Strive, Inc 10-Q for FY2025 Q1
Strive, Inc. (ASST)
About this 10-Q
Strive, Inc filed this 10-Q on May 15, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $170.75K
- up 36.8% from $124.84K a year earlier
- Net loss
- $1.62M
- compared with a net loss of $1.39M a year earlier
- Diluted EPS
- -$0.13
- compared with -$0.49 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| (Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
As
of May 12, 2025, there were a total of
ASSET ENTITIES INC.
Quarterly Report on Form 10-Q
Period Ended March 31, 2025
TABLE OF CONTENTS
| PART I FINANCIAL INFORMATION |
||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 37 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 37 |
| Item 5. | Other Information | 37 |
| Item 6. | Exhibits | 38 |
| Signatures | 39 | |
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ASSET ENTITIES INC.
UNAUDITED FINANCIAL STATEMENTS
1
ASSET ENTITIES INC.
Balance Sheets
| As
of March 31, | As
of December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Non-Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset | ||||||||
| Total Non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liability | $ | $ | ||||||
| Contract liabilities | ||||||||
| Total Current Liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock; $ | ||||||||
| Series A Convertible Preferred Stock; $ | ||||||||
| Common Stock; $ | ||||||||
| Class A Common Stock; $ | ||||||||
| Class B Common Stock; $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
ASSET ENTITIES INC.
Statements of Operations
(Unaudited)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Contract labor | ||||||||
| General and administrative | ||||||||
| Management compensation | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ||||||
| Total other income | ||||||||
| Loss before income tax | ( | ) | ( | ) | ||||
| Income taxes expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Dividend on Series A Preferred Stock | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Loss per share of common stock - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
ASSET ENTITIES INC.
Statement of Stockholders’ Equity
For the three months ended March 31, 2025 and 2024
(Unaudited)
| Series
A Convertible Preferred Stock | Class
A Common Stock | Class
B Common Stock | Additional Paid in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance - December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Conversion from Series A Convertible Preferred stock to Class B common stock | ( | ) | ||||||||||||||||||||||||||||||||||
| Class B common stock for cash | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||
| Dividend declared - Series A Convertible Preferred stock | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance - March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Preferred Stock | Class
A Common Stock | Class
B Common Stock | Additional Paid in | Treasury | Accumulated | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||||||||
| Balance - December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Conversion from Class A to Class B common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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ASSET ENTITIES INC.
Condensed Statements of Cash Flows
(Unaudited)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Class B common stock issued, net | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Conversion from Class A to Class B common stock | $ | $ | ||||||
| Conversion from Series A Convertible Preferred stock to Class B common stock | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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ASSET ENTITIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
As of and for the three months ended March 31, 2025
(Unaudited)
Note 1. Organization, Description of Business and Liquidity
Organization
Asset Entities Inc. (“Asset Entities”, “we”, “us”, “our”or the “Company”), began operations as a general partnership in August 2020 and formed Assets Entities Limited Liability Company in the state of California on October 20, 2020. The financial statements reflect the operations of the Company from inception of the general partnership. On March 15, 2022, the Company filed Articles of Merger to register and incorporate with the state of Nevada and changed the company name to Asset Entities Inc.
Description of Business
Asset Entities is an Internet company providing social media marketing, content delivery, and development and design services across Discord, TikTok, and other social media platforms. Based on the rapid growth of our Discord servers and social media following, we have developed three categories of services. First, we provide subscription upgrades to premium content on our investment education and entertainment servers on Discord. Second, we codevelop and execute influencer social media and marketing campaigns for clients. Third, we design, develop and manage Discord servers for clients under our “AE.360.DDM” brand. Our AE.360.DDM service was released in December 2021. All of these services – our Discord investment education and entertainment, social media and marketing, and AE.360.DDM services – are therefore based on our effective use of Discord in combination with ongoing social media outreach on TikTok, Facebook, Twitter, Instagram, and YouTube.
Liquidity
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation
of liabilities in the normal course of business. The Company has an accumulated deficit of $
The
Company has received confirmation from Ionic Ventures, LLC that it will invest up to $
With
the additional revenue from the purchase of the TommyBoyTV, LLC server in June 2024, gross revenue is projected to increase to over $
Based on the Company’s existing cash resources, management believes that the Company will have sufficient funds to carry out the Company’s planned operations for at least the next 12 months from the issuance date of the accompanying financial statements.
6
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company prepares its financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”). The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2025, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the year ended December 31, 2024, contained in the Company’s Form 10-K filed on March 31, 2025.
Use of Estimates
The preparation of financial statements in conformity with 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 expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Cash and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market
funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company
had cash equivalents of $
Periodically,
the Company may carry cash balances at financial institutions more than the federally insured limit of $
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and impairment loss, if any. Property and equipment are depreciated at rates sufficient to write off their costs less impairment and residual value, if any, over their estimated useful lives on a straight-line basis.
| Category | Useful
life (years) | |||
| Building | ||||
| Machinery and Equipment | ||||
| Office Equipment and Fixtures | ||||
| Vehicle | ||||
The Company did not have any Building, Machinery and Equipment, and Vehicle as of March 31, 2025.
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
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The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Intangible Assets
Intangible assets acquired are recorded at fair value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. During the three months ended March 31, 2025, there were no intangible asset impairment charges.
Finite-lived
intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from
Intangible assets internally developed are measured at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third parties for development services and payroll costs for employees’ time spent developing the software. We expense costs incurred during the preliminary project stage and the post-implementation stage. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.
Impairment of Long-lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
Fair Value Measurements
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:
| ● | Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| ● | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| ● | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
8
The Company’s financial instruments, including cash, accounts receivable, prepaid expense, deferred offering costs and contract liabilities, other current liabilities are carried at historical cost. As of March 31, 2025 and December 31, 2024, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
Advertising Expenses
The
Company expenses advertising costs as they incurred. Total advertising expenses were $
Research and Development
Research and development costs are charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement.
The
Company incurred research and development expenses of $
Stock based compensation
Service-Based Awards
The Company records stock-based compensation for awards granted to employees, non-employees, and to members of the Board for their services on the Board based on the grant date fair value of awards issued, and the expense is recorded on a straight-line basis over the requisite service period, which is generally one to three years.
For restricted stock awards (“RSAs”) issued under the Company’s stock-based compensation plans, the fair value of each grant is calculated based on the Company’s stock price on the date of grant.
Share Repurchase
Share repurchases are open market purchases. Share repurchases are generally recorded on the settlement date, as treasury stock. When shares are cancelled, the value of repurchased shares is deducted from stockholders’ equity through common stock with the excess over par value recorded to accumulated deficit.
Revenue Recognition
The Company recognizes revenue utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.
Subscriptions
Subscription revenue is related to a single performance obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability recorded over the contracted service period.
Marketing
Revenue related to marketing campaign contracts with customers are normally of a short duration, typically less than two (2) weeks.
9
AE.360.DDM Contracts
Revenue related to AE.360.DDM contracts with customers are normally of a short duration, typically less than one (1) week.
Contract Liabilities
Contract
liabilities consist of quarterly and annual subscription revenue that have not been recognized. Revenue under these agreements is recognized
over the related service period. As of March 31, 2025 and December 31, 2024, total contract liabilities were $
Changes in contract liabilities for the three months ended March 31, 2025, are as follows:
| 2025 | ||||
| Balance, January 1 | $ | |||
| Deferral of revenue | ||||
| Recognition of revenue | ||||
| Balance, March 31 | $ | |||
Earnings Per Share of Common Stock
The Company has adopted ASC Topic 260, “Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for warrants and options using the treasury stock method.
As
of March 31, 2025, warrants representing
Related Parties
The
Company follows ASC 850, “Related Party Disclosures”, for the identification of related parties and
disclosure of related party transactions and balances. There were no related party transactions except management fees. During the three
months ended March 31, 2025 and 2024, the Company paid management fees to their controlling members totaling $
Commitments and Contingencies
The Company follows ASC 450-20, “Loss Contingencies”, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of March 31, 2025 and December 31, 2024, the Company did not have any commitments and contingencies.
10
The
Company operates as
Our CEO assesses performance and decides how to allocate resources primarily based on net income, which is reported on our Statements of Operations. Total assets on the Balance Sheets represent our segment assets.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03 final standard on Income Statement: Disaggregation of Income Statement Expenses, which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This guidance will be effective for us on January 1, 2027.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
Note 3. Property and Equipment
Property and equipment consisted of the following:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Office equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
During
the three months ended March 31, 2025 and 2024, the Company recorded depreciation of $
Note 4. Intangible Assets
Intangible assets consist of the following:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Purchased software | $ | $ | ||||||
| Discord server | ||||||||
| Right of literary work entitled | ||||||||
| Less: Impairment | ||||||||
| $ | $ | |||||||
11
On
November 10, 2023, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”). Under the Asset
Purchase Agreement, the Company agreed to purchase all of the right, title, and interest in and to substantially all of the assets and
properties and used in connection with their business of Discord development, social media, online community management, marketing, and
business-to-business software-as-a-service that offers sales, service, marketing, and analytics for the payment of $
On
June 21, 2024, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”). Under the Asset Purchase
Agreement, the Company agreed to purchase all of the right, title, and interest in and to substantially all of the assets and properties
owned by the Seller and used in connection with its business of Discord development, social media, online community management, marketing,
and analytics for the payment of $
On
November 15, 2024, the Company entered into an asset purchase agreement. Under this agreement, the Company agreed to purchase all of the
right, title, and interest in and to the assets, properties and rights owned by the Seller and used in connection with its business of
Discord development, social media, online community management, marketing, and analytics for the payment of $
On November 25, 2024, the Company entered into
an Purchase Agreement (the "Agreement") with Jeff Blue ("Owner") regarding the literary work entitled "One Step
Closer: From Xero to #1: Becoming Linkin Park" (the "Work"). Under the terms of the Agreement, the Company has acquired
a
Note 5. Stockholders’ Equity
Authorized Capital Stock
The
Company has authorized to issue
Preferred Stock
The Company shall have the authority to issue the shares of Preferred Stock in one or more series with such rights, preferences and designations as determined by the Board of Directors of the Company.
Series A Convertible Preferred Stock
On
May 24, 2024, the Company filed a Certificate of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”)
with the Secretary of State of the State of Nevada designating
The Series A Preferred Stock, with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, ranks senior to all capital stock of the Company unless the holders of the majority of the outstanding shares of Series A Preferred Stock consent to the creation of other capital stock of the Company that is senior or equal in rank to the Series A Preferred Stock.
12
Holders
of Series A Preferred Stock will be entitled to receive cumulative dividends, in shares of Class B Common Stock or cash on the Stated
Value at an annual rate of
Holders of Series A Preferred Stock will be entitled
to convert shares of Series A Preferred Stock into a number of shares of Class B Common Stock determined by dividing the Stated Value
(plus any accrued but unpaid dividends and other amounts due, unless paid by the Company in cash) by the conversion price of the Series
A Preferred Stock (the “Conversion Price”). The initial Conversion Price is $
On
January 22, 2025, the Company filed an amendment (the “Fourth Amended Designation”) to the Certificate of Designation of
Series A Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Nevada on May 24, 2024, as amended
by the Certificate of Amendment to Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary
of State of the State of Nevada on June 14, 2024, as amended by the Certificate of Amendment to Designation of Series A Convertible Preferred
Stock of Asset Entities Inc. filed with the Secretary of State of the State of Nevada on September 4, 2024, as amended by the Certificate
of Amendment to Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary of State of the State
of Nevada on September 4, 2024 (as amended, the “Certificate of Designation”). The Fourth Amended Designation amended the
Certificate of Designation to provide that the term “Floor Price” will be defined as $
During
the three months ended March 31, 2025,
The
Company had
Class A Common Stock
Each
share of Class A Common Stock entitles the holder to ten (
The Company had 1,000,000 shares of Class A Common Stock issued and outstanding as of March 31, 2025 and December 31, 2024.
13
Class B Common Stock
Each
share of Class B Common Stock entitles the holder to one (
The
Company had
Fiscal year 2025
During
the three months ended March 31, 2025, the Company issued
| ● |
| ● |
Sales agreement of Class B Common Stock
On
September 27, 2024, the Company entered into a Sales Agreement between the Company and A.G.P./Alliance Global Partners (the “Sales
Agent”). Pursuant to the prospectus supplement and accompanying base prospectus relating to the offering of the Shares (as defined
below), and under terms of the Sales Agreement and the prospectus supplement and the accompanying base prospectus, filed on September
27, 2024, the Company may, from time to time, in transactions that are deemed to be “at the market offerings” as defined
in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), issue and sell through or to the Sales Agent,
up to a maximum aggregate amount of $
The
Company will pay the Sales Agent a cash commission of
2022 Equity Incentive Plan
The
maximum number of shares of Class B Common Stock that may be issued pursuant to awards granted under the 2022 Plan is
14
The
RSA shares to directors vest quarterly for one year from the date of grantee’s appointment as a director. The RSA shares to officers
vest annually over three years from the grant date. RSA shares are measured at fair market value on the date of grant and stock-based
compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital. For the three
months ended March 31, 2025 and 2024, the Company recorded stock-based compensation expense of $
As
of March 31, 2025, there was $
Warrant
A summary of activity during the three months ended March 31, 2025, follows:
| Number of | Weighted Average | Weighted Average | ||||||||||
| shares | Exercise Price | Life (years) | ||||||||||
| Outstanding, December 31, 2024 | $ | |||||||||||
| Granted | - | |||||||||||
| Expired | - | |||||||||||
| Exercised | - | |||||||||||
| Outstanding, March 31, 2025 | $ | |||||||||||
All
of the outstanding warrants are exercisable as of March 31, 2025. The intrinsic value of the warrants as of March 31, 2025, is $
Note 6. Subsequent Events
Management evaluated all events from the date of the balance sheet through the date these financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure other than below.
Agreement and Plan of Merger
On May 6, 2025, the “Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alpha Merger Sub, LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), Strive Enterprises, Inc., an Ohio corporation (“Strive”), and Strive Asset Management, LLC, an Ohio limited liability company and a wholly owned subsidiary of Strive (“Asset Management”), pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Asset Management (the “Merger”), with Asset Management continuing as a wholly owned subsidiary of the Company and the surviving company of the Merger.
The board of directors of the Company unanimously adopted and approved the Merger Agreement and the transactions contemplated thereby, and, subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s stockholders approve the Merger Agreement and the transactions contemplated thereby.
Subject to the terms
and conditions of the Merger Agreement, at the effective time of the Merger, each then-outstanding unit or membership interest of Asset
Management will be converted into the right to receive a number of shares of the Company Consideration Stock equal to the Exchange Ratio
(the “Merger Consideration”). The “Company Consideration Stock” shall be the current Class A Common Stock, redesignated
as class B common stock, $
The closing of the Merger
(the “Merger Closing”) is subject to the satisfaction or, to the extent permitted by law, the waiver of certain conditions
including, among other things, (i) the required approvals by the Company’s and Strive’s stockholders, (ii) the Company’s
current holders of shares of Class A Common Stock having converted all shares of Class A Common Stock into current Class B Common Stock,
(iii) the effectiveness of the A&R Articles of Incorporation, (iv) the Form S-4 (as defined below) having become effective in accordance
with the provisions of the Securities Act, and not being subject to any stop order or proceeding seeking a stop order or having been withdrawn,
(v) no law or order preventing the Merger and the other transactions contemplated by the Merger Agreement (or, with respect to Strive’s
obligations to consummate the Merger Closing, imposing a Burdensome Condition (as defined in the Merger Agreement)), (vi) the approval
for listing on The Nasdaq Stock Market LLC (“Nasdaq”) of the class A common stock, $
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The Merger Agreement contains representations, warranties and covenants made by the Company and Strive, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Strive, indemnification of directors and officers, and the Company’s and Strive’s conduct of their respective businesses between the date of signing the Merger Agreement and the date of the Merger Closing.
In connection with the Merger, the Company will prepare and file with the SEC a registration statement on Form S-4 registering the New Class A Common Stock to be issued to the Company’s stockholders in the Merger (the “Form S-4”), and a proxy statement with respect to the meeting of the Company’s stockholders.
The Merger Agreement
contains certain termination rights, including, among others, (i) the mutual written consent of the parties, (ii) the right of either
the Company or Strive to terminate the Merger Agreement if the Merger shall not have been consummated by November 6, 2025 (the “End
Date”), (iii) the right of either the Company or Strive to terminate the Merger Agreement if any applicable law is adopted or a
court of competent jurisdiction or other governmental authority issues an order, decree or ruling prohibiting, rendering illegal or permanently
enjoining the Merger and the other transactions contemplated by the Merger Agreement and, in the case of an order, decree or ruling, such
order, decree or ruling shall have become final and nonappealable, (iv) the right of either the Company or Strive to terminate the Merger
Agreement if approval of the Company’s stockholders is not obtained at the Company stockholder meeting, (v) the right of either
the Company or Strive to terminate the Merger Agreement if, at the time of the approval of the Company’s stockholders, approval
of Strive’s stockholders has not been obtained, (vi) the right of Strive to terminate the Merger Agreement, at any time prior to
Strive obtaining stockholder approval, if Strive’s board authorizes it to, and Strive does, enter into a definitive written agreement
providing for a Parent Superior Proposal (as defined in the Merger Agreement) (a “Parent Superior Proposal Termination”),
(vii) the right of Strive to terminate the Merger Agreement, at any time prior to the Company obtaining stockholder approval, upon the
occurrence of a Company Adverse Recommendation Change (as defined in the Merger Agreement), (viii) the right of the Company to terminate
the Merger Agreement, at any time prior to the Company obtaining stockholder approval, if the Company’s board authorizes it to,
and the Company does, enter into a definitive written agreement providing for a Company Superior Proposal (as defined in the Merger Agreement)
(a “Company Superior Proposal Termination”), (ix) the right of the Company to terminate the Merger Agreement, at any time
prior to Strive obtaining stockholder approval, upon the occurrence of a Parent Adverse Recommendation Change (as defined in the Merger
Agreement), and (x) the right of either the Company or Strive to terminate the Merger Agreement due to a breach by the other party of
any of its representations, warranties or covenants which would result in the closing conditions not being satisfied, subject to certain
conditions. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain circumstances, (i) the
Company may be obligated to pay Strive a termination fee of $
The foregoing description of the Merger Agreement and the Merger does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and is incorporated herein by reference.
The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of such agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement. The Merger Agreement has been filed to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Strive or any other party to the Merger Agreement. In particular, the representations, warranties, covenants and agreements contained in the Merger Agreement, which were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts) and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and reports and documents filed with the SEC. Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the Merger Agreement. In addition, the representations, warranties, covenants and agreements and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations and warranties and other terms may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Voting and Support Agreement
In connection with the Merger Agreement, on May
6, 2025, Strive and certain stockholders of the Company entered into a Voting and Support Agreement (the “Support Agreement”),
pursuant to which, among other things, each such stockholder has agreed, on the terms and subject to the conditions set forth therein,
(i) to vote all of their respective voting shares in the Company, collectively constituting approximately
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our condensed financial statements and should be read in conjunction with such condensed financial statements and notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this Quarterly Report on Form 10-Q only, references in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” the “Company,” “Asset Entities,” and “our company” are to Asset Entities Inc., a Nevada corporation. “Common stock” refers to the Company’s Common Stock, $0.0001 par value per share. “Class A Common Stock” refers to the Company’s Class A Common Stock, $0.0001 par value per share. “Class B Common Stock” refers to the Company’s Class B Common Stock, $0.0001 par value per share. “Preferred stock” refers to the Company’s Preferred Stock, $0.0001 par value per share. “Series A Preferred Stock” refers to the Company’s Series A Convertible Preferred Stock, $0.0001 par value per share.
Reverse Stock Split
Unless otherwise noted, the share and per share information in this Quarterly Report on Form 10-Q have been adjusted to give effect to the one-for-five (1-for-5) reverse stock split of each of the Company’s authorized and issued and outstanding Class A Common Stock and the Company’s authorized and issued and outstanding Class B Common Stock, which became effective as of 5:00 p.m. Eastern Daylight Time on July 1, 2024 (the “Reverse Stock Split”).
Note Regarding Trademarks, Trade Names and Service Marks
We use various trademarks, trade names and service marks in our business, including “AE 360 DDM”, “Asset Entities Where Assets Are Created”, “SiN”, “Social Influencer Network”, Ternary D, OptionsSwing, and associated marks. For convenience, we may not include the SM, ® or ™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our ability to introduce new products and services; |
| ● | our ability to obtain additional funding to develop additional services and offerings; |
| ● | compliance with obligations under intellectual property licenses with third parties; |
| ● | market acceptance of our new offerings; |
| ● | competition from existing online offerings or new offerings that may emerge; |
| ● | our ability to establish or maintain collaborations, licensing or other arrangements; |
| ● | our ability and third parties’ abilities to protect intellectual property rights; |
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| ● | our ability to adequately support future growth; |
| ● | our goals and strategies; |
| ● | our future business development, financial condition and results of operations; |
| ● | expected changes in our revenue, costs or expenditures; |
| ● | growth of and competition trends in our industry; |
| ● | the accuracy and completeness of the data underlying our or third-party sources’ industry and market analyses and projections; |
| ● | our expectations regarding demand for, and market acceptance of, our services; |
| ● | our expectations regarding our relationships with investors, institutional funding partners and other parties with whom we collaborate; |
| ● | fluctuations in general economic and business conditions in the markets in which we operate; and |
| ● | relevant government policies and regulations relating to our industry. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-Q. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
Asset Entities is a technology company providing social media marketing and content delivery services across Discord, TikTok, and other social media platforms. We also design, develop and manage servers for communities on Discord. Based on the growth of our Discord servers and social media following, we have developed three categories of services: (1) our Discord investment education and entertainment services, (2) social media and marketing services, and (3) our “AE.360.DDM” brand services. We also offer Ternary v2, a cloud-based subscription management and payment processing solution for Discord communities, which includes a suite of customer relations management tools and Stripe-verified payment processing. All of our services are based on our effective use of Discord as well as other social media including TikTok, X, Instagram, and YouTube.
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Our Discord investment education and entertainment service is designed primarily by and for enthusiastic Generation Z, or Gen Z, retail investors, creators and influencers. Gen Z is commonly considered to be people born between 1997 and 2012. Our investment education and entertainment service focuses on stock, real estate, cryptocurrency, and NFT community learning programs designed for the next generation. While we believe that Gen Z will continue to be our primary market, our Discord server offering features education and entertainment content covering real estate investments, which is expected to appeal strongly to older generations as well. Our combined server user membership was approximately 204,588 as of March 31, 2025.
Our social media and marketing services utilize our management’s social influencer backgrounds by offering social media and marketing campaign services to business clients. Our team of social influencer independent contractors, which we call our “SiN” or “Social Influencer Network”, can perform social media and marketing campaign services to expand our clients’ Discord server bases and drive traffic to their businesses, as well as increase membership in our own servers.
Our “AE.360.DDM, Design Develop Manage” service, or “AE.360.DDM”, is a suite of services to individuals and companies seeking to create a server on Discord. We believe we are the first company to provide “Design, Develop and Manage,” or DDM, services for any individual, company, or organization that wishes to join Discord and create their own community. With our AE.360.DDM rollout, we are uniquely positioned to offer DDM services in the growing market for Discord servers.
Through Ternary v2, our subscription management and payment processing solution for Discord communities, subscribers can monetize and manage their Discord users. Ternary v2 simplifies the process for our subscribers to: (i) sell memberships to their Discord servers on their websites and collect payments through Stripe with daily payouts; (ii) add digital products and services and designate purchase options to their Discord servers; (iii) customize their user Discord permissions and roles and other Discord settings; and (iv) utilize our Discord bot to automatically apply their Discord user settings to authenticate new users, apply customizable permission sets to users, and remove users when their subscriptions expire. As a Stripe-verified partner through Ternary v2, we can also assist subscribers with integrating other platforms into their Discord servers with open application programming interfaces, further extending our platform’s capabilities.
We believe that we are a leading provider of all of these services, and that demand for all of our services will continue to grow. We expect to experience rapid revenue growth from our services. We believe that we have built a scalable and sustainable business model and that our competitive strengths position us favorably in each aspect of our business.
Our revenue depends on the number of paying subscribers to our Discord servers. During the three months ended March 31, 2025 and 2024, we received revenue from 1,254 and 438 Asset Entities Discord server paying subscribers, respectively.
Our Historical Performance
As of March 31, 2025, the Company had an accumulated deficit of $13,665,770 and cash and cash equivalents of $4,208,912. During the three months ended March 31, 2025 and 2024, we had a net loss of $1,624,218 and $1,386,904, respectively. To date, the Company has financed its operations primarily through capital raises and sales of its services. In April 2024, the Company filed a Registration Statement on Form S-3 (File No. 333-278707), which was declared effective by the SEC on April 26, 2024, for potential offerings of up to $100,000,000 in aggregate (the “Shelf Registration Statement”), subject to the requirement that in no event may we sell shares having a value exceeding more than one-third of our public float in any 12-month period under the Shelf Registration Statement so long as our public float remains below $75,000,000. In May 2024, the Company completed the first of a two-part private placement of its Series A Preferred Stock for gross proceeds of $1.5 million, and in July 2024, the Company completed the second part of the private placement for an additional $1.5 million in gross proceeds. In September 2024, the Company entered into a Sales Agreement, dated as of September 27, 2024 (the “ATM Sales Agreement”), between the Company and A.G.P./Alliance Global Partners (the “Sales Agent”), and filed a prospectus supplement to the Shelf Registration Statement for an “at the market offering” of shares of Class B Common Stock (the “ATM Financing”) for gross proceeds of up to $1,791,704. As of March 31, 2025, the Company had filed additional prospectus supplements to the Shelf Registration Statement to increase the maximum gross proceeds to $5,489,399. Since the commencement of the ATM Financing, a total of 5,417,700 shares has been sold, for net proceeds to the Company of $4,830,647.56, after paying $329,362 in compensation to the Sales Agent and the same amount to Boustead Securities, LLC (“Boustead”) under the Boustead ATM Waiver (as defined in “—Liquidity and Capital Resources – ATM Financing – Waivers and Consents to ATM Financing”). The Company has received confirmation from the investor in its Series A Preferred Stock that it will invest up to an additional $3 million upon request by the Company. Based on the Company’s existing cash resources and the cash expected to be received from the ATM Financing and other planned financings, it is expected that the Company will have sufficient funds to carry out the Company’s planned operations through March 31, 2026 and for at least 12 months beyond that period. For further discussion, see Item 7. “—Liquidity and Capital Resources”.
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Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
| ● | our ability to acquire new customers and users or retain existing customers and users; |
| ● | our ability to offer competitive pricing; |
| ● | our ability to broaden product or service offerings; |
| ● | industry demand and competition; |
| ● | our ability to leverage technology and use and develop efficient processes; |
| ● | our ability to attract and retain talented employees and contractors; and |
| ● | market conditions and our market position. |
Emerging Growth Company and Smaller Reporting Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| ● | present three years, instead of two years, of audited financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this Annual Report; |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
| ● | comply with certain greenhouse gas emissions disclosure and related third-party assurance requirements; |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| ● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
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We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering; (ii) the last day of the first fiscal year in which our total annual gross revenues are $1,235,000,000 or more; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including as to: (i) the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) scaled executive compensation disclosures; (iii) presenting two years of audited financial statements, instead of three years; and (iv) compliance with certain greenhouse gas emissions disclosure and related third-party assurance requirements.
