Strive, Inc. 10-Q

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. Use of Proceeds from Initial Public Offering On February 2, 2023, we entered into the Underwriting Agreement with Boustead relating to the Company’s initial public offering of the IPO Shares. Pursuant to the Underwriting Agreement, in exchange for Boustead’s firm commitment to purchase the IPO Shares, the Company agreed to sell the IPO Shares to Boustead at the IPO Price as reduced by a 0.75% non-accountable expense allowance. The Company also granted Boustead the Over-Allotment Option. The Over-Allotment Option subsequently expired unexercised. Pursuant to the Underwriting Agreement, the Company also agreed to issue Boustead the Representative’s Warrant. The closing of the IPO took place on February 7, 2023. At the closing, the Company sold the IPO Shares for total gross proceeds of $7,500,000. After deducting underwriting discounts and commissions, the non-accountable expense allowance, and other expenses from the initial public offering, the Company received net proceeds of approximately $6.6 million. The Company also issued the Representative’s Warrant to Boustead for the purchase of 105,000 shares of Class B Common Stock. The IPO Shares were offered and sold, and the Representative’s Warrant was issued, pursuant to the Registration Statement, initially filed with the SEC on September 2, 2022, and declared effective by the SEC on February 2, 2023, and the Final Prospectus, filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(4) of the Securities Act. The Company intends to use the net proceeds from the initial public offering for investment in corporate infrastructure, marketing and promotion of Discord communities, social campaigns, and the Company’s “AE.360.DDM” Discord design, development and management service, expansion of “SiN”, the Company’s social influencer network, increasing staff and company personnel, and general working capital, operating, and other corporate expenses. Under the “Boustead Engagement Letter, during the 12-month period following the termination or expiration of the Boustead Engagement letter, which will occur no earlier than February 7, 2024, we must compensate Boustead for any transaction with any party, including any investor in a private placement in which Boustead served as placement agent or in the initial public offering, or who became aware of the Company or who became known to the Company prior to the termination or expiration of the Boustead Engagement Letter. Such party will include, but not be limited to, Company officers, directors, employees, consultants, advisors, stockholders, members, and partners. The Boustead Engagement Letter will expire upon the later to occur of February 7, 2024 (12 months from the completion date of the initial public offering), or mutual written agreement of the Company and Boustead. We also agreed to provide Boustead the Right of First Refusal on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of the Company. In the event that we engage Boustead to provide such services, Boustead will be compensated consistent with the Boustead Engagement Letter, as described below, unless we mutually agree otherwise. In addition, Boustead will be entitled to the Tail Rights. 12 Under the Boustead Engagement Letter, in connection with a transaction as to which Boustead duly exercises the Right of First Refusal or is entitled to the Tail Rights, Boustead shall receive compensation as follows: ● other than normal course of business activities, as to any sale, merger, acquisition, joint venture, strategic alliance, license, research and development, or other similar agreements, Boustead will accrue compensation under a percentage fee of the Aggregate Consideration (as defined in the Boustead Engagement Letter) calculated as follows: o 10.0% for Aggregate Consideration of less than $10,000,000; plus o 8.0% for Aggregate Consideration between $10,000,000 - $25,000,000; plus o 6.0% for Aggregate Consideration between $25,000,001 - $50,000,000; plus o 4.0% for Aggregate Consideration between $50,000,001 - $75,000,000; plus o 2.0% for Aggregate Consideration between $75,000,001 - $100,000,000; plus o 1.0% for Aggregate Consideration above $100,000,000; ● for any investment transaction including any common stock, preferred stock, ordinary shares, convertible stock, limited liability company or limited partnership memberships, debt, convertible debentures, convertible debt, debt with warrants, stock warrants, stock options (excluding issuances to Company employees), stock purchase rights, or any other securities convertible into common stock, any form of debt instrument involving any form of equity participation, and including the conversion or exercise of any securities sold in any transaction, Boustead shall receive upon each investment transaction closing a success fee, payable in (i) cash, equal to 7% of the gross amount to be disbursed to the Company from each such investment transaction closing, plus (ii) a non-accountable expense allowance equal to 1% of the gross amount to be disbursed to the Company from each such investment transaction closing, plus (iii) warrants equal to 7% of the gross amount to be disbursed to the Company from each such investment transaction closing, including shares issuable upon conversion or exercise of the securities sold in any transaction, and in the event that warrants or other rights are issued in the investment transaction, 7% of the shares issuable upon exercise of the warrants or other rights, and in the event of a debt or convertible debt financing, warrants to purchase an amount of Company stock equal to the 7% of the gross amount or facility received by the Company in a debt financing divided by the warrant exercise share. The warrant exercise price will be the lower of: 1.) the fair market value price per share of the Company’s common stock as of each such financing closing date; 2.) the price per share paid by investors in each respective financing; 3.) in the event that convertible securities are sold in the financing, the conversion price of such securities; or 4.) in the event that warrants or other rights are issued in the financing, the exercise