the offering. In addition, although the representative’s warrants and the underlying common shares will be registered in the registration statement of which this prospectus forms a part, we have also agreed that the representative’s warrants will provide for registration rights in certain cases. These registration rights apply to all of the securities directly and indirectly issuable upon exercise of the representative’s warrants. The piggyback registration right provided will not extend beyond two years from the date of the initial warrant exercise date.).
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We will bear all fees and expenses attendant to registering the common shares issuable upon exercise of the representative’s warrants, other than underwriting discounts incurred and payable by the holders. The exercise price and number of common shares issuable upon exercise of the representative’s warrants may be adjusted in certain circumstances, including in the event of a share dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. The warrant exercise price and/or underlying shares may also be adjusted for issuances of common shares at a price below the warrant exercise price.
Indemnification; Indemnification Escrow
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Concurrently with the execution and delivery of the underwriting agreement, we will set up an escrow account with a third-party escrow agent in the United States and will fund such account from this offering that may be utilized by the underwriters to fund any bona fide indemnification claims of the underwriters arising during a 24-month period following the offering. The escrow account will be interest bearing, and we will be free to invest the assets in securities. All funds that are not subject to an indemnification claim will be returned to us after the applicable period expires. We will pay the reasonable fees and expenses of the escrow agent.
Lock-Up Agreements
Our officers, directors and principal shareholders (defined as owners of 5% or more of our common shares), have agreed, subject to certain exceptions, to a 180-day “lock-up” period from the date of this prospectus with respect to the common shares that they beneficially own, including the issuance of shares upon the exercise of convertible securities and options which may be issued. This means that, for a period of 180 days following the date of this prospectus, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the representative.
The representative has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waived at its discretion. In determining whether to waive the terms of the lock-up agreements, the representative may base its decision on its assessment of the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demand for, our securities in general.
Determination of Offering Price
Prior to this offering, there has been no public market for our securities. The initial public offering price will be negotiated between us and the Representative. In determining the initial public offering price of our common stock, the Representative will consider:
| ● | the information set forth in this prospectus and otherwise available to the Representative; |
| ● | our history and prospects for the industry in which we compete; |
| ● | our financial information; |
| ● | the ability of our management and our business potential and earning prospects; |
| ● | the prevailing securities markets at the time of this offering; |
| ● | the recent market prices of, and the demand for, publicly traded shares of generally comparable companies; |
| ● | other factors deemed relevant by the underwriters and us. |
The estimated public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock or that the common stock will trade in the public market at or above the initial public offering price.
We have applied to list our common shares on the Nasdaq Capital Market under the symbol “MGAM.” and anticipate receiving conditional approval to so list our common shares, provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering.
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Pricing of the Offering
Prior to this offering, there has been no public market for our common shares. The initial public offering price of the shares has been negotiated between us and the underwriters. Among the factors considered in determining the initial public offering price of the shares, in addition to the prevailing market conditions, are our estimates of our business potential and earnings prospects, an assessment of our intangible assets and management, and the consideration of the above factors in relation to market valuation of companies in similar circumstances and/or related businesses.
No Sales of Similar Securities
We have agreed not to 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 any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares or any securities convertible into or exercisable or exchangeable for common shares or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our common shares, whether any such transaction is to be settled by delivery of common shares or such other securities, in cash or otherwise, without the prior written consent of the representative, for a period of 250 days from the date of this prospectus, except for securities issued pursuant to acquisitions or strategic transactions, or issued for strategic services in connection with hiring packages for key employees or for consultants, and in each case approved by a majority of our disinterested directors, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the restricted period, and provided that any such issuance shall only be to a person (or to the equity holders if a person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with our business and shall provide us with additional benefits in addition to the investment of funds, but shall not include a transaction in which we are issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of common shares to selling group members for sale to their online brokerage account holders. The common shares to be sold pursuant to internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common shares. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under option to purchase additional shares. The underwriters can close out a covered short sale by exercising the option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our common shares in this offering because such underwriter repurchases those shares in stabilizing or short covering transactions.
Finally, the underwriters may bid for, and purchase, our common shares in market making transactions, including “passive” market making transactions as described below.
These activities may stabilize or maintain the market price of our common shares at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.
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Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in our common shares on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Potential Conflicts of Interest
The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Some of the underwriters and certain of their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us and our affiliates, for which they may in the future receive customary fees, commissions and expenses.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
No action may be taken in any jurisdiction other than the United States that would permit a public offering of the shares or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the common shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
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In addition to the public offering of the common shares in the United States, the underwriters may, subject to applicable foreign laws, also offer the common shares in certain countries.
Stamp Taxes
If you purchase common shares offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the initial public offering price listed on the cover page of this prospectus.
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
The underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. WestPark Capital and certain of its affiliates own 828,813 shares of Sports Industry of India, Inc (less than a 1% indirect interest in the Company) and an individual affiliated with WestPark purchased 500,000 common shares of the Company in a private placement on June 22, 2021, on the same terms and conditions as all investors in such private offering.
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PLAN OF DISTRIBUTION FOR STOCK REGISTERED FOR SELLING STOCK HOLDERS
We are registering 2,300,000 shares of common stock for Selling Stockholders. We are required to pay all fees and expenses incident to the registration of the shares of our securities to be offered and sold pursuant to this prospectus, including the shares of the Selling Securityholders.
The shares of common stock beneficially owned by the Selling Securityholders covered by this prospectus may be offered and sold from time to time by the Selling Securityholders, but only after our Common Stock has begun trading on the Nasdaq Capital Market. We anticipate receiving conditional approval to list our common stock on the Nasdaq Capital Market (“Nasdaq”) under the symbol “MGAM”, provided we have satisfied the initial listing requirements of Nasdaq. No assurance can be given that we will meet those requirements. If our common stock is not approved for listing on Nasdaq, we will not consummate this offering.
The term “Selling Securityholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Securityholder as a gift, pledge, partnership distribution or other transfer. The Selling Securityholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then-current market price or in negotiated transactions. The Selling Securityholders may dispose of their securities by one or more of, or a combination of, the following methods once our Common Stock has commenced trading on the Nasdaq Capital Market.:
| ● | distributions to members, partners, stockholders or other equity holders of the Selling Security holders; |
| ● | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus; |
| ● | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
| ● | block trades in which the broker-dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | an over-the-counter distribution in accordance with the rules of the Nasdaq; |
| ● | through trading plans entered into by a Selling Securityholder pursuant to Rule 10b5-1 under the Exchange Act, that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide for periodic sales of their securities on the basis of parameters described in such trading plans; |
| ● | to or through underwriters or broker-dealers; |
| ● | in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents; |
| ● | in privately negotiated transactions; |
| ● | in options transactions; |
| ● | through a combination of any of the above methods of sale; or |
| ● | any other method permitted pursuant to applicable law. |
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In addition, any securities that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. A Selling Securityholder that is an entity may elect to make an in-kind distribution of securities to its members, partners, stockholders or other equity holders pursuant to the registration statement of which this prospectus forms a part by delivering a prospectus. To the extent that such members, partners, stockholders or other equity holders are not affiliates of ours, such members, partners, stockholders or other equity holders would thereby receive freely tradable securities pursuant to a distribution pursuant to the registration statement of which this prospectus forms a part.
To the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions of the securities or otherwise, the Selling Securityholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of securities in the course of hedging the positions they assume with Selling Securityholders. The Selling Securityholders may also sell securities short and redeliver the securities to close out such short positions. The Selling Securityholders may also enter into option or other transactions with broker-dealers or other financial institutions that require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Securityholders may also pledge securities to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged securities pursuant to this prospectus (as supplemented or amended to reflect such transaction).
A Selling Securityholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any Selling Securityholder or borrowed from any Selling Securityholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from any Selling Securityholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any Selling Securityholder may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
In effecting sales, broker-dealers or agents engaged by the Selling Securityholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the Selling Securityholders in amounts to be negotiated immediately prior to the sale.
In offering the securities covered by this prospectus, the Selling Securityholders and any broker-dealers who execute sales for the Selling Securityholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any profits realized by the Selling Securityholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the Selling Securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market and to the activities of the Selling Securityholders and their affiliates. In addition, we will make copies of this prospectus available to the Selling Securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the securities against certain liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of securities is made, if required, a prospectus supplement will be distributed that will set forth the number of securities being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.
75
TRANSFER AGENT
The transfer agent and registrar for our Common Stock is Vstock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
The validity of the securities offered hereby will be passed upon for us by The Law Offices of Davis & Associates, Inc., Palos Verdes Estates, CA. Certain legal matters in connection with this offering will be passed upon for the underwriters by Dickinson Wright PLLC, Ft. Lauderdale, FL. Certain legal matters with respect to the SII MOGO Founders Agreement, and the SII Supplement to Founders Agreement will be passed upon by our Indian Contract Counsel, RB Associates, 141, Top Floor, Saini Enclave, Delhi 110092, India.
The balance sheet of Mobile Global Esports Inc. for the period ended December 31, 2021 and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the period from inception, March 11, 2021, to December 31, 2021, have been audited by AJSH & Co, LLP, an independent chartered accounting firm registered with the Public Company Accounting Oversight Board (PCAOB), as set forth in its report appearing herein and are included in reliance upon such report given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Common Stock we are offering. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement and the exhibits and schedules to the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits and schedules for that information. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.
You may review a copy of the registration statement, including exhibits and any schedule filed therewith, and obtain copies of such materials at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically with the SEC.
We also intend to maintain a website at www.mogoesports.com. Once we have activated this website, you may access materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website, once activated, is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only. You may also inspect these documents at our corporate headquarters at 616 South El Camino Real, Suite H, San Clemente, California 92672 during normal business hours.
76
Index to Financial Statements
MOBILE GLOBAL ESPORTS INC.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Mobile Global Esports Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Mobile Global Esports Inc. (the “Company”) as of December 31, 2021 and the related statements of operations, changes in stockholder’s equity and cash flows from March 11, 2021 (Inception) to December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period from March 11, 2021 (Inception) to December 31, 2021, 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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The Critical Audit Matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ AJSH & Co LLP
We have served as the Company’s Auditor since 2021
New Delhi, India
May 21, 2022
F-2
MOBILE GLOBAL ESPORTS INC.
As of December 31, 2021
| ASSETS | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ | 238,202 | ||
| Deferred offering costs | 62,998 | |||
| Total current assets | 301,200 | |||
| TOTAL ASSETS | $ | 301,200 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
| Current Liabilities: | ||||
| Accounts payable | $ | 31,814 | ||
| Total current liabilities | 31,814 | |||
| Commitments and contingencies | - | |||
| STOCKHOLDERS’ EQUITY | ||||
| Preferred stock; $0.0001 par value; 10,000,000 shares authorized; nil shares issued and outstanding | ||||
| Common stock; $0.0001 par value; 100,000,000 shares authorized; 16,809,800 shares issued and outstanding | 1,681 | |||
| Additional paid-in capital | 530,065 | |||
| Accumulated deficit | (262,360 | ) | ||
| Total stockholders’ equity | 269,386 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 301,200 | ||
The accompanying footnotes are an integral part of these financial statements.
F-3
MOBILE GLOBAL ESPORTS INC.
STATEMENT OF OPERATIONS
For the Period from Inception (March 11, 2021) to December 31, 2021
| Revenue | $ | - | ||
| Cost of revenue | - | |||
| Gross profit | - | |||
| Operating expenses: | ||||
| General and administrative expenses | 76,438 | |||
Research and development expenses | 185,922 | |||
| Total operating expenses | 262,360 | |||
| Loss from operations | (262,360 | ) | ||
| Income tax expense | - | |||
| Net loss | $ | (262,360 | ) | |
| Weighted average common shares outstanding - basic and diluted | 12,125,464 | |||
| Net loss per common share - basic and diluted | $ | (0.02 | ) |
The accompanying footnotes are an integral part of these financial statements.
F-4
MOBILE GLOBAL ESPORTS INC.
STATEMENT OF STOCKHOLDERS’ EQUITY
For the Period from Inception (March 11, 2021) to December 31, 2021
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, March 11, 2021 | - | - | - | - | - | |||||||||||||||
| Common stock issued to founders | 5,300,000 | 530 | - | - | 530 | |||||||||||||||
| Common stock issued for cash | 11,509,800 | 1,151 | 344,143 | - | 345,294 | |||||||||||||||
| Fair value of warrants issued for services | 185,922 | 185,922 | ||||||||||||||||||
| Net loss | - | - | - | (262,360 | ) | (262,360 | ) | |||||||||||||
| Balance, December 31, 2021 | 16,809,800 | $ | 1,681 | $ | 530,065 | $ | (262,360 | ) | $ | 269,386 | ||||||||||
The accompanying footnotes are an integral part of these financial statements.
F-5
STATEMENT OF CASH FLOWS
For the Period from Inception (March 11, 2021) to December 31, 2021
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Net loss | $ | (262,360 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Fair value of warrants issued for services | 185,922 | |||
| Changes in operating assets and liabilities: | ||||
| Accounts payable | 31,814 | |||
| Net cash used in operating activities | (44,624 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Proceeds from the sale of common stock | 345,824 | |||
| Payment of deferred offering costs | (62,998 | ) | ||
| Net cash provided by financing activities | 282,826 | |||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 238,202 | |||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | - | |||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 238,202 | ||
| CASH PAID FOR: | ||||
| Interest | $ | - | ||
| Income taxes | $ | - | ||
The accompanying footnotes are an integral part of these financial statements.
F-6
Note 1 - Organization and Basis of Presentation
Organization
Mobile Global Esports Inc. (the “Company”) was incorporated on March 11, 2021 under the laws of the State of Delaware. The Company was originally named Elite Esports, Inc. but changed its name to Mobile Global Esports Inc. on April 21, 2021. The Company has been assigned certain limited rights to commercialize university esports events for 73 universities in India and 90 leading universities in Pakistan. The unique advantage of esports is that the events can be virtual, and virtual events bypass any Covid-19 restrictions on in-person events.
Basis of Presentation
The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Coronavirus (COVID-19)
The Company’s business could be adversely impacted by the effects of the Coronavirus (COVID-19). In addition to global macroeconomic effects, the COVID-19 outbreak and any other related adverse public health developments could cause disruption to our operations. COVID-19 or other disease outbreaks could in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could impact the Company’s operating results. Although the magnitude of the impact of the COVID-19 outbreak on the Company’s business and operations remains uncertain, the continued spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions could adversely impact the Company’s business, financial condition, operating results and cash flows. In addition, the Company could experience disruptions to its business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of its employees to perform their jobs that may impact the Company’s ability to develop and grow its business.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include valuation allowance on deferred tax assets.
Cash Equivalents
For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly-liquid debt instruments with original maturities of three months or less. As of December 31, 2021, the Company did not have any cash equivalents.
Deferred Offering Costs
Deferred offering costs are amounts incurred that are directly related to the offering of the Company’s common stock. These costs will be offset against the proceeds from the Company’s equity offering.
F-7
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and accounts payable, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
As of December 31, 2021, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company has not and does not anticipate incurring any losses related to this credit risk.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. The Company had no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue from product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of its product to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; |
| ● | identification of performance obligations in the respective contract; |
| ● | determination of the transaction price for each performance obligation in the respective contract; |
| ● | allocation the transaction price to each performance obligation; and |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
F-8
These five elements, as applied to each of the Company’s revenue category, is summarized below:
| ● | Product sales - revenue is recorded when the product is purchased by the customer. |
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. 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. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
At December 31, 2021, there were 1,000,000 warrants outstanding. Due to the net loss incurred potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluation the impact this ASU will have on its financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
F-9
Note 3- Stockholders’ Equity
Preferred Stock
The Company has authorized the issuance of 10,000,000 shares of $0.0001 par value preferred stock. At December 31, 2021, there were nil shares issued and outstanding.
Common Stock
The Company has authorized the issuance of 100,000,000 shares of $0.0001 par value common stock. At December 31, 2021, there were 16,809,800 shares issued and outstanding.
During the period from inception (March 11, 2021) to December 31, 2021, the Company had the following transactions in its common stock:
| ● | Issued 5,300,000 shares to founders of the Company for cash proceeds of $530; |
| ● | Issued 11,509,800 shares to investors for cash proceeds of $345,294. |
Warrants
The following is a summary of warrant activity:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Life | Value | |||||||||||||
| Outstanding, March 11, 2021 | - | |||||||||||||||
| Granted | 1,000,000 | 1.00 | ||||||||||||||
| Forfeited | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Outstanding, December 31, 2021 | 1,000,000 | 1.00 | 4.79 | $ | - | |||||||||||
| Exercisable, December 31, 2021 | 250,000 | $ | 1.00 | 4.79 | $ | - | ||||||||||
The exercise price for warrants outstanding at December 31, 2021:
| Outstanding | Exercisable | |||||||||||||
| Number of | Exercise | Number of | Exercise | |||||||||||
| Warrants | Price | Warrants | Price | |||||||||||
| 1,000,000 | $ | 1.00 | 250,000 | $ | 1.00 | |||||||||
| 1,000,000 | 250,000 | |||||||||||||
F-10
On October 21, 2021, the Company issued an aggregate of 1,000,000 warrants to three individuals (“Consultants”) that will advising the Company on developing, establishing, operating, commercializing, marketing, promoting, and expanding the Company’s esports business with an aim to commercialize esports tournaments, esports sponsorships, esports advertising revenues, esports merchandise revenues, esports broadcast revenues, esports video revenues, esports game development and marketing and distribution revenues, and all other manner of esports revenue streams for the benefit of the Company. The warrants have an exercise price of $1.00 share and expire in five years. 250,000 of these warrants vested immediately and the balance of 750,000 warrants have provisions making the vesting contingent on the Consultants’ performance in meeting goals and milestones set quarterly by the Company. Specifically, the Company will consult with the Consultants and reach agreement on the Consultants’ goals and milestones at the beginning of each calendar quarter. Out of the 750,000 unvested warrants, 62,500 warrants will vest at the end of each quarter, beginning with the quarter ending March 31, 2022, provided in the Company’s judgement the Consultants have made satisfactory progress over the course of the quarter in meeting set goals and milestones. Warrants not vested on their designated end of quarter vesting date expire.
The fair value of the warrants is being amortized to expense over the vesting period. The Company recorded an expense of $185,922 during the period from inception (March 11, 2021) to December 31, 2021. At December 31, 2021, the unamortized warrant expense was $557,765, which will be amortized into expense through December 2024.
The assumptions used in calculating the fair value of warrants granted using the Black-Scholes option-pricing model for warrants granted are as follows for the warrants granted during the period from inception (March 11, 2021) to December 31, 2021:
| Risk-free interest rate | 1.09 | % | ||
| Expected life of the options | 5 years | |||
| Expected volatility | 100 | % | ||
| Expected dividend yield | 0 | % |
Note 4 - Income Taxes
At December 31, 2021, the significant components of the deferred tax assets are summarized below:
| Deferred income tax asset | ||||
| Net operation loss carryforwards | $ | 40,436 | ||
| Total deferred income tax asset | 40,436 | |||
| Less: valuation allowance | (40,436 | ) | ||
| Total deferred income tax asset | $ | - | ||
The valuation allowance increased by $40,436 in 2021 as a result of the Company generating net operating losses. The Company’s net operating loss carryforward of approximately $139,000 begin to expire in 2036.
No income tax expense is reflected in the statements of operations for the period from inception (March 11, 2021) to December 31, 2021.
The reconciliation of the effective income tax rate to the federal statutory rate for the period from inception (March 11, 2021) to December 31, 2021 is as follows:
| 2021 | ||||||||
| Amount | Percent | |||||||
| Federal statutory rates | $ | (55,095 | ) | 21.0 | % | |||
| State income taxes | (20,989 | ) | 8.0 | % | ||||
| Permanent differences | 35,648 | -13.6 | % | |||||
| Valuation allowance against net deferred tax assets | 40,436 | -15.4 | % | |||||
| Effective rate | $ | - | 0.0 | % | ||||
F-11
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors.
Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. The Company will continue to classify income tax penalties and interest as part of general and administrative expense in its statements of operations. There were no interest or penalties accrued as of December 31, 2021.
Note 5 – Commitments and Contingencies
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
Note 6 – Related Party Transactions
Included in accounts payable is $30,000 due to Sports Industry of India, Inc., a stockholder of the Company.
Note 7 - Subsequent Events
There are no other significant subsequent events.
F-12
MOBILE GLOBAL ESPORTS INC.
Financial Statements
(unaudited)
Contents
F-13
MOBILE GLOBAL ESPORTS INC.
As of March 31, 2022 and December 31, 2021
| ASSETS |
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 113,886 | $ | 238,202 | ||||
| Deferred offering costs | 110,498 | 62,998 | ||||||
| Total current assets | 224,384 | 301,200 | ||||||
| TOTAL ASSETS | $ | 224,384 | $ | 301,200 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable (including $0 and $30,000 to related party) | $ | $ | 31,814 | |||||
| Total current liabilities | - | 31,814 | ||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock; $0.0001par value; 10,000,000 shares authorized; | ||||||||
| nil shares issued and outstanding | ||||||||
| Common stock; $0.0001par value; 100,000,000 shares authorized; | ||||||||
| 16,809,800 and 16,809,800 shares issued and outstanding | 1,681 | 1,681 | ||||||
| Additional paid-in capital | 576,545 | 530,065 | ||||||
| Accumulated deficit | (353,842 | ) | (262,360 | ) | ||||
| Total stockholders' equity | 224,384 | 269,386 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 224,384 | $ | 301,200 | ||||
The accompanying footnotes are an integral part of these unaudited financial statements.
F-14
The accompanying footnotes are an integral part of these unaudited financial statements.
F-15
The accompanying footnotes are an integral part of these unaudited financial statements.
F-16
The accompanying footnotes are an integral part of these unaudited financial statements.
F-17
Note 1 - Organization and Basis of Presentation
Organization
Mobile Global Esports Inc. (the “Company”) was incorporated on March 11, 2021 under the laws of the State of Delaware. The Company was originally named Elite Esports, Inc. but changed its name to Mobile Global Esports Inc. on April 21, 2021. The Company has been assigned certain limited rights to commercialize university esports events for 73 universities in India. The unique advantage of esports is that the events can be virtual, and virtual events bypass any Covid-19 restrictions on in-person events.
Basis of Presentation
The accompanying financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Coronavirus (COVID-19)
The Company’s business could be adversely impacted by the effects of the Coronavirus (COVID-19). In addition to global macroeconomic effects, the COVID-19 outbreak and any other related adverse public health developments could cause disruption to our operations. COVID-19 or other disease outbreaks could in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could impact the Company’s operating results. Although the magnitude of the impact of the COVID-19 outbreak on the Company’s business and operations remains uncertain, the continued spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions could adversely impact the Company’s business, financial condition, operating results and cash flows. In addition, the Company could experience disruptions to its business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of its employees to perform their jobs that may impact the Company’s ability to develop and grow its business.
F-18
Interim financial statements
The unaudited condensed consolidated financial statements are prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company’s financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to such rules and regulations. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2022.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include valuation allowance on deferred tax assets.
Cash Equivalents
For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly-liquid debt instruments with original maturities of three months or less. As of March 31, 2022 and December 31, 2021, the Company did not have any cash equivalents.
Deferred Offering Costs
Deferred offering costs are amounts incurred that are directly related to the offering of the Company’s common stock. These costs will be offset against the proceeds from the Company’s equity offering.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and accounts payable, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
As of March 31, 2022 and December 31, 2021, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
F-19
Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company has not and does not anticipate incurring any losses related to this credit risk.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the "modified retrospective" transition method for open contracts for the implementation of Topic 606. The Company had no significant post-delivery obligations, this new standard did not result in a material recognition of revenue on the Company’s accompanying financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue from product sales is recognized under Topic 606 in a manner that reasonably reflects the delivery of its product to customers in return for expected consideration and includes the following elements:
| ● | executed contracts with the Company’s customers that it believes are legally enforceable; |
| ● | identification of performance obligations in the respective contract; |
| ● | determination of the transaction price for each performance obligation in the respective contract; |
| ● | allocation the transaction price to each performance obligation; and |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
These five elements, as applied to each of the Company’s revenue category, is summarized below:
| ● | Product sales - revenue is recorded when the product is purchased by the customer. |
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. 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. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
F-20
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS assumes that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. At March 31, 2022 and December 31, 2021, there were 1,000,000 warrants outstanding. Due to the net loss incurred potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluation the impact this ASU will have on its financial statements.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3- Stockholders’ Equity
Preferred Stock
The Company has authorized the issuance of 10,000,000 shares of $0.0001 par value preferred stock. At March 31, 2022 and December 31, 2021, there were nil shares issued and outstanding.
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Common Stock
The Company has authorized the issuance of 100,000,000 shares of $0.0001 par value common stock. At March 31, 2022 and December 31, 2021, there were 16,809,800 shares issued and outstanding.
During the period from inception (March 11, 2021) to March 31, 2021, the Company had the following transactions in its common stock:
| ● | issued 5,300,000 shares to founders of the Company. |
There were no transactions in the Company’s common stock during the three months ended March 31, 2022.
Warrants
The following is a summary of warrant activity:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Exercise | Contractual | Intrinsic | |||||||||||||
| Outstanding | Price | Life | Value | |||||||||||||
| Outstanding, December 31, 2021 | 1,000,000 | 1.00 | 4.79 | $ | - | |||||||||||
| Granted | - | 1.00 | ||||||||||||||
| Forfeited | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Outstanding, March 31, 2022 | 1,000,000 | 1.00 | 4.54 | $ | - | |||||||||||
| Exercisable, March 31, 2022 | 312,500 | $ | 1.00 | 4.54 | $ | - | ||||||||||
The exercise price for warrants outstanding at March 31, 2022:
| Outstanding | Exercisable | |||||||||||||
| Number of | Exercise | Number of | Exercise | |||||||||||
| Warrants | Price | Warrants | Price | |||||||||||
| 1,000,000 | $ | 1.00 | 312,500 | $ | 1.00 | |||||||||
| 1,000,000 | 312,500 | |||||||||||||
On October 21, 2021, the Company issued an aggregate of 1,000,000 warrants to three individuals (“Consultants”) that will advising the Company on developing, establishing, operating, commercializing, marketing, promoting, and expanding the Company’s esports business with an aim to commercialize esports tournaments, esports sponsorships, esports advertising revenues, esports merchandise revenues, esports broadcast revenues, esports video revenues, esports game development and marketing and distribution revenues, and all other manner of esports revenue streams for the benefit of the Company. The warrants have an exercise price of $1.00 share and expire in five years. 250,000 of these warrants vested immediately and the balance of 750,000 warrants have provisions making the vesting contingent on the Consultants’ performance in meeting goals and milestones set quarterly by the Company. Specifically, the Company will consult with the Consultants and reach agreement on the Consultants’ goals and milestones at the beginning of each calendar quarter. Out of the 750,000 unvested warrants, 62,500 warrants will vest at the end of each quarter, beginning with the quarter ending March 31, 2022, provided in the Company’s judgement the Consultants have made satisfactory progress over the course of the quarter in meeting set goals and milestones. Warrants not vested on their designated end of quarter vesting date expire. None of the warrants have been exercised. Of the 1,000,000 warrants, 312,500 warrants have vested. 687,500 warrants remain unvested.
F-22
The fair value of the warrants is being amortized to expense over the vesting period. The Company recorded an expense of $46,480 during the three months ended March 31, 2022. At March 31, 2022, the unamortized warrant expense was $511,285, which will be amortized into expense through December 2024.
Note 4 – Commitments and Contingencies
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
Note 5 – Related Party Transactions
Included in accounts payable at March 31, 2022 and December 31, 2021 is $0 and $30,000, respectively, due to Sports Industry of India, Inc., a stockholder of the Company.
Note 6 - Subsequent Events
Management has evaluated events that occurred subsequent to the end of the reporting period and there are no subsequent events to report.
F-23
List of Esports Events Jointly Promoted in India by MOGO, SII and EUSAI
| AIU Tournaments | ||
| CS-GO | LAN Event at LPU | 2016-2017 |
| FIFA | Play Station Event at MDU | 2017-2018 |
| CS-GO | LAN Event at LPU | 2018-2019 |
| Open Tournaments | ||
| PUBG Tournament 1.0 | Virtual | May 23, 2020 |
| Valorant Open 1.0 | Virtual, 66 Teams | June 13, 2021 |
| CS-GO Open | Virtual, 32 Teams | June 21, 2021 |
| COD Open | Virtual, 50 Teams | July 4, 2021 |
| BGMI Open 1.0 | Virtual, 125 Teams | July 19, 2021 |
| Valorant Open 2.0 | Virtual, 64 Teams | August 8, 2021 |
| BGMI Open 2.0 | Virtual, 64 Teams | August 22, 2021 |
| Inter- and Intra-University Rivalry Tournaments | ||
| JU Eagles vs. Poornima Panthers | Virtual | August 3, 2021 |
| GLAU Gladiators vs. JU Eagles | Virtual | August 9, 2021 |
| GLAU Gladiators vs. Poornima Panthers | Virtual | August 13, 2021 |
| Poornima Panthers vs. JU Eagles | Virtual | August 16, 2021 |
| VGU Victors vs. GLAU Gladiators | Virtual | August 19, 2021 |
| VGU Victors vs. JU Eagles | Virtual | August 24, 2021 |
| VGU Victors vs. Poornima Panthers | Virtual | September 1, 2021 |
| DIT Intra-University Tournament | Virtual | September 7, 2021 |
| Bennett Intra-University Tournament | Virtual | September 10, 2021 |
| Poornima Intra-University Tournament | Virtual | September 15, 2021 |
| Divisional Tournaments | ||
| Northern Division Valorant | Virtual, 22 Teams | August 27-29, 2021 |
| Northern Division BGMI | Virtual, 46 Teams | September 17-19, 2021 |
| Western Division BGMI | Virtual, 25 Teams | October 1-3, 2021 |
| Central Division Valorant | Virtual, 22 Teams | October 8-10, 2021 |
| Central Division BGMI | Virtual, 75 Teams | October 22-24, 2021 |
| Western Division Valorant | Virtual, 19 Teams | November 26-28, 2021 |
| Southern Division Valorant | Virtual, 16 Teams | November 26-28, 2021 |
| Southern Division BGMI | Virtual, 25 Teams | December 3-5, 2021 |
F-24
MOBILE GLOBAL ESPORTS INC.
Common Stock
|
Prospectus
July 19, 2022
|
| WestPark Capital, Inc. |
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses paid or payable by us in connection with the sale of the Common Stock being registered, excluding 10% underwriter discount and 2% non-accountable expense payment to the Underwriter. All amounts shown are estimates.
| Amount Paid or to be Paid | ||||
| SEC registration fee | $ | 2,500 | ||
| FINRA filing fee | $ | 2,500 | ||
| Stock exchange listing fee | $ | 50,000 | ||
| Transfer agent’s fees and expenses | $ | 5,000 | ||
| Printing expenses | $ | 15,000 | ||
| Legal fees and expenses | $ | 150,000 | ||
| Accounting fees and expenses | $ | 30,000 | ||
| Blue Sky fees and expenses | $ | 5,000 | ||
| Miscellaneous expenses | $ | 40,000 | ||
| Total | $ | 300,000 | ||
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, or the DGCL, permits a corporation to indemnify its directors and officers against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties. The directors or officers must have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, an action only by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they must have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation. No indemnification may be made if such person must have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought must determine upon application that the defendant officers or directors are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. The current certificate of incorporation and the bylaw of the registrant provide for indemnification by the registrant of its directors, senior officers and employees to the fullest extent permitted by applicable law.
II-1
Section 102(b)(7) of the DGCL permits a corporation to provide in its charter that a director of the corporation must not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for payments of unlawful dividends or unlawful stock purchases or redemptions or (4) for any transaction from which the director derived an improper personal benefit. The current certificate of incorporation of the registrant provides for such limitation of liability.
We have entered into indemnification agreements with each of our directors and officers in which we have agreed to indemnify, defend and hold harmless, and also advance expenses as incurred, to the fullest extent permitted under applicable law, from damage arising from the fact that such person is or was an officer or director of our company or our subsidiaries.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, our amended and restated certificate of incorporation, our amended and restated bylaws, any agreement, any vote of stockholders or disinterested directors or otherwise.
We maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.
We have purchased and intend to maintain insurance on behalf of the registrant and any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in that capacity, subject to certain exclusions and limits of the amount of coverage.
Item 15. Recent Sales of Unregistered Securities
On or about May 15, 2021, a total of 29 employees and consultants purchased from us an aggregate of 5,300,000 shares of Common Stock, or “founder shares,” for an aggregate purchase price of $530.00, or approximately $0.0001 per share, in a private placement.
In April through August 2021, a total of 39 investors purchased from us an aggregate of 11,509,800 shares of Common Stock, for an aggregate purchase price of $345,294, or approximately $0.03 per share. Some investors made multiple purchases and some founders made additional purchases.
Each of these purchasers are accredited investor for purposes of Rule 501 of Regulation D. No underwriting discounts or commissions were paid with respect to such sales.
In each case, the securities issued as described above, were issued in reliance on the exemption from registration under applicable securities laws provided by Section 4(a)(2) of the Securities Act of 1933, and similar exemptions under state securities laws.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
| * | To be filed by amendment to this registration statement |
| ** | Filed with original registration statement, filed on December 23, 2021 |
| *** | Filed with Amendment 1 to Registration Statement, filed on March 21, 2022 |
| **** | Filed with Amendment 2 to Registration Statement, filed on May 23, 2022 |
| ***** | File with this Amendment 3 to Registration Statement |
| ****** | Filed with this Amendment 4 to Registration Statement |
| (b) | Financial Statements. The financial statements filed as part of this registration statement are listed in the index to the financial statements immediately preceding such financial statements, which index to the financial statements is incorporated herein by reference. |
II-3
Item 17. Undertakings
| (a) | The undersigned registrant, hereby undertakes: |
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| i. | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; |
| ii. | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| iii. | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| i. | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
II-4
| ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| iv | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (b) | The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. |
| (c) | Insofar as indemnification for liabilities arising under the Securities may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| (d) | The undersigned registrant hereby undertakes that: |
| (1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on this July 19, 2022.
| Mobile Global Esports Inc. | ||
| By: | /s/ David Pross | |
| Name: | David Pross | |
| Title: | Chief Executive Officer | |
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Pross, his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement on Form S-1, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed below by the following persons on behalf of Mobile Global Esports Inc. in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ David Pross | Chief Executive Officer | July 19, 2022 | ||
| (Principal Executive Officer) | ||||
| /s/ Kiki Benson | Chief Financial Officer | July 19, 2022 | ||
| (Principal Accounting and Financial Officer) | ||||
| /s/ Marco Welch | Chairman of the Board of Directors | July 19, 2022 | ||
| /s/ Jay Madan | Director | July 19, 2022 | ||
| /s/ Jim Knopf | Director | July 19, 2022 | ||
| /s/ Willy Verhaegen | Director | July 19, 2022 | ||
| /s/ Alexander Alexandrov | Director | July 19, 2022 |
II-6
Exhibit 1.1
UNDERWRITING AGREEMENT
between
MOBILE GLOBAL ESPORTS INC.
and
WESTPARK CAPITAL, INC.
as Representative of the Several Underwriters
MOBILE GLOBAL ESPORTS INC.
UNDERWRITING AGREEMENT
New York, New York
[●], 2022
WestPark Capital, Inc.
As Representative of the several
Underwriters named on Schedule 1 attached hereto
1900 Avenue of the Stars
Suite 310
Los Angeles, CA 90067
Dear Ladies and Gentlemen:
The undersigned, Mobile Global Esports Inc., a corporation formed under the laws of the State of Delaware (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined) as being subsidiaries or affiliates of Mobile Global Esports Inc., the “Company”), hereby confirms its agreement (this “Agreement”) with WestPark Capital, Inc. (hereinafter referred to as “you” (including its correlatives) or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as follows:
1. Purchase and Sale of Shares.
1.1 Firm Shares.
1.1.1. Nature and Purchase of Firm Shares.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of 1,500,000shares (“Firm Shares”) of the Company’s common stock, $0.0001 par value per share (the “Common Stock”).
(ii) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at a purchase price of $4.00per Firm Share offering price). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Shares Payment and Delivery.
(i) Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Dickinson Wright PLLC, 350 E. Las Olas Blvd., Suite 1750, Fort Lauderdale, FL 33301 (“Representative Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the “Closing Date.”
(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Shares. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
1.2 Over-allotment Option.
1.2.1. Option Shares. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Shares, the Company hereby grants to the Underwriters an option to purchase up to 225,000 additional shares of Common Stock, representing fifteen percent (15%) of the Firm Shares sold in the offering, from the Company (the “Over-allotment Option”). Such 225,000 additional shares of Common Stock, the net proceeds of which will be deposited with the Company’s account, are hereinafter referred to as “Option Shares.” The purchase price to be paid per Option Share shall be equal to the price per Firm Share set forth in Section 1.1.1 hereof. The Firm Shares and the Option Shares are hereinafter referred to together as the “Public Securities.” The offering and sale of the Public Securities is hereinafter referred to as the “Offering.”
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares within thirty (30) days after the Closing Date. The Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the “Option Closing Date”), which shall not be later than one (1) full Business Days after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative’s Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Shares then being purchased as set forth in Schedule 1 opposite the name of such Underwriter.
1.2.3. Payment and Delivery. Payment for the Option Shares shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) full Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of payment by the Representative for applicable Option Shares.
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1.3 Representative’s Warrants.
1.3.1. Purchase Warrants. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date and Option Closing Date, as applicable, a warrant (“Representative’s Warrant”) for the purchase of an aggregate number of shares of Common Stock representing ten percent (10%) of the Public Securities, for an aggregate purchase price of $100.00. The Representative’s Warrant agreement, in the form attached hereto as Exhibit A (the “Representative’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing on a date which is one hundred eighty (180) days after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per share of Common Stock of $_6.60, which is equal to 165% of the initial public offering price of the Firm Shares. The Representative’s Warrant Agreement and the shares of Common Stock issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrant Agreement and the underlying shares of Common Stock during the one hundred eighty (180) days immediately following the date of effectiveness or commencement of sales of the offering and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days immediately following the date of effectiveness or commencement of sales of the offering to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
1.3.2. Delivery. Delivery of the Representative’s Warrant Agreement shall be made on the Closing Date or the Option Closing Date(s), as applicable, and shall be issued in the name or names and in such authorized denominations as the Representative may request.
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1 Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-261877______), including any related prospectus or prospectuses, for the registration of the Public Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [•], 2022, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
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“Applicable Time” means [TIME] [a.m./p.m.], Eastern time, on the date of this Agreement.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including, without limitation, any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number 001-[•]) providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the shares of Common Stock. The registration of the shares of Common Stock under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the shares of Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing. The shares of Common Stock have been approved for listing on The Nasdaq Capital Market (the “Exchange”) under the symbol “ “, and the Company has taken no action designed to, or likely to have the effect of, delisting the shares of Common Stock from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.3 No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4 Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
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(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: “Electronic Offer; Sale and Distribution of Securities”,, “Price Stabilization; Short Positions and Penalty Bids”, “Passive Market Making” and the information regarding dealer concession(the “Underwriters’ Information”); and
(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. To the best of the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations.
2.4.3. Prior Securities Transactions. During the period starting three (3) years prior to the date of this Agreement, no securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign regulation on the Offering and the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
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2.5 Changes After Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company, nor any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
2.6 Independent Accountants. To the knowledge of the Company, AJSH & Co. LLP (the “Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.7 Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
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2.8 Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted stock capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued shares of Common Stock of the Company or any security convertible or exercisable into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities.
2.9 Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized shares of Common Stock conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding shares of Common Stock were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares, exempt from such registration requirements.
2.9.2. Securities Sold Pursuant to this Agreement. The Public Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities has been duly and validly taken. The Public Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly taken; the shares of Common Stock issuable upon exercise of the Representative’s Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Representative’s Warrant Agreement, such shares of Common Stock will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such shares of Common Stock are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.
2.10 Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
2.11 Validity and Binding Effect of Agreements. This Agreement and the Representative’s Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
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2.12 No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement, the Representative’s Warrant Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s Articles of Incorporation (as the same may be amended or restated from time to time, the “Charter”) or the by-laws (as the same may be amended or restated from time to time, the “By-laws”) of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof except in the case of clauses (i) and (iii) for any such breach, conflict, violation, default, lien, charge or encumbrance that would not reasonably be expected to result in, individually or in the aggregate, a Material Adverse Change.
2.13 No Defaults; Violations. No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not (i) in violation of any term or provision of its Charter or By-laws, (ii) in violation of any franchise, license or permit or (iii) in violation of applicable law, rule, regulation, judgment or decree of any Governmental Entity except in the case of clause (ii) and (iii) for any such violation that would not reasonably be expected to result in, individually or in the aggregate, a Material Adverse Change.
2.14 Corporate Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary material authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Public Securities and the consummation of the transactions and agreements contemplated by this Agreement and the Representative’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except (i) such consents, approvals, authorizations, orders, filings, registrations or qualifications that have already been obtained or made and (ii) with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
2.15 D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal stockholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.16 Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus or in connection with the Company’s listing application for the listing of the Public Securities on the Exchange, except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company.
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2.17 Good Standing. The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of the State of Delaware as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to be so qualified, singularly or in the aggregate, would not reasonably be expected to result in a Material Adverse Change.
2.18 Insurance. The Company carries or is entitled to the benefits of insurance, with, to the Company’s knowledge, reputable insurers, in such amounts and covering such risks which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal to $[●] and the Company has included each Underwriter as an additional insured party to the directors and officers insurance coverage and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change.
2.19 Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.19.2. Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, to the Company’s knowledge, there is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement, that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
2.19.5. Information. To the Company’s knowledge, all information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.20 Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
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2.21 Compliance with OFAC. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22 Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
2.23 Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24 Lock-Up Agreements. Schedule 3 hereto contains an accurate list of the Company’s officers, directors and, to the Company’s knowledge, each holder of record of 5% or more of the Company’s outstanding shares of Common Stock, and any other holder(s) of record of the Company’s Common Stock put forth by the Representative (or securities convertible or exercisable into shares of Common Stock) (collectively, the “Lock-Up Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit B (the “Lock-Up Agreement”), prior to the execution of this Agreement.
2.25 Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not result in a Material Adverse Change. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.26 Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.
2.27 Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.28 Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. The Company has taken all necessary actions to ensure that, in the time periods required, the Company will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.28.2. Compliance. The Company is, or at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act that are then in effect and with which the Company is required to comply as of the Applicable Time or on the Closing Date, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act then applicable to it.
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2.29 Accounting Controls. The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. To the Company’s knowledge, the Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. Notwithstanding any provision above, nothing in this Agreement requires the Company to comply with Section 404 of the Sarbanes-Oxley Act and the rules and regulations promulgated in connection therewith as of an earlier date than it would otherwise be required to do so under applicable law.
2.30 No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31 No Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
2.32 Intellectual Property Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others, except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons.
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2.33 Taxes. Except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company, each of the Company and its Subsidiaries has (i) filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof and (ii) has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary except as currently being contested in good faith and for which reserves required by GAAP have been created in the financial statements of the Company. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.34 ERISA Compliance. The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”) of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates. No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.
2.35 Compliance with Laws. The Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product manufactured or distributed by the Company (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“Authorizations”); (C) possesses all material Authorizations and such Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product, operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding that if brought, would result in a material adverse effect; (E) has not received notice that any governmental authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such governmental authority is considering such action; and (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission).
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2.36 Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.37 Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
2.38 Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described as required.
2.39 Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.40 Smaller Reporting Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act Regulations.
2.41 Industry Data. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources.
2.42 [Reserved]
2.43 Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Rule 163B of the Securities Act.
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2.44 Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering unless such filing has been made.
2.45 Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the shares of Common Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.46 Regulatory Filings. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its Subsidiaries has failed to file with the applicable Governmental Authority any required filing, declaration, listing, registration, report or submission, except for such failures that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Change; except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, all such filings, declarations, listings, registrations, reports or submissions were in material compliance with applicable laws when filed and no deficiencies have been asserted by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or submissions, except for any deficiencies that, individually or in the aggregate, would not result in a Material Adverse Change.
2.47 Environmental Laws. Except as set forth in the Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company and its Subsidiaries (i) are in compliance with any and all applicable federal, state, local and foreign laws, rules, regulations, decisions and orders relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws “); (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct its business as described in the Registration Statement, the Pricing Disclosure Package or the Prospectus; and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except, in the case of any of clauses (i), (ii) or (iii) above, for any such failure to comply or failure to receive required permits, licenses, other approvals or liability as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.
2.48 Cybersecurity. The Company and its Subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, “IT Systems”) are adequate for, and operate and perform in all material respects as required in connection with the operation of the business of the Company and its Subsidiaries as currently conducted, and, to the knowledge of the Company, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its Subsidiaries have implemented commercially reasonable physical, technical and administrative controls, policies, procedures, and safeguards to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and data, including “Personal Data,” used in connection with their businesses. “Personal Data” means (i) a natural person’s name, street address, telephone number, e-mail address, photograph, social security number or tax identification number, driver’s license number, passport number, credit card number, bank information, or customer or account number; (ii) any information which would qualify as “personally identifying information” under the Federal Trade Commission Act, as amended; (iii) “personal data” as defined by GDPR; (iv) any information which would qualify as “protected health information” under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (collectively, “HIPAA”); and (v) any other piece of information that allows the identification of such natural person, or his or her family, or permits the collection or analysis of any data related to an identified person’s health or sexual orientation. Except as disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus, there have been no material breaches, violations, outages or unauthorized uses of or accesses to same, except for those that have been remedied without material cost or liability or the duty to notify any other person, nor any incidents under internal review or investigations relating to the same. The Company and its Subsidiaries are presently in material compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification.
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2.49 Compliance with Data Privacy Laws. The Company and its Subsidiaries are, and at all prior times were, in material compliance with all applicable state and federal data privacy and security laws and regulations, including, without limitation, HIPAA, and the Company and its Subsidiaries are in compliance with the European Union General Data Protection Regulation (“GDPR”) (EU 2016/679) as applicable (collectively, the “Privacy Laws”). To ensure compliance with the Privacy Laws, the Company and its Subsidiaries have in place, comply with, and take appropriate steps reasonably designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the collection, storage, use, disclosure, handling, and analysis of Personal Data (the “Policies”). The Company and its Subsidiaries have, to the knowledge of the Company, at all times made all disclosures to users or customers required by applicable laws and regulatory rules or requirements, and none of such disclosures made or contained in any Policy have, to the knowledge of the Company, been inaccurate or in violation of any applicable laws and regulatory rules or requirements in any material respect. The Company further certifies that neither it nor any Subsidiary: (i) has received notice of any actual or potential liability under or relating to, or actual or potential violation of, any of the Privacy Laws, and has no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) is currently conducting or paying for, in whole or in part, any investigation, remediation, or other corrective action pursuant to any Privacy Law; or (iii) is a party to any order, decree, or agreement that imposes any obligation or liability under any Privacy Law.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will, during the period required to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus, notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement; and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its reasonable best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
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3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
3.2.3. Exchange Act Registration. For a period of three (3) years after the date of this Agreement, the Company shall use its reasonable best efforts to maintain the registration of the shares of Common Stock under the Exchange Act. The Company shall not deregister the shares of Common Stock under the Exchange Act without the prior written consent of the Representative.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representative. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
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3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3 Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and counsel for the Representative, upon request and without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters, upon receipt of a written request therefor. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5 Effectiveness and Events Requiring Notice to the Representative. The Company shall notify the Representative immediately and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; and (v) of the receipt of any comments or request for any additional information from the Commission. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall use its reasonable best efforts to cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three (3) fiscal quarters immediately preceding the announcement of any quarterly financial information.
3.7 Listing. The Company shall use its reasonable best efforts to maintain the listing of the shares of Common Stock (including the Public Securities) on the Exchange for at least three (3) years from the date of this Agreement.
3.8 Financial Public Relations Firm. As of the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, which shall initially be [PUBLIC RELATIONS FIRM], which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
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3.9 Reports to the Representative.
3.9.1. Periodic Reports, etc. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; and (v) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request; provided the Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative and Representative Counsel in connection with the Representative’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system (or with respect to articles and press releases, posted on the Company’s website) shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1.
3.9.2. Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the “Transfer Agent”) and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. Pacific Stock Transfer Company is acceptable to the Representative to act as Transfer Agent for the shares of Common Stock.
3.9.3. Trading Reports. During such time as the Public Securities are listed on the Exchange, the Company shall provide, if available and upon the Representative’s request, to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request. Documents made freely available by the Exchange through its website shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.3.
3.10 Payment of Expenses; General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the shares of Common Stock to be sold in the Offering (including the Option Shares) with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees and expenses relating to the listing of such Public Securities on the Exchange and such other stock exchanges as the Company and the Representative together determine; (d) all fees, expenses and disbursements relating to the registration or qualification of the Public Securities under the “blue sky” securities laws of such states and other jurisdictions as the Company and the Representative together determine (including, without limitation, all filing and registration fees); (e) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the Company and the Representative together determine; (f) the costs of all mailing and printing of the underwriting documents (including, without limitation, the Underwriting Agreement, any Blue Sky Surveys and, if appropriate, any Agreement Among Underwriters, Selected Dealers’ Agreement, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Company and the Representative together determine; (g) the costs and expenses of a public relations firm as the Company and the Representative together determine; (h) the costs of preparing, printing and delivering certificates representing the Public Securities; (i) fees and expenses of the transfer agent for the shares of Common Stock; (j) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (k) the costs associated with commemorative mementos and lucite tombstones, which the Company or its designee shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request; (l) the fees and expenses of the Company’s accountants; (m) the fees and expenses of the Company’s legal counsel and other agents and representatives; (n) fees and expenses of the Representative’s legal counsel; and (o) such Underwriters’ accountable “road show” expenses as the Company and the Representative together determine. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
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3.11 Non-accountable Expenses. The Company further agrees that, in addition to the expense payable pursuant to Section 3.10. on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to two percent (2%) of the gross proceeds received by the Company from the sale of the Public Securities), less the Advance (as such term is defined in Section 8.3 hereof,); provided, however, that in the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof.
3.12 Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.13 Delivery of Earnings Statements to Security Holders. The Company shall make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.14 Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.
3.15 Internal Controls. The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.16 Accountants. As of the date of this Agreement, the Company has retained an independent registered public accounting firm reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.17 FINRA. For a period of 60 days from the later of the Closing Date or the Option Closing Date, except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.18 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement, except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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3.19 Company Lock-Up Agreements.
3.19.1. Restriction on Sales of Capital Stock. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of 250 days after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant 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 caused to be filed any registration statement with the Commission 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 a registration statement on Form S-4 or Form S-8; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit or similar financing agreements; or (iv) 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), (iii) or (iv) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise.
The restrictions contained in this Section 3.18.1 shall not apply to (i) the shares of Common Stock to be sold hereunder, (ii) the issuance by the Company of shares of Common Stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date hereof, or other issuances of additional shares in accordance with the terms of securities, in each case, as disclosed in the Registration Statement, Disclosure Package and Prospectus, provided that such options, warrants, and securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or to extend the term of such securities, or (iii) the issuance by the Company of stock options or shares of capital stock of the Company under any equity compensation plan of the Company, provided that in each of (ii) and (iii) above, the underlying shares shall be restricted from sale during the entire Lock-Up Period.
3.20 Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.24 hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.21 Blue Sky Qualifications. The Company shall use its reasonable best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Company and the Representative together determine and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.22 Reporting Requirements. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.
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4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Stock Market Clearance. On the Closing Date, the Company’s shares of Common Stock, including the Firm Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Company’s shares of Common Stock, including the Option Shares, shall have been approved for listing on the Exchange, subject only to official notice of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion of Counsel. On the Closing Date, the Representative shall have received the favorable opinion of Davis & Associates, Inc., a professional law corporation and counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.
4.2.2. Intentionally left blank.
4.2.3. Opinion of India Counsel. On the Closing Date, the Representative shall have received favorable opinion of RB Associates, India Counsel to the Company dated at Closing Date and addressed to the Representative in form and substance reasonably satisfactory to the Representative.
4.2.4. Option Closing Date Opinions of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinions of each counsel listed in Sections 4.2.1 and 4.2.2, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsels in their respective opinions delivered on the Closing Date.
4.2.5. Reliance. In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative Counsel if requested.
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4.3 Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed you shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to you and to the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.
4.4 Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included or incorporated by reference in the Pricing Disclosure Package, any material adverse change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company, except as set forth in the Prospectus.
4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change or development involving a prospective Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may result in a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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4.6 Delivery of Agreements.
4.6.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in Schedule 3 hereto that the Company was able to obtain using its best efforts.
4.6.2. Representative’s Warrant Agreement. On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative’s Warrant Agreement.
4.7 Additional Documents. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representative and Representative Counsel.
5. Indemnification.
5.1 Indemnification of the Underwriters.
5.1.1. General. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries (a “Claim”), (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, or in any Issuer Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented); (B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information or (ii) otherwise arising in connection with or allegedly in connection with the Offering. The Company also agrees that it will reimburse each Underwriter Indemnified Party for all fees and expenses (including, but not limited to, any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending any Claim.
5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company, and shall be advanced by the Company. The Company shall not be liable for any settlement of any action effected without its consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
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5.2 Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other, from the Offering of the Public Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds from the Offering of the Public Securities purchased under this Agreement (before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the shares of the Common Stock purchased under this Agreement, as set forth in the table on the cover page of the Prospectus, on the other hand. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.3.1 in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the Offering of the Public Securities exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
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5.3.2. Contribution Procedure. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. Each Underwriter’s obligations to contribute pursuant to this Section 5.3.2 are several and not joint.
6. Default by an Underwriter.
6.1 Default Not Exceeding 10% of Firm Shares or Option Shares. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate ten percent (10%) of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding 10% of Firm Shares or Option Shares. In the event that the default addressed in Section 6.1 relates to more than ten percent (10%) of the Firm Shares or Option Shares, you may in your discretion arrange for yourself or for another party or parties to purchase such Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than ten percent (10%) of the Firm Shares or Option Shares, you do not arrange for the purchase of such Firm Shares or Option Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to you to purchase said Firm Shares or Option Shares on such terms. In the event that neither you nor the Company arrange for the purchase of the Firm Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by you or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
6.3 Postponement of Closing Date. In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative’s Counsel may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such shares of Common Stock.
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7. Additional Covenants.
7.1 Board Composition and Board Designations. The Company shall ensure as of the Closing Date and the Option Closing Date, if any, that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, with the Exchange Act and with the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one (1) member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the forty-fifth (45th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
7.3 No Sales of Similar Securities. From the date hereof until two hundred and fifty (250) days from the date hereof neither the Company nor any subsidiary shall 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 any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly any shares or any securities convertible into or exercisable or exchange for common shares or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Company’s common shares, whether any such transaction is to be settled by delivery of common shares or other securities, in cash or otherwise, without the prior written consent of the Representative, except for securities issued pursuant to acquisitions or other strategic transactions, or issued for strategic services in connection with hiring packages for key employees or for consultants, and in each case approved by a majority of the Company’s disinterested Directors, provided that such securities are issued as “Restricted Securities” (as defined in Rule 144) and carrying no registration rights that require or permit the filing of any registration statement in connection therewith during the restricted period, and provided that any such issuance shall only be to a person (or to the equity holders, if a person) which is, self or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the Company’s business and shall provide the Representative by the Company with additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purposes of raising capital or to an entity whose primarily business purpose is investing in securities.
7.4 Covenant of the Underwriters. The Underwriters covenant with the Company not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriters that otherwise would not be required to be filed by the Company thereunder but for the action of the Underwriters.
8. Effective Date of this Agreement and Termination Thereof.
8.1 Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2 Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of such a material adverse change in the conditions or prospects of the Company, or such adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities.
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8.3 Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) up to an aggregate maximum of $75,000 (with a credit for fees initially disbursed to the Representative by the Company); provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
8.4 Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
9. Miscellaneous.
9.1 Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by electronic transmission and confirmed and shall be deemed given when so delivered or emailed and confirmed (which may be by email) or if mailed, two (2) days after such mailing.
If to the Representative:
WestPark Capital, Inc.
1900 Avenue of the Stars, Third Floor
Los Angeles, CA 90067
Attn: Richard Rappaport
Email: r@wpcapital.com
with a copy (which shall not constitute notice) to:
Dickinson Wright PLLC
350 East Las Olas Blvd., Suite 1750
Fort Lauderdale, FL 33301
Attn: Joel D. Mayersohn, Esq.
Email: jmayersohn@dickinsonwright.com
If to the Company:
Mobile Global Exports Inc.
616 South El Camino Real, Suite H
San Clemente, CA 92672-4294
Attn: David Pross, Chief Executive Officer
Email:
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with a copy (which shall not constitute notice) to:
Law Offices of Davis & Associates
PO Box 852
Palos Verdes Estates. CA 90274
Attn: Donald G. Davis Esq.
Email: Don@securities-attys.com
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3 Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain engagement letter between the Company and WestPark Capital, Inc. dated [ ], shall remain in full force and effect.
9.5 Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
9.7 Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
| Very truly yours, | ||
| MOBILE GLOBAL ESPORTS INC. | ||
| By: | ||
| Name: | David Pross | |
| Title: | Secretary | |
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
WESTPARK CAPITAL, INC. |
||
| By: | ||
| Name: | Wendy Kretschmer | |
| Title: | CEO | |
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|
[SIGNATURE PAGE]
MOBILE GLOBAL ESPORTS INC. - UNDERWRITING AGREEMENT
|
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SCHEDULE 1
| Underwriter |
Total Number of Firm Shares to be Purchased |
Number of Additional Option Shares to be Purchased if the Over-Allotment Option is Fully Exercised |
||||||
| WestPark Capital, Inc. | ||||||||
| TOTAL | ||||||||
Sch. 1-1
Schedule-1
SCHEDULE 2-A
Pricing Information
Number of Firm Shares: [●]
Number of Option Shares: [●]
Public Offering Price per Share: $[●]
Underwriting Discount per Share: $[●]
Proceeds to Company per Share (before expenses): $[●]
Sch. 2-1
Schedule-2A
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
Sch. 2-2
TO BE COMPLETED
Schedule-2B
SCHEDULE 2-C
Written Testing-the-Waters Communications
[None.]
Sch. 2-3
Schedule-2C
SCHEDULE 3
List of Lock-Up Parties
Sch. 2-4
COMPANY TO PROVIDE LIST
Exhibit A
Form of Representative’s Warrant Agreement
| Ex. A-1 |
Form of Representative’s Warrant Agreement
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) _______________, OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF _______________ OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [DATE THAT IS 180 DAYS FROM THE EFFECTIVE DATE OF THE OFFERING]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING].
WARRANT TO PURCHASE COMMON STOCK
MOBILE GLOBAL ESPORTS, INC.
Warrant Shares: _______
Initial Exercise Date: ______, 2022
THIS WARRANT TO PURCHASE COMMON STOCK (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after ____, 2022 (the “Initial Exercise Date”) and, in accordance with FINRA Rule 5110(g)(8)(A), prior to at 5:00 p.m. (New York time) on the date that is five years following the Effective Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Mobile Global Esports, Inc., a Delaware corporation (the “Company”), up to ______ shares of Common Stock, par value $0.0001 per share, of the Company (the “Warrant Shares”), as subject to adjustment hereunder. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commission” means the United States Securities and Exchange Commission.
Exhibit A-1
“Effective Date” means the effective date of the registration statement on Form S-1 (File No. 333-261877), including any related prospectus or prospectuses, for the registration of the Company’s common stock, par value $0.0001 per share and the Warrant Shares under the Securities Act, that the Company has filed with the Commission.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Trading Day” means a day on which the Nasdaq Capital Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of a share of Common Stock for such date (or the nearest preceding date) on the OTCQB or OTCQX as applicable, (c) if Common Stock is not then listed or quoted for trading on the OTCQB or OTCQX and if prices for Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of the Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
Section 2. Exercise.
a) Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within five (5) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within two (2) Business Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
Exhibit A-2
b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $6.60, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. In lieu of exercising this Warrant by delivering the aggregate Exercise Price by wire transfer or cashier’s check, at the election of the Holder this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a “cashless exercise,” the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 2(c).
Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by its transfer agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 and, in either case, the Warrant Shares have been sold by the Holder prior to the Warrant Share Delivery Date (as defined below), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is two (2) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). If the Warrant Shares can be delivered via DWAC, the transfer agent shall have received from the Company, at the expense of the Company, any legal opinions or other documentation required by it to deliver such Warrant Shares without legend (subject to receipt by the Company of reasonable back up documentation from the Holder, including with respect to affiliate status) and, if applicable and requested by the Company prior to the Warrant Share Delivery Date, the transfer agent shall have received from the Holder a confirmation of sale of the Warrant Shares (provided the requirement of the Holder to provide a confirmation as to the sale of Warrant Shares shall not be applicable to the issuance of unlegended Warrant Shares upon a cashless exercise of this Warrant if the Warrant Shares are then eligible for resale pursuant to Rule 144(b)(1)). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the second Trading Day following the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the second Trading Day following such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
Exhibit A-3
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause its transfer agent to deliver to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise; provided, however, that the Holder shall be required to return any Warrant Shares or Common Stock subject to any such rescinded exercise notice concurrently with the return to Holder of the aggregate Exercise Price paid to the Company for such Warrant Shares and the restoration of Holder’s right to acquire such Warrant Shares pursuant to this Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
Exhibit A-4
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
viii. Signature. This Section 2 and the exercise form attached hereto set forth the totality of the procedures required of the Holder in order to exercise this Purchase Warrant. Without limiting the preceding sentences, no ink-original exercise form shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any exercise form be required in order to exercise this Purchase Warrant. No additional legal opinion, other information or instructions shall be required of the Holder to exercise this Purchase Warrant. The Company shall honor exercises of this Purchase Warrant and shall deliver Shares underlying this Purchase Warrant in accordance with the terms, conditions and time periods set forth herein.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Exhibit A-5
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. For the purposes of clarification, the Exercise Price of this Warrant will not be adjusted in the event that the Company or any Subsidiary thereof, as applicable, sells or grants any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect.
b) [RESERVED]
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash dividends) or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of shares or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
Exhibit A-6
e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable by holders of Common Stock as a result of such Fundamental Transaction for each share of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
Exhibit A-7
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed a notice to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to provide such notice or any defect therein shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Warrant.
a) Transferability. Pursuant to FINRA Rule 5110(g)(1), neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security:
i. by operation of law or by reason of reorganization of the Company;
ii. to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period;
iii. if the aggregate amount of securities of the Company held by the Holder or related person do not exceed 1% of the securities being offered;
Exhibit A-8
iv. that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or
v. the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction in this Section 4(a) for the remainder of the time period.
Subject to the foregoing restriction, any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Exhibit A-9
Section 5. Registration Rights.
5.1. Demand Registration.
5.1.1 Grant of Right. To the extent that an effective registration statement is not already on file with the Commission, the Company, upon written demand (a “Demand Notice”) of the Holder(s) of at least 51% of the Warrants and/or the underlying Warrant Shares (“Majority Holders”), agrees to register, on one occasion, all or any portion of the Warrant Shares underlying the Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 5.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time beginning on the Initial Exercise Date and expiring on the fifth anniversary of the Effective Date. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
5.1.2 Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 5.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal shareholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 5.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the Warrant Shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 5.1.2, the Holder shall be entitled to a demand registration under this Section 5.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the date of the Underwriting Agreement (as defined below) in accordance with FINRA Rules 5110(g)(8)(B) and 5110(g)(8)(C).
Exhibit A-10
5.2. “Piggy-Back” Registration.
5.2.1 Grant of Right. In addition to the demand right of registration described in Section 5.1 hereof, the Holder shall have the right, for a period of no more than two (2) years from the Initial Exercise Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
5.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 5.1.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company during the two (2) year period following the Initial Exercise Date until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 5.2.2; provided, however, that such registration rights shall terminate on the second anniversary of the Initial Exercise Date.
5.3. General Terms.
5.3.1 Indemnification. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange Act against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of __________, 2022 (the “Underwriting Agreement”). The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
Exhibit A-11
5.3.2 Exercise of Warrants. Nothing contained in this Warrant shall be construed as requiring the Holder(s) to exercise their Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
5.3.3 Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
5.3.4 Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Warrant Shares and their intended methods of distribution.
5.3.5 Documents to be Delivered by Holder(s). Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
5.3.6 Damages. Should the registration or the effectiveness thereof required by Sections 5.1 and 5.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
Exhibit A-12
Section 6. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Exhibit A-13
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Underwriting Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Underwriting Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Underwriting Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
Exhibit A-14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| Mobile Global Esports, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
Exhibit A-15
Exhibit B
Lock-Up Agreement
[ ], 2022
WestPark Capital, Inc.
150 E. 58th Street, 17th Floor
New York, NY 10155
As Representative of the several Underwriters
named on Schedule 1 to the Underwriting Agreement referenced below.
Ladies and Gentlemen:
The undersigned understands that WestPark Capital, Inc. (the “Representative”), proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Mobile Global Esports Inc., a corporation formed under the laws of the State of Delaware (collectively with its subsidiaries and affiliates the “Company”), providing for the initial public offering (the “Public Offering”) of common stock, $0.0001 par value per share, of the Company (the “Common Stock”).
To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending on the date which is 180 days after the date of the Underwriting Agreement relating to the Public Offering (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public announcement shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of the undersigned or a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; (d) if the undersigned is a corporation, partnership, limited liability company or other business entity, (i) any transfers of Lock-Up Securities to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (ii) distributions of Lock-Up Securities to members, partners, stockholders, subsidiaries or affiliates (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned; (e) if the undersigned is a trust, to a trustee or beneficiary of the trust; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) (d) or (e), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Representative a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made; (f) the receipt by the undersigned from the Company of Common Stock upon the vesting of restricted stock awards or stock units or upon the exercise of options to purchase the Company’s Common Stock issued under an equity incentive plan of the Company or an employment or consulting arrangement (the “Plan Shares”) or the transfer of Common Stock or any securities convertible into Common Stock to the Company upon a vesting event of the Company’s securities or upon the exercise of options to purchase the Company’s securities, in each case on a “cashless” or “net exercise” basis or to cover tax obligations of the undersigned in connection with such vesting or exercise, but only to the extent such right expires during the Lock-up Period, provided that no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made within 180 days after the date of the Underwriting Agreement, and after such 180th day, if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Common Stock during the Lock-Up Period, the undersigned shall include a statement in such schedule or report to the effect that the purpose of such transfer was in connection with a “cashless” or “net exercise” of the security or to cover tax withholding obligations of the undersigned in connection with such vesting or exercise and, provided further, that the Plan Shares shall be subject to the terms of this lock-up agreement; (g) the transfer of Lock-Up Securities pursuant to agreements described in the Pricing Prospectus under which the Company has the option to repurchase such securities or a right of first refusal with respect to the transfer of such securities, provided that if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Common Stock during the Lock-Up Period, the undersigned shall include a statement in such schedule or report describing the purpose of the transaction; (h) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Lock-Up Securities, provided that (1) such plan does not provide for the transfer of Lock-Up Securities during the Lock-Up Period and (2) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such public announcement or filing shall include a statement to the effect that no transfer of Lock-Up Securities may be made under such plan during the Lock-Up Period; (i) the conversion of the outstanding preferred stock of the Company into Common Stock, provided that such Common Stock remain subject to the terms of this agreement; (j) the transfer of Lock-Up Securities that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee agrees to sign and deliver a lock-up agreement substantially in the form of this lock-up agreement for the balance of the Lock-Up Period, and provided further, that any filing under Section 13 or Section 16(a) of the Exchange Act that is required to be made during the Lock-Up Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law; and (k) the transfer of Lock-Up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Common Stock involving a change of control (as defined below) of the Company after the closing of the Public Offering and approved by the Company’s board of directors; provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions contained in this lock-up agreement. For purposes of clause (k) above, “change of control” shall mean the consummation of any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.
Exhibit B-1
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date hereof to and including the 34th day following the expiration of the Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Securities that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.
The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
The undersigned understands that, if the Underwriting Agreement is not executed by _________, 2022, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
[SIGNATURE PAGE FOLLOWS]
Exhibit B-2
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.
Delivery of a signed copy of this lock-up agreement by facsimile, electronic signature or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
This lock-up agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
| Very truly yours, | ||
| (Name - Please Print) | ||
| (Signature) | ||
| (Name of Signatory, in the case of entities - Please Print) | ||
| (Title of Signatory, in the case of entities - Please Print) | ||
| Address: | ||
[SIGNATURE PAGE TO MOBILE GLOBAL ESPORTS INC. LOCK-UP AGREEMENT]
Exhibit B-3
Exhibit C
Form of Press Release
MOBILE GLOBAL ESPORTS INC.
[Date]
Mobile Global Esports Inc. (the “Company”) announced today that WestPark Capital, Inc., acting as representative for the underwriters in the Company’s recent public offering of _______ shares of the Company’s common stock, is [waiving] [releasing] a lock-up restriction with respect to _________ shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _________, 20___, and the shares may be sold on or after such date.
This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
Exhibit C-1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation in the registration statement under The Securities Act of 1933 i.e, Form S-1/A of MOBILE GLOBAL ESPORTS INC (the “Company”) of our report dated March 21, 2022, with respect to the Financial Statements of the Company for the period ended December 31, 2021 and the related notes to the financial statements.
/s/ AJSH & Co LLP
AJSH & Co LLP
July 19, 2022
New Delhi, India
