10-Q: Adapti Shifts to Sports Tech, Reports Q2 Losses Amid Acquisition

Adapti, Inc. has pivoted its business focus to sports management and AI technology, reporting significant losses in Q2 2025 despite a major acquisition and revenue growth.

Summary

• Adapti, Inc. (formerly Scepter Holdings, Inc.) has undergone a strategic shift, moving away from health and beauty products to focus on sports management, marketing, and athlete representation, alongside developing an AI platform.
• The company completed the acquisition of The Ballengee Group, LLC, a sports management agency representing approximately 200 professional athletes, on July 14, 2025.
• The acquisition consideration totaled $27,500,000, comprising 6,500,000 shares of common stock valued at $20,000,000, a $7,500,000 participating promissory note, and up to $20,000,000 in earnout consideration over four years based on EBITDA targets.
• Revenues for the six months ended September 30, 2025, dramatically increased to $2,132,101 from $2,978 in the prior year, primarily due to the Ballengee acquisition.
• Despite revenue growth, the company reported a net loss of $2,891,382 for the six months ended September 30, 2025, a significant increase from a $430,875 net loss in the same period last year, driven by increased operating and professional fees related to the acquisition and business development.
• Adapti is developing AdaptAI, a proprietary AI-driven tool for matching brands with social media influencers, which is currently in beta and anticipated to launch by December 31, 2026, subject to securing approximately $250,000 in funding.
• The company's cash balance increased to $1,540,411 as of September 30, 2025, from $572 as of March 31, 2025, largely due to financing activities related to the acquisition.
• Adapti has a working capital deficit of $781,054 as of September 30, 2025, and its auditors have expressed substantial doubt about its ability to continue as a going concern.
• The company has entered into a letter of intent to acquire Levelution Sports, a company representing NIL athletes, indicating further expansion plans.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to significant and increasing net losses, a persistent working capital deficit, explicit 'going concern' warnings from both management and auditors, and ineffective internal controls. While there's strategic movement with an acquisition and AI development, the financial instability and reliance on future capital raises for basic operations and unproven technology present substantial risks.

Positives

• Significant revenue growth for the six months ended September 30, 2025, reaching $2,132,101, primarily driven by the acquisition of The Ballengee Group, LLC.
• Successful acquisition of The Ballengee Group, LLC, a sports management agency with approximately 200 professional athletes, including 40 in Major League Baseball.
• Increased cash balance to $1,540,411 as of September 30, 2025, from $572 as of March 31, 2025.
• Development of AdaptAI, a proprietary AI-driven platform, is progressing with the tool currently in beta stage.
• Repayment of a $361,272 line of credit in full on October 3, 2025, releasing personal guarantees and security interests.
• Entry into a letter of intent to acquire Levelution Sports, signaling further strategic expansion in the sports industry.

Negatives

• Substantial net loss of $2,891,382 for the six months ended September 30, 2025, significantly higher than the $430,875 loss in the prior year.
• Accumulated deficit since inception totals $12,403,776 as of September 30, 2025.
• Working capital deficit of $781,054 as of September 30, 2025, indicating insufficient current assets to cover current liabilities.
• Significant increase in operating expenses, including general and administrative expenses ($637,994) and professional fees ($2,851,793), largely due to the Ballengee acquisition and related consulting.
• Increased interest expense to $200,171 for the six months ended September 30, 2025, due to new promissory notes.
• Net cash used in operating activities increased to $(603,450) for the six months ended September 30, 2025, from $(167,970) in the prior year, indicating higher cash burn.
• The company's disclosure controls and procedures were deemed not effective as of September 30, 2025.
• Management has concluded that internal control over financial reporting may not be effective.
• Accrued but unpaid salaries of approximately $150,000 for the CEO and $95,000 for the interim CFO, posing retention and financial risks.

Risks

• Limited operating history and a recently changed business plan make future prospects difficult to evaluate and increase investment risk.
• Uncertainty in successfully integrating and growing Ballengee in a competitive and regulated industry.
• Challenges in developing and commercializing AdaptAI and demonstrating synergies between the sports agency and AI platform.
• The revenue model is unproven and difficult to predict, with success dependent on factors like influencer willingness, platform effectiveness, and rapidly changing public tastes.
• No guarantee of maintaining or growing Ballengee's historical business operations, revenues, or profitability.
• Dependence on relationships of agents, managers, and other key personnel with clients; loss of these individuals could adversely affect the business.
• Adverse publicity concerning the company, its businesses, clients, or key personnel could harm its professional reputation.
• Failure to identify, recruit, and retain qualified and experienced agents and managers could adversely affect the business.
• Failure to identify, sign, and retain high-demand athlete clients could adversely affect revenues and growth prospects.
• Professional athlete clients are subject to collective bargaining agreements; expiration, termination, or work stoppages could adversely affect the business.
• Unauthorized disclosure of sensitive or confidential client or customer information could harm the business and standing.
• Changes in public and consumer tastes and preferences and industry trends could reduce demand for services.
• Potential unprofitability of strategic acquisitions, investments, and commercial agreements, even if strategically valuable.
• Competition from substantially larger and better-financed competitors in both sports representation and technology businesses.
• Dependence on the management team; loss of their services could harm the business, especially given part-time roles and accrued unpaid salaries.
• Obligations under participating promissory notes from the Ballengee acquisition (10% of equity raise >$250k, 50% of Ballengee free cash flow) will reduce proceeds available for operations and growth.
• Earnout consideration of up to $20,000,000 payable in common stock could result in significant future stock issuances and dilution to stockholders.
• Substantially all assets of Ballengee are pledged as collateral for loan agreements, and debt obligations expose the company to risks.
• Substantial doubt about the company's ability to continue as a going concern, as stated by management and auditors.
• The business requires a substantial investment of capital, and the company has limited working capital and limited access to financing.
• Use of Artificial Intelligence in AdaptAI presents operational, legal, ethical, and competitive risks, including flawed outputs from biased data, evolving regulations, and competition.
• Cybersecurity breaches, data loss, or system failures could disrupt AdaptAI's operations, compromise sensitive information, and harm reputation.
• Concentration of ownership (former Ballengee principals own >80% of common stock) gives certain stockholders control or significant influence over corporate decisions.
• The authorized capital structure allows for the issuance of a substantial number of additional shares, which could result in significant dilution.
• The market for common stock has historically been illiquid, making it difficult for investors to sell shares.
• The company has not paid cash dividends in the past and does not expect to in the foreseeable future.
• Operations are subject to federal, state, and local laws and regulations, with noncompliance potentially leading to sanctions, fines, and reputational harm.
• Potential inability to comply with reporting and other requirements under federal securities laws, especially if becoming an accelerated filer.
• Ineffective internal controls over financial reporting could lead to unreliable financial reports and fraud.
• Reduced disclosure requirements as a smaller reporting company may make securities less attractive to investors.

Future Outlook

The company anticipates future revenues primarily from athlete representation fees, sponsorships, and platform-enabled brand integrations utilizing the AdaptAI platform once completed. AdaptAI is currently in beta and is expected to launch by December 31, 2026, contingent on securing approximately $250,000 in funding. Future plans for AdaptAI include expanding capabilities to support automated content creation and end-to-end generative content workflows. The company is also actively pursuing additional acquisitions, as evidenced by a letter of intent to acquire Levelution Sports.

Management Comments

• Management believes AdaptAI, if and when completed, would assist the company in attempting to consolidate and scale athlete representation and social monetization services.
• Management estimates that approximately $250,000 is needed to complete the development of AdaptAI for internal use by December 31, 2026.
• Management anticipates that Ballengee could contribute significantly to our revenues and help us achieve profitability.
• Management has determined that there is substantial doubt about our ability to continue as a going concern for a period of one year following the issuance of this report.

Industry Context

Adapti's strategic pivot places it in the competitive sports management and marketing industry, leveraging its recent acquisition of Ballengee Group, a baseball agency. The development of AdaptAI aims to integrate AI technology into influencer and brand matching, positioning Adapti at the intersection of sports, technology, and digital marketing. This move aligns with broader industry trends towards data-driven athlete management and the growing importance of social media influence, but faces established competitors in both traditional sports representation and advanced AI solutions.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks.
• The company operates in highly competitive industries (sports representation and technology/software development) with numerous established and better-financed competitors, making market share achievement challenging.
• The success of AdaptAI is dependent on factors outside the company's control, including the willingness of influencers and athletes to retain services, the platform's ability to provide meaningful data, and the effectiveness of social media promotions, which are common challenges in the evolving influencer marketing space.

Management Changes

Corporate Governance

Legal Proceedings

• No pending, threatened, or actual legal proceedings in which the Company is a party, except for routine litigation.

Related Party Transactions

• Operating lease for corporate office space with Bacchus Capital Trading, LLC (related party under common management), later assigned to White Claw Crude (WCC). Lease payments are made in shares of Adapti's common stock.
• Convertible notes payable to Campbell Trust (Jeff Campbell, Executive Chairman) and Stuff International (Adam Nicosia, CEO).
• Notes payable to Campbell Trust ($250,000 principal) and Stuff International ($223,246 principal).
• Operating loans from Jorgan Development, LLC ($448,341 owed) and Edgeware Energy ($135,000 owed), both owned by James H. Ballengee (manager of Ballengee).
• Subordinated convertible promissory notes issued to Brassington (interim CFO), Jeff Campbell (Executive Chairman), and Adam Nicosia (CEO) totaling $2,156,000 principal.
• Participating promissory notes totaling $7,500,000 issued to JBAH Holdings, LLC and BSG Holdings, LLC (Sellers of Ballengee) as part of the acquisition consideration.
• A new revolving line of credit for 2278 Monitor, LLC (controlled by James Ballengee) for up to $2,000,000 is cross-collateralized with Ballengee's new $3,000,000 revolving loan.
• Shares of Common Stock issued to Stuff International (Adam Nicosia) and The Campbell Trust (Jeff Campbell) in November 2025 in exchange for extending maturity dates of convertible promissory notes.
• Rent payments for July, August, and September 2025 were made to Waskom Enterprises, LLC (an entity owned by James Ballengee) in an aggregate of 34,469 shares of common stock.

Stakeholder Impact

• Shareholders face significant dilution risk from future stock issuances for earnouts, debt conversions, and capital raises, compounded by the concentration of ownership by former Ballengee principals.
• Employees, particularly the CEO and interim CFO, have accrued but unpaid salaries, which could impact morale, retention, and potentially lead to legal claims.
• Customers (athletes and brands) may be impacted by the company's financial instability and unproven AI technology, potentially affecting the quality or continuity of services.
• Creditors hold substantial debt, including convertible notes and participating promissory notes, with Ballengee's assets largely pledged as collateral, increasing their risk exposure.
• Regulatory bodies may scrutinize the company's ineffective disclosure controls and internal financial reporting, as well as compliance with laws governing athlete agents and AI use.

Next Steps

• Integrate the operations of The Ballengee Group, LLC with Adapti, Inc.
• Continue the development of the AdaptAI technology platform, aiming for a launch by December 31, 2026, contingent on securing sufficient funding.
• Complete due diligence and definitive documents for the acquisition of Levelution Sports.
• Identify potential additional acquisitions that align with the company's new business plan.
• Raise additional capital through debt and equity securities to fund operating costs and meet obligations.
• Address the substantial doubt about the company's ability to continue as a going concern.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by substantial and increasing net losses, a persistent working capital deficit, and explicit 'going concern' warnings from both management and its auditors. While the acquisition of Ballengee Group and the development of AdaptAI represent a strategic pivot, the business model remains unproven, and the company's ability to fund operations and complete its AI platform is highly dependent on future capital raises, which will likely result in significant dilution. Ineffective internal controls and a high concentration of ownership further exacerbate the risks. For a seasoned investor, the current risk profile far outweighs any speculative upside, making a strong sell recommendation appropriate.

Keywords

Sports Management, Athlete Representation, AI Platform, AdaptAI, SEC Filing, 10-Q, Financial Results, Acquisition, Ballengee Group, Going Concern, Dilution, Convertible Notes, Corporate Governance, Risk Factors, Influencer Marketing, MLB Contracts, Capital Raise