price of such warrants or other rights; ● any such warrants will be transferable in accordance with FINRA rules and SEC regulations, exercisable from the date of issuance and for a term of five years, contain cashless exercise provisions, be non-callable and non-cancelable with immediate piggy-back registration rights, have customary anti-dilution provisions and any future stock issuances, etc., at a price(s) below the exercise price per share, at terms no less favorable than the terms of any warrants issued to participants in the related transaction, and provide for automatic exercise immediately prior to expiration; and ● reasonable out-of-pocket expenses in connection with the performance of its services, regardless of whether a transaction occurs. Pursuant to the Underwriting Agreement, as of February 3, 2023, we are subject to a lock-up agreement that prevents, subject to certain exceptions, selling or transferring any shares of capital stock of the Company for up to 12 months. In addition, our officers, directors and beneficial owners of approximately 78.0% of our common stock agreed to be locked up for a period of 12 months. Holders of approximately 7.2% of our outstanding common stock agreed to be locked up for a period of nine months, and a holder of approximately 2.3% of our outstanding Class B Common Stock prior to the initial public offering offering agreed to be locked up for a period of six months with respect to approximately 0.9% of the outstanding common stock held by such holder, subject to certain exceptions. The remaining shares are not subject to lock-up provisions or such lock-up provisions have been waived. 13 The Underwriting Agreement and Boustead Engagement Letter contain other customary representations, warranties and covenants by the Company, customary conditions to closing, indemnification obligations of the Company and Boustead, including for liabilities under the Securities Act, other obligations of the parties, and termination provisions. The representations, warranties and covenants contained in the Underwriting Agreement and Boustead Engagement Letter were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties. In addition, the Registration Statement registered for resale a total of 1,500,000 shares of Class B Common Stock by the selling stockholders named in the Registration Statement. Any sales of these shares occurred at a fixed price of $5.00 per share until the Class B Common Stock was listed on Nasdaq on February 3, 2023. Thereafter, these sales will occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. The Company will not receive any proceeds from the sale of Class B Common Stock by the selling stockholders. In total, the Registration Statement registered for sale shares of Class B Common Stock with a maximum aggregate offering price of $8,625,000, representing the right to sell up to 1,725,000 shares of Class B Common Stock at the IPO Price upon full exercise of the Over-Allotment Option; the Representative’s Warrant; shares of Class B Common Stock underlying the Representative’s Warrant with a maximum aggregate offering price of $754,687.50, representing rights to purchase up to 120,750 shares of Class B Common Stock at the exercise price of $6.25 per share, upon full exercise of the over-allotment option; and 1,500,000 shares of Class B Common Stock on behalf of the selling stockholders. As of the date of this report, the IPO Shares were sold for aggregate gross proceeds of $7,500,000 and the Representative’s Warrant was issued with the right to purchase up to 105,000 shares of Class B Common Stock at $6.25 per share for gross proceeds of up to $656,250. As of the date of this report, the Over-Allotment Option had expired unexercised and the Representative’s Warrant has not been exercised. The Company’s officers, directors, and certain stockholders who, prior to the initial public offering, held shares of Class B Common Stock or shares of the Class A Common Stock, have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of Class A Common Stock or Class B Common Stock or other securities convertible into or exercisable or exchangeable for shares of Class A Common Stock or Class B Common Stock for a period of 6 months, 9 months or 12 months, as applicable, without the prior written consent of Boustead. On April 4, 2023, the Post-Effective Amendment was filed with the SEC and became effective on April 14, 2023 . The Post-Effective Amendment was required to be filed to update the Registration Statement’s prospectus to include, among other things, the information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 31, 2023. The Post-Effective Amendment registered the sale of shares of common stock issuable upon exercise of the Representative’s Warrant and the resale of the shares of common stock held by the selling stockholders. The following is our reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering on February 7, 2023 until March 31, 2023: ● None was used for construction of plant, building and facilities; ● None was used for the purchase and installation of machinery and equipment; ● None was used for purchases of real estate; ● None was used for the acquisition of other businesses; ● None was used for the repayment of indebtedness; ● $0.8 million was used for working capital; and ● None was used for temporary investments. 14 As of the date of this report, none of the proceeds from the initial public offering were used to make direct or indirect payments to any of our directors or officers, any of their associates, any persons owning 10% or more of any class of our equity securities, or any of our affiliates, or direct or indirect payments to any others other than for the direct costs of the offering. There has not been, and we do not expect, any material change in the planned use of proceeds from the initial public offering as described in the Registration Statement, the Final Prospectus, and the Post-Effective Amendment. Unregistered Sales of Equity Securities During the three months ended March 31, 2023, we did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed under Item 3.02 in a Current Report on Form 8-K. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable.