10-K: Adapti, Inc. Faces Severe Financial Headwinds and Going Concern Doubts Amidst Strategic Acquisition Pursuits

Adapti, Inc.'s latest annual report reveals a precarious financial state with recurring losses and negative working capital, while the company attempts to pivot through unproven AI technology and uncertain strategic acquisitions.

Summary

• Adapti, Inc., formerly Scepter Holdings, Inc., changed its name on April 15, 2025, and primarily manages the sales and brand development of Dermacia health and beauty products.
• The company developed an AI-based software called 'Adapti' for influencer marketing, investing approximately $500,000 in fiscal years 2023, 2024, and 2025, though the software has not yet generated any revenue.
• Adapti, Inc. reported revenues of $4,894 for the fiscal year ended March 31, 2025, a significant 64% decrease from $13,672 in the prior fiscal year.
• The net loss for the fiscal year ended March 31, 2025, was $(960,145), an improvement from the $(1,709,015) net loss in the fiscal year ended March 31, 2024.
• As of March 31, 2025, the company had an accumulated deficit of $9,512,394 and a working capital deficit of $1,030,775, compared to $483,760 in the prior year.
• The independent auditor expressed 'Substantial Doubt about the Company's ability to continue as a Going Concern' due to recurring losses, minimal revenues, and negative working capital.
• Adapti, Inc. is pursuing the acquisition of Ballengee Group, a baseball player agency, with closing anticipated in the company's second fiscal quarter (ending September 30, 2025), expecting to add over $10 million in annual revenues and $5 million in annual EBITDA.
• A Letter of Intent has also been signed to acquire Matchpoint Connections, LLC, a technology provider for Name, Image, and Likeness (NIL) management for athletes, with an expected closing in the second calendar quarter of 2026.
• The company effected a 1-for-4,000 reverse stock split on May 28, 2025, and its common stock trades under the symbol ADTI on the PINK market of the OTC Markets Group.
• As of June 15, 2025, the company employed no full-time and 4 part-time employees, with an anticipation of approximately 20 employees post-Ballengee Group acquisition.
• The CEO, Adam Nicosia, is owed $110,000 in accrued but unpaid salary, and the CFO, Marilu Brassington, is owed $65,500 in accrued but unpaid salary, with the company lacking sufficient capital to pay these obligations.
• Material weaknesses in internal controls over financial reporting were identified, including a lack of segregation of duties, insufficient written policies, and inadequate accounting software.

Sentiment

Score: 2

Explanation: The company is in a highly precarious financial position, evidenced by a going concern warning, significant revenue decline, substantial accumulated deficit, and negative working capital. While strategic acquisitions are planned, their success and the company's ability to secure necessary funding remain highly uncertain. The inability to pay executive salaries further underscores severe financial distress.

Positives

• The company has developed an AI-based software, Adapti, aimed at optimizing influencer marketing by identifying the most effective influencers for specific product lines.
• Strategic acquisitions of Ballengee Group and Matchpoint Connections are planned, which management anticipates will significantly increase revenue and diversify the business.
• The Ballengee Group acquisition is projected to bring over $10 million in annual revenues and $5 million in annual EBITDA, which would be a transformative increase for the company.
• Net loss decreased by 44% from $(1,709,015) in fiscal year 2024 to $(960,145) in fiscal year 2025.
• The company secured $250,000 in new notes payable during the fiscal year ended March 31, 2025, providing some financing.

Negatives

• The independent auditor has expressed 'Substantial Doubt about the Company's ability to continue as a Going Concern' due to recurring losses, minimal revenues, and negative working capital.
• Revenues for the fiscal year ended March 31, 2025, were only $4,894, representing a 64% decrease from $13,672 in the prior year, indicating a significant decline in core business sales.
• The company has a substantial accumulated deficit of $9,512,394 as of March 31, 2025, reflecting a history of unprofitability.
• Working capital deficit more than doubled from $(483,760) in fiscal year 2024 to $(1,030,775) in fiscal year 2025, highlighting severe liquidity issues.
• The company lacks sufficient capital to pay $110,000 in accrued but unpaid salary to its CEO and $65,500 to its CFO, which could impact management retention and morale.
• The Adapti AI software, despite a $500,000 investment, has not generated any revenues and is unproven on a large scale, posing a risk to its anticipated value.
• The company has a limited operating history and has struggled to generate substantial sales and profitability from its existing Dermacia product line.
• Material weaknesses in internal controls over financial reporting were identified, including a lack of segregation of duties, insufficient written policies, and inadequate accounting software, raising concerns about financial accuracy and fraud prevention.
• The CEO and CFO work on a part-time basis and also serve other entities, which may lead to time conflicts and negatively impact the company's operations.

Risks

• The company has a current lack of working capital and faces an inability to raise additional financing, which is critical for its continued operations and growth.
• There is no guarantee that the announced acquisitions of Ballengee Group and Matchpoint Connections will close, or that if they do, the acquired entities will perform as expected or generate the assumed synergies.
• The AI-based software, Adapti, is unproven in the market, and there is no assurance it will operate as expected, provide competitive advantages, or generate anticipated revenues, potentially requiring substantial additional investment.
• Revenues are difficult to forecast and may fluctuate significantly, as the company depends on the success of a small number of products and services sold through a single sales channel (social media influencer promotions).
• The company's operating results are highly susceptible to general economic conditions, marketing costs, public tastes, and the success of its promotional efforts.
• Dependence on key management personnel is high, and the inability to pay accrued salaries to the CEO and CFO may impact their continued service and the company's ability to attract and retain talent.
• The company's computer systems and those of third parties are subject to cybersecurity threats, which could result in loss or degradation of service, unauthorized data disclosure, or theft of intellectual property.
• As a smaller reporting company, reduced disclosure requirements may make its securities less attractive to investors.
• Two affiliated parties (Market Group International, Stuff International, and EcoScientific Labs) collectively own 47.93% of the common stock, giving them significant control over shareholder decisions, potentially contrary to other investors' interests.
• The proposed Ballengee Group acquisition could result in substantial dilution for current common stock holders, with former Ballengee equity holders potentially owning over 50% of the outstanding shares, leading to a change of control.
• Unauthorized disclosure of cardholder and customer data or violations of data privacy laws could lead to costly fines, penalties, and legal claims.
• Identified material weaknesses in internal controls over financial reporting could lead to inaccurate financial reports, fraud, and regulatory investigations.
• The company's common stock is considered a 'penny stock,' which makes it more difficult and time-consuming for broker-dealers and investors to trade, reducing liquidity.
• FINRA sales practice requirements may limit broker-dealers' ability to recommend the company's stock, further reducing trading activity and liquidity.
• The independent registered public accounting firm's report states 'substantial doubt' about the company's ability to continue as a going concern, indicating a high risk of total loss on investment.

Future Outlook

Management believes that the Adapti AI platform will be able to effectively match product data with influencers to successfully promote current and future products and services, aiming for a positive return on client spend. The company anticipates that the acquisition of the Ballengee Group will have an immediate impact, driving additional revenue opportunities and allowing for efficient targeting of brands for Ballengee clients. It is expected that higher profile clients will benefit from national campaigns, and minor league clients will secure local opportunities, with Adapti streamlining the process and reducing costs. The company intends to develop a more robust cybersecurity framework when financial conditions permit and plans to implement enhanced internal controls over financial reporting during the fiscal year ending March 31, 2026, including adopting written policies and completing the implementation of QuickBooks Enterprise solution. A search for additional qualified Board of Directors members is anticipated as the company grows, and a formal insider trading policy is expected to be adopted in the near future. The company expects to satisfy outstanding unpaid salaries to executives once sufficient profitability is achieved or additional capital is raised.

Management Comments

• "It is management's belief that Adapti will be able to match product data with influencers best positioned to successfully promote our current and future products and services."
• "Management believes that Adapti is a key piece of the strategy behind the potential acquisition of the Ballengee Group... it will be able to help increase the social media presence of the Ballenge Group athletes."
• "The Company believes that the acquisition of the Ballengee group will have an immediate impact and drive additional revenue opportunities for the Company."
• "Historically management believes it was cost prohibitive to service the large number of low revenue generating clients in the sports and baseball sectors. However, management believes that Adapti's AI software will provide a critical function by streamlining the process of identifying brand affinity and directing outreach efforts for significantly less cost and labor."
• "Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps."
• "While our internal controls are improving there is more work to do as our Company continued to recover from the Pandemic and increases employment so that we can better segregate Suites."

Industry Context

Adapti, Inc. operates in a dual-pronged industry landscape: the health and beauty product market, where it sells its Dermacia line, and the burgeoning influencer marketing and sports management sectors. In sports management, the company aims to compete with established industry leaders such as Boras Corporation, Excel Sports Management, Wasserman, ACES, and CAA Sports, which leverage extensive track records and broad service offerings. In influencer marketing, Adapti.io faces competition from firms like Klutch Sports Group, Distinction Agency, MOGL, and Socially Powerful, which offer hands-on campaign management and creative content production. Adapti's strategy is to differentiate itself through its AI-based software, offering scalable, tech-driven solutions for efficiency and measurable results, contrasting with competitors' emphasis on human expertise and personalized service. The company's expansion into sports management with the Ballengee Group acquisition aims to apply its AI technology to a new vertical, seeking to streamline athlete marketing in a historically cost-prohibitive segment.

Management Changes

Corporate Governance

Related Party Transactions

• Stuff International (owned by CEO Adam Nicosia): As of March 31, 2025, had an outstanding note payable of $242,511 (including $223,245 principal and $19,267 accrued interest at 10% interest rate), with maturity extended to December 31, 2025. This note is not convertible into common shares. Stuff International also received common shares for Adam Nicosia's management services.
• Market Group International (owned by former director Robert Van Boerum): As of March 31, 2025, a note payable balance of $284,797 ($252,002 principal and $32,795 accrued interest) was fully settled for 29,666 common shares (post-reverse split) at a 20% discount to market conversion price of $9.60. Market Group International also received common shares for Robert Van Boerum's management services.
• EcoScientific Labs (owned by CEO Adam Nicosia): Received common shares for Adam Nicosia's management services.
• Campbell Trust (related party): As of March 31, 2025, had related party convertible notes payable totaling $211,113 ($200,000 principal and $11,113 accrued interest).
• Accrued Salaries: As of June 1, 2025, CEO Adam Nicosia is owed $110,000 in accrued but unpaid salary, and CFO Marilu Brassington is owed $65,500 in accrued but unpaid salary.
• Johannesen Consulting, Inc. (Thomas Johannesen): Received common shares for professional services and debt conversion.
• Vasil Popov: Received common shares for professional services.
• SD Law Group: Received common shares for professional services.

Stakeholder Impact

• Shareholders: Face significant dilution risk from potential future capital raises and the Ballengee Group acquisition, which could also lead to a change of control. The 'going concern' warning, poor financial performance, and 'penny stock' designation are likely to negatively impact share price and liquidity.
• Employees: The company currently has very few employees (4 part-time). Future employment growth is contingent on successful acquisitions. Unpaid accrued salaries to the CEO and CFO pose a risk to management retention and morale.
• Customers: The limited sales of Dermacia products suggest minimal current impact. Future product offerings and services (e.g., from Ballengee Group, Matchpoint Connections) depend on the successful completion and integration of acquisitions, which are uncertain.
• Suppliers/Creditors: The company's negative working capital and financial distress indicate a risk of delayed payments or inability to meet obligations, as evidenced by the conversion of accounts payable to notes and unpaid executive salaries.
• Management: The CEO and CFO are working part-time and are owed substantial unpaid salaries, creating financial strain and potential conflicts of interest due to their other engagements. They face immense pressure to secure financing and execute strategic acquisitions to ensure the company's survival.

Next Steps

• Negotiate and finalize the amendment to the Membership Interest Purchase Agreement for the Ballengee Group acquisition.
• Complete the acquisition of the Ballengee Group, anticipated by September 30, 2025.
• Negotiate and enter into an employment agreement with Jeff Campbell to become the CEO of the company post-Ballengee acquisition.
• Close the acquisition of Matchpoint Connections, LLC, expected in the second calendar quarter of 2026.
• Raise additional capital to fund ongoing operations, support planned acquisitions, and address the significant working capital deficit.
• Invest further capital in improving and maintaining the Adapti AI software.
• Implement remediation measures for internal control weaknesses, including adopting sufficient written policies and completing the implementation of QuickBooks Enterprise solution.
• Undertake a search for additional qualified Board of Directors members as the company grows.
• Adopt a formal insider trading policy to ensure compliance with securities laws.
• Satisfy the accrued but unpaid salaries owed to the Chief Executive Officer and Chief Financial Officer.

Key Dates

Recommendation

Keywords

Influencer Marketing, AI Software, Health and Beauty Products, Dermacia, Sports Management, Baseball Agency, Ballengee Group, Matchpoint Connections, SEC Filing, 10-K, Financial Reporting, Going Concern, Reverse Stock Split, Corporate Governance, Risk Factors, Small Cap, OTC Markets, Capital Raise