Recent Developments
Agreement and Plan of Merger
On May 6, 2025, the “Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alpha Merger Sub, LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), Strive Enterprises, Inc., an Ohio corporation (“Strive”), and Strive Asset Management, LLC, an Ohio limited liability company and a wholly owned subsidiary of Strive (“Asset Management”), pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Asset Management (the “Merger”), with Asset Management continuing as a wholly owned subsidiary of the Company and the surviving company of the Merger.
The board of directors of the Company unanimously adopted and approved the Merger Agreement and the transactions contemplated thereby, and, subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s stockholders approve the Merger Agreement and the transactions contemplated thereby.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each then-outstanding unit or membership interest of Asset Management will be converted into the right to receive a number of shares of the Company Consideration Stock equal to the Exchange Ratio (the “Merger Consideration”). The “Company Consideration Stock” shall be the current Class A Common Stock, redesignated as class B common stock, $0.0001 par value per share, of the Company (the “New Class B Common Stock”), pursuant to amended and restated articles of incorporation of the Company to be adopted and approved in accordance with the Merger Agreement (the “A&R Articles of Incorporation”). The “Exchange Ratio” shall be calculated so that Strive shall receive, in respect of such units or membership interests of Asset Management, a number (rounded up to the nearest whole number) of shares of Company Consideration Stock equal to the aggregate number of shares of Company Consideration Stock that would need to be issued to Strive to result in Strive holding 94.2% of the then outstanding common stock of the Company after giving effect to the Merger on a fully-diluted basis (subject to certain adjustments).
The closing of the Merger (the “Merger Closing”) is subject to the satisfaction or, to the extent permitted by law, the waiver of certain conditions including, among other things, (i) the required approvals by the Company’s and Strive’s stockholders, (ii) the Company’s current holders of shares of Class A Common Stock having converted all shares of Class A Common Stock into current Class B Common Stock, (iii) the effectiveness of the A&R Articles of Incorporation, (iv) the Form S-4 (as defined below) having become effective in accordance with the provisions of the Securities Act, and not being subject to any stop order or proceeding seeking a stop order or having been withdrawn, (v) no law or order preventing the Merger and the other transactions contemplated by the Merger Agreement (or, with respect to Strive’s obligations to consummate the Merger Closing, imposing a Burdensome Condition (as defined in the Merger Agreement)), (vi) the approval for listing on The Nasdaq Stock Market LLC (“Nasdaq”) of the class A common stock, $0.0001 par value per share, of the Company (the “New Class A Common Stock”), which is the current Class B Common Stock redesignated pursuant to the A&R Articles of Incorporation, (vii) the Pre-Closing Reorganization (as defined in the Merger Agreement) having been consummated, (viii) Strive having received a tax opinion that the transfer (or deemed transfer) of assets from Strive to the Company in exchange for Company stock (and the deemed assumption of liabilities) pursuant to the Merger will qualify as a transaction described in Section 351(a) of the Internal Revenue Code, (ix) no share of Company capital stock being entitled to dissenters’ rights, and (x) other customary closing conditions.
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The Merger Agreement contains representations, warranties and covenants made by the Company and Strive, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Strive, indemnification of directors and officers, and the Company’s and Strive’s conduct of their respective businesses between the date of signing the Merger Agreement and the date of the Merger Closing.
In connection with the Merger, the Company will prepare and file with the SEC a registration statement on Form S-4 registering the New Class A Common Stock to be issued to the Company’s stockholders in the Merger (the “Form S-4”), and a proxy statement with respect to the meeting of the Company’s stockholders.
The Merger Agreement contains certain termination rights, including, among others, (i) the mutual written consent of the parties, (ii) the right of either the Company or Strive to terminate the Merger Agreement if the Merger shall not have been consummated by November 6, 2025 (the “End Date”), (iii) the right of either the Company or Strive to terminate the Merger Agreement if any applicable law is adopted or a court of competent jurisdiction or other governmental authority issues an order, decree or ruling prohibiting, rendering illegal or permanently enjoining the Merger and the other transactions contemplated by the Merger Agreement and, in the case of an order, decree or ruling, such order, decree or ruling shall have become final and nonappealable, (iv) the right of either the Company or Strive to terminate the Merger Agreement if approval of the Company’s stockholders is not obtained at the Company stockholder meeting, (v) the right of either the Company or Strive to terminate the Merger Agreement if, at the time of the approval of the Company’s stockholders, approval of Strive’s stockholders has not been obtained, (vi) the right of Strive to terminate the Merger Agreement, at any time prior to Strive obtaining stockholder approval, if Strive’s board authorizes it to, and Strive does, enter into a definitive written agreement providing for a Parent Superior Proposal (as defined in the Merger Agreement) (a “Parent Superior Proposal Termination”), (vii) the right of Strive to terminate the Merger Agreement, at any time prior to the Company obtaining stockholder approval, upon the occurrence of a Company Adverse Recommendation Change (as defined in the Merger Agreement), (viii) the right of the Company to terminate the Merger Agreement, at any time prior to the Company obtaining stockholder approval, if the Company’s board authorizes it to, and the Company does, enter into a definitive written agreement providing for a Company Superior Proposal (as defined in the Merger Agreement) (a “Company Superior Proposal Termination”), (ix) the right of the Company to terminate the Merger Agreement, at any time prior to Strive obtaining stockholder approval, upon the occurrence of a Parent Adverse Recommendation Change (as defined in the Merger Agreement), and (x) the right of either the Company or Strive to terminate the Merger Agreement due to a breach by the other party of any of its representations, warranties or covenants which would result in the closing conditions not being satisfied, subject to certain conditions. The Merger Agreement further provides that, upon termination of the Merger Agreement under certain circumstances, (i) the Company may be obligated to pay Strive a termination fee of $10 million, including (a) upon termination by the Company pursuant to a Company Superior Proposal Termination, (b) upon termination by Strive pursuant to a Company Adverse Recommendation Change, and (c) prior to Company stockholder approval being obtained, the Merger Agreement is terminated for certain reasons by either Strive or the Company if a Company Acquisition Proposal (as defined in the Merger Agreement) shall have been publicly announced or otherwise been communicated to the Company’s board after the date of the Merger Agreement and prior to the Company stockholder meeting or the date of termination, as applicable, and within 12 months after such termination the Company enters into a definitive agreement with respect to, or consummates, a Company Acquisition Proposal, and (ii) Strive may be obligated to pay the Company a termination fee of $10 million, including (a) upon termination by Strive if pursuant to a Parent Superior Proposal Termination, (b) upon termination by the Company pursuant to a Parent Adverse Recommendation Change, and (c) prior to Strive stockholder approval being obtained, the Merger Agreement is terminated for certain reasons by either Strive or the Company if a Parent Alternative Proposal (as defined in the Merger Agreement) shall have been publicly announced or otherwise been communicated to Strive’s board after the date of the Merger Agreement and prior to the Company stockholder meeting or the date of termination, as applicable, and within 12 months after such termination Strive enters into a definitive agreement with respect to, or consummates, a Parent Alternative Proposal.
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The foregoing description of the Merger Agreement and the Merger does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and is incorporated herein by reference.
The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of such agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement. The Merger Agreement has been filed to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Strive or any other party to the Merger Agreement. In particular, the representations, warranties, covenants and agreements contained in the Merger Agreement, which were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts) and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and reports and documents filed with the SEC. Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the Merger Agreement. In addition, the representations, warranties, covenants and agreements and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations and warranties and other terms may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Voting and Support Agreement
In connection with the Merger Agreement, on May 6, 2025, Strive and certain stockholders of the Company entered into a Voting and Support Agreement (the “Support Agreement”), pursuant to which, among other things, each such stockholder has agreed, on the terms and subject to the conditions set forth therein, (i) to vote all of their respective voting shares in the Company, collectively constituting approximately 42.7% of the total voting power of the outstanding shares of the Company’s common stock as of the date of the Merger Agreement, in favor of the approval of the Merger Agreement and other transactions contemplated by the Merger Agreement), (ii) to convert their Class A Common Stock into Class B Common Stock (which will be redesignated as New Class A Common Stock), in exchange for a payment of $2.5 million from the Company and (iii) certain other matters in connection with the Merger as contemplated thereby.
The foregoing description of the Support Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Support Agreement, a copy of which is filed as Exhibit 10.8 hereto and is incorporated herein by reference.
Executive Compensation
On April 28, 2025, the Compensation Committee (the “Compensation Committee”) of the board of directors of the Company approved annual cash bonuses for 2025 for the Company’s principal executive officer, principal financial officer and named executive officers, among others. Arshia Sarkhani, the Company’s Chief Executive Officer and President, Matthew Krueger, the Company’s Chief Financial Officer, Secretary and Treasurer, and Michael Gaubert, the Company’s Executive Chairman, each received a cash bonus of $75,000. Kyle Fairbanks, the Company’s Executive Vice-Chairman and Chief Marketing Officer, received a cash bonus of $25,000. Each of the foregoing officers is eligible to receive an annual cash bonus as determined by the Company’s board or the Compensation Committee pursuant to their respective employment agreement or consulting agreement.
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Results of Operations
Comparison of Three Months Ended March 31, 2025 and 2024
| Three Months Ended | ||||||||
| Operations Data | March 31, 2025 | March 31, 2024 | ||||||
| Revenue | $ | 170,749 | $ | 124,841 | ||||
| Operating expenses | ||||||||
| Contract labor | 146,515 | 127,139 | ||||||
| General and administrative | 946,199 | 522,039 | ||||||
| Management compensation | 735,131 | 862,567 | ||||||
| Total operating expenses | 1,827,845 | 1,511,745 | ||||||
| Loss from operations | (1,657,096 | ) | (1,386,904 | ) | ||||
| Other income (expense) | ||||||||
| Interest income | 34,042 | - | ||||||
| Interest expense | (1,164 | ) | - | |||||
| Total other income | 32,878 | - | ||||||
| Net loss | (1,624,218 | ) | (1,386,904 | ) | ||||
Revenue. Our revenue increased 36.8% to approximately $0.17 million for the three months ended March 31, 2025 from approximately $0.12 million for the three months ended March 31, 2024. This increase was primarily due to the increased number of our Discord server paying subscribers for the three months ended March 31, 2025, including subscribers to the Pure Profits Discord server that the Company acquired in June 2024, compared to such number for the three months ended March 31, 2024. There was no material difference in the Company’s subscription pricing structure between these periods.
Operating Expenses. Our total operating expenses increased 20.9% to approximately $1.83 million for the three months ended March 31, 2025 from approximately $1.51 million for the three months ended March 31, 2024. This increase was primarily due to an increase in advertising, marketing, payroll and other administrative expenses and administrative cost of public filings, compared to such costs for the three months ended March 31, 2024.
Loss From Operations. Our loss from operations increased 19.5% to approximately $1.66 million for the three months ended March 31, 2025 from approximately $1.39 million for the three months ended March 31, 2024. This increase was primarily due to an increase in advertising, marketing, payroll and other administrative expenses and administrative cost of public filings, compared to such costs for the three months ended March 31, 2024.
Liquidity and Capital Resources
As of March 31, 2025, the Company had an accumulated deficit of $13,665,770 and cash and cash equivalents of $4,208,912. During the three months ended March 31, 2025 and 2024, the Company had a net loss of $1,624,218 and $1,386,904, respectively. To date, the Company has financed its operations primarily through capital raises and sales of its services. Based on the Company’s existing cash resources, the cash expected to be received from planned financings, and increased revenues expected to be generated from expanded operations due to prior asset acquisitions, it is expected that the Company will have sufficient funds to carry out the Company’s planned operations through March 31, 2026 and for at least 12 months beyond that period.
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As indicated above, we may require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the periods presented:
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash provided by (used in) operating activities | $ | (1,570,582 | ) | $ | (1,042,635 | ) | ||
| Net cash provided by (used in) investing activities | - | (11,902 | ) | |||||
| Net cash provided by (used in) financing activities | 3,118,870 | - | ||||||
| Net change in cash and cash equivalents | 1,548,288 | (1,054,537 | ) | |||||
| Cash and cash equivalents at beginning of period | 2,660,624 | 2,924,323 | ||||||
| Cash and cash equivalents at end of period | $ | 4,208,912 | $ | 1,869,786 | ||||
Net cash used in operating activities was approximately $1.57 million for the three months ended March 31, 2025, as compared to net cash used in operating activities of approximately $1.04 million for the three months ended March 31, 2024. This increase was primarily due to an increase in net loss of approximately $0.24 million, a decrease in stock-based compensation of approximately $0.07 million, and a decrease in prepaid expenses of approximately $0.12 million.
Net cash used in investing activities was $0 for the three months ended March 31, 2025, as compared to $0.01 million for the three months ended March 31, 2024. This change was primarily due to the non-recurrence of the purchase of property and equipment during the three months ended March 31, 2025.
Net cash provided by financing activities was approximately $3.12 million for the three months ended March 31, 2025, as compared to $0 for the three months ended March 31, 2024. This change was primarily due to the proceeds from the issuance of Class B Common Stock during the three months ended March 31, 2025 and the non-occurrence of proceeds from financing activities during the three months ended March 31, 2024.
Executive Employment and Consulting Agreements
On March 27, 2025, the Company entered into a letter agreement between the Company and Arshia Sarkhani, the Company’s Chief Executive Officer and President, dated as of March 27, 2025 (the “New Arshia Sarkhani Agreement”). Under the New Arshia Sarkhani Agreement, Mr. Sarkhani will remain employed by the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s previous letter agreement, dated as of April 21, 2022, between the Company and Mr. Sarkhani (the “Prior Arshia Sarkhani Employment Agreement”), and ending on April 1, 2027, the Company will pay Mr. Sarkhani an annual salary of $240,000. Pursuant to the New Arshia Sarkhani Agreement, the Company will also pay Mr. Sarkhani an immediate cash bonus of $25,000. Mr. Sarkhani will also be eligible to receive an annual cash bonus as determined by the Company’s board of directors or the Compensation Committee. Subject to the approval by the Company’s stockholders of an amendment to the Asset Entities Inc. 2022 Equity Incentive Plan (the “Plan”) to increase the number of shares of the Class B Common Stock available for grant under the Plan, and further subject to the approval of the board or the Compensation Committee, Mr. Sarkhani will be granted an award of shares of Class B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Sarkhani Award Agreement”). The shares will vest equally over two years on each anniversary of the Sarkhani Award Agreement subject to Mr. Sarkhani’s continuous service. Upon a change of control of the Company, all of the shares will vest immediately. The Sarkhani Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Arshia Sarkhani Agreement, Mr. Sarkhani will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Arshia Sarkhani Agreement also contains certain confidentiality provisions. The Company may terminate Mr. Sarkhani for “cause” as defined in the New Arshia Sarkhani Agreement. If the Company terminates Mr. Sarkhani without cause, the Company will be required to pay Mr. Sarkhani a separation fee of $240,000.
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On March 27, 2025, the Company entered into a letter agreement between the Company and Matthew Krueger, the Company’s Chief Financial Officer, Treasurer and Secretary, dated as of March 27, 2025 (the “New Krueger Agreement”). Under the New Krueger Agreement, Mr. Krueger will remain employed by the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s previous letter agreement, dated April 21, 2022, between the Company and Mr. Krueger (the “Prior Krueger Agreement”), and ending on April 1, 2027, the Company will pay Mr. Krueger an annual salary of $180,000. Pursuant to the New Krueger Agreement, the Company will also pay Mr. Krueger an immediate cash bonus of $50,000. Mr. Krueger will also be eligible to receive an annual cash bonus as determined by the board or the Compensation Committee. Subject to the approval by the Company’s stockholders of an amendment to the Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, and further subject to the approval of the board or the Compensation Committee, Mr. Krueger will be granted an award of shares of Class B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Krueger Award Agreement”). The shares will vest equally over two years on each anniversary of the Krueger Award Agreement subject to Mr. Krueger’s continuous service. Upon a change of control of the Company, all of the shares will vest immediately. The Krueger Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Krueger Agreement, Mr. Krueger will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Krueger Agreement also contains certain confidentiality provisions. The Company may terminate Mr. Krueger for “cause” as defined in the New Krueger Agreement. If the Company terminates Mr. Krueger without cause, the Company will be required to pay Mr. Krueger a separation fee of $180,000.
On March 27, 2025, the Company entered into a letter agreement between the Company and Kyle Fairbanks, the Company’s Executive Vice-Chairman and Chief Marketing Officer, dated as of March 27, 2025 (the “New Kyle Fairbanks Agreement”). Under the New Kyle Fairbanks Agreement, Mr. Fairbanks will remain employed by the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s previous letter agreement, dated April 21, 2022, between the Company and Mr. Fairbanks (the “Prior Kyle Fairbanks Agreement”), and ending on April 1, 2027, the Company will pay Mr. Fairbanks an annual salary of $240,000. Pursuant to the New Kyle Fairbanks Agreement, the Company will also pay Mr. Fairbanks a cash bonus of $10,000 on April 1, 2025. Mr. Fairbanks will also be eligible to receive an annual cash bonus as determined by the board or the Compensation Committee. Subject to the approval by the Company’s stockholders of an amendment to the Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, and further subject to the approval of the board or the Compensation Committee, Mr. Fairbanks will be granted an award of shares of Class B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Fairbanks Award Agreement”). The shares will vest equally over two years on each anniversary of the Fairbanks Award Agreement subject to Mr. Fairbanks’s continuous service. Upon a change of control of the Company, all of the shares will vest immediately. The Fairbanks Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Kyle Fairbanks Agreement, Mr. Fairbanks will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Kyle Fairbanks Agreement also contains certain confidentiality provisions. The Company may terminate Mr. Fairbanks for “cause” as defined in the New Kyle Fairbanks Agreement. If the Company terminates Mr. Fairbanks without cause, the Company will be required to pay Mr. Fairbanks a separation fee of $240,000.
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On March 27, 2025, the Company entered into an engagement letter between the Company and Michael Gaubert, the Company’s Executive Chairman, dated as of March 27, 2025 (the “New Gaubert Agreement”). Under the New Gaubert Agreement, Mr. Gaubert will continue to provide services to the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s previous engagement letter, dated April 21, 2022, between the Company and Mr. Gaubert (the “Prior Gaubert Agreement”), and ending on April 1, 2027, the Company will pay Mr. Gaubert a monthly fee of $20,000. Pursuant to the New Gaubert Agreement, the Company will also pay Mr. Gaubert an immediate cash fee of $75,000. Mr. Gaubert will be eligible to receive additional cash payments as determined by the Company. Mr. Gaubert will also be reimbursed for all preapproved costs and expenses reasonably incurred in the performance of his services to the Company. Subject to the approval by the Company’s stockholders of an amendment to the Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, and further subject to the approval of the board or the Compensation Committee, Mr. Gaubert will be granted an award of shares of Class B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Gaubert Award Agreement”). The shares will vest equally over two years on each anniversary of the Gaubert Award Agreement subject to Mr. Gaubert’s continuous service. The Gaubert Award Agreement will also contain non-competition and non-solicitation provisions. Upon a change of control of the Company, all of the shares will vest immediately. Under the New Gaubert Agreement, Mr. Gaubert will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Gaubert Agreement also contains certain confidentiality provisions. The New Gaubert Agreement may be terminated by either party upon 30 days’ advance written notice. However, if either party breaches a material obligation under the New Gaubert Agreement, and such breach continues for a period of ten days after the other party notifies the breaching party, the New Gaubert Agreement may be terminated immediately by notice to the breaching party. In addition, if the Company commits such a breach, or the Company terminates Mr. Gaubert in the absence of a material breach by Mr. Gaubert under the New Gaubert Agreement, then any shares granted will vest immediately, any shares due will be granted and vest immediately, and the Company will be required to pay Mr. Gaubert a separation fee of $240,000.
Each of the executive officers named above was required to sign an Employee Confidential Information and Inventions Assignment Agreement or an Independent Contractor Confidential Information and Inventions Assignment Agreement which prohibits unauthorized use or disclosure of the Company’s proprietary information, contains a general assignment of rights to inventions and intellectual property rights, non-competition provisions that apply during the term of employment or services, non-solicitation provisions that apply during the term of employment or services and for one year after the term of employment or services, and non-disparagement provisions that apply during and after the term of employment or services.
Private Placements of Series A Preferred Stock
Under a Securities Purchase Agreement, dated as of May 24, 2024, as amended by a First Amendment to Securities Purchase Agreement, dated as of June 13, 2024 (as amended, the “Ionic Purchase Agreement”), between the Company and Ionic Ventures, LLC, a California limited liability company (“Ionic”), the Company agreed to the issuance and sale of up to 330 shares of the Company’s newly designated Series A Preferred Stock for maximum gross proceeds of $3,000,000. The shares of the Series A Preferred Stock are convertible into shares of Class B Common Stock. Pursuant to the Ionic Purchase Agreement, the Company is required to issue and sell 165 shares of Series A Preferred Stock at each of two closings subject to the satisfaction of the terms and conditions for each closing.
The first closing (the “First Ionic Closing”) occurred on May 24, 2024 for the issuance and sale of 165 shares of Series A Preferred Stock for gross proceeds of $1,500,000. The second closing (the “Second Ionic Closing”), for the issuance and sale of 165 shares of Series A Preferred Stock for gross proceeds of $1,500,000, was required to occur on the first business day on which the conditions specified in the Ionic Purchase Agreement for the Second Ionic Closing were satisfied or waived, including the filing and effectiveness of the First Registration Statement (as defined below) and the effectiveness of the Stockholder Approval (as defined below). On July 29, 2024, the conditions to the occurrence of the Second Ionic Closing were met. As a result, on July 29, 2024, the Company issued and sold 165 shares of Series A Preferred Stock to Ionic for gross proceeds of $1,500,000.
The Company has received confirmation from Ionic that it will invest up to an additional $3 million upon request by the Company. Any such investment will be subject to the negotiation and entry into additional or amended definitive agreements.
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Registration Rights Agreement
In connection with the Ionic Purchase Agreement, the Company agreed to provide certain registration rights to Ionic, pursuant to the Registration Rights Agreement, dated as of May 24, 2024, between the Company and Ionic (the “Ionic Registration Rights Agreement”). The Ionic Registration Rights Agreement provides for the registration for resale of any and all shares of Class B Common Stock issuable to Ionic with respect to the shares of Series A Preferred Stock under the Ionic Purchase Agreement (the “Registrable Conversion Shares”). Within the later of 15 calendar days of the First Ionic Closing or May 24, 2024, the Company was required to file a registration statement (the “First Registration Statement”) for the offer and resale of the maximum number of Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations and interpretations. The First Registration Statement was required to be declared effective within 45 days of the First Ionic Closing, or 90 days if the First Registration Statement received a review. Pursuant to these requirements, a Registration Statement on Form S-1 (File No. 333-280020), was originally filed by the Company with the SEC on June 7, 2024, and as amended, was filed to register the offer and resale of 385,894 shares of Class B Common Stock, which was considered the maximum number of Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations and interpretations, and was declared effective by the SEC on July 24, 2024. Following the Second Ionic Closing, which occurred on July 29, 2024, for the issuance and sale of an additional 165 shares of Series A Preferred Stock for gross proceeds of $1,500,000, the Company was required to file a registration statement (the “Second Registration Statement”) within 45 days of the Second Ionic Closing for the offer and resale of the maximum number of Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations and interpretations. The Second Registration Statement was required to be declared effective within 45 days of the Second Ionic Closing, or 90 days if the Second Registration Statement received a review. Pursuant to these requirements, a Registration Statement on Form S-1 (File No. 333-281438), was originally filed by the Company with the SEC on August 9, 2024, and as amended, was filed to register the offer and resale of 482,120 shares of Class B Common Stock, which was considered the maximum number of Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations and interpretations, and was declared effective by the SEC on September 11, 2024.
In the event the number of shares of Class B Common Stock available under the First Registration Statement and the Second Registration Statement is insufficient to cover all of the Registrable Conversion Shares, the Company will be required to file at least one additional registration statement (each of such additional registration statement, the First Registration Statement, and the Second Registration Statement, and collectively, the “Registration Statement”) within 14 days of the date that the necessity arises and that such additional Registration Statement may be filed under SEC rules to cover such Registrable Conversion Shares up to the maximum permitted to be covered under SEC rules, which must be made effective within 45 days of such date, or 90 days if such additional Registration Statement receives a review. Any failure to meet the filing deadline for either the First Registration Statement or the Second Registration Statement (“Filing Failure”) would have resulted in liquidated damages of 20,000 shares of Class B Common Stock. Any failure to meet the effectiveness deadline for any Registration Statement (“Effectiveness Failure”) will result in liquidated damages of 20,000 shares of Class B Common Stock. Each of the shares issuable upon a Filing Failure or an Effectiveness Failure must also be covered by a Registration Statement to the same extent as the Registrable Conversion Shares. The Company will be required to use its best efforts to keep each Registration Statement effective until all such shares of Class B Common Stock are sold or may be sold without restriction pursuant to Rule 144 under the Securities Act (“Rule 144”), and without the requirement for us to be in compliance with the current public information requirement under Rule 144.
Terms of Series A Convertible Preferred Stock under Certificate of Designation and Securities Purchase Agreement
Pursuant to the Ionic Purchase Agreement, on May 24, 2024, the Company filed a Certificate of Designation of Series A Convertible Preferred Stock of the Company with the Secretary of State of the State of Nevada (the “Initial Certificate of Designation”), as amended by the Certificate of Amendment to Designation (the “First Designation Amendment”) filed with the Secretary of State of the State of Nevada on June 14, 2024, as amended by the Certificate of Amendment to Designation (the “Second Designation Amendment”) filed with the Secretary of State of the State of Nevada on September 4, 2024 at 9:58 AM Pacific Daylight Time, as amended by the Certificate of Amendment to Designation (the “Third Designation Amendment”) filed with the Secretary of State of the State of Nevada on September 4, 2024 at 11:38 AM Pacific Daylight Time (as amended, the “Series A Certificate of Designation”), designating 660 shares of the Company’s preferred stock as “Series A Convertible Preferred Stock,” $0.0001 par value per share, and setting forth the voting and other powers, preferences and relative, participating, optional or other rights of the Series A Preferred Stock. Each share of Series A Preferred Stock has an initial stated value (“Stated Value”) of $10,000 per share.
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The Series A Preferred Stock ranks senior to all other capital stock of the Company with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, unless the holders of the majority of the outstanding shares of Series A Preferred Stock consent to the creation of other capital stock of the Company that is senior or equal in rank to the Series A Preferred Stock.
Holders of Series A Preferred Stock will be entitled to receive cumulative dividends, in shares of Class B Common Stock (or cash at the Company’s option) on the Stated Value at an annual rate of 6% (which will increase to 12% if a Triggering Event (as defined in the Series A Certificate of Designation) occurs until such Triggering Event, if curable, is cured). Dividends will be payable upon conversion or redemption of the Series A Preferred Stock.
Holders of Series A Preferred Stock will be entitled to convert shares of Series A Preferred Stock into a number of shares of Class B Common Stock determined by dividing the Stated Value of such shares (plus any accrued but unpaid dividends and other amounts due, unless paid by the Company in cash) by the conversion price of the Series A Preferred Stock (the “Conversion Price”). The initial Conversion Price is $3.75, subject to adjustment including adjustments due to full-ratchet anti-dilution provisions. Holders may elect to convert shares of Series A Preferred Stock to Class B Common Stock at an alternate conversion price equal to 85% (or 70% if the Company’s Class B Common Stock is suspended from trading on or delisted from a principal trading market or upon occurrence of a Triggering Event) of the average of the lowest daily volume weighed average price of the Class B Common Stock during the Alternate Conversion Measuring Period (as defined in the Series A Certificate of Designation).
A holder of Series A Preferred Stock may not convert the Series A Preferred Stock into Class B Common Stock to the extent that such conversion would cause such holder’s beneficial ownership of Class B Common Stock to exceed 4.99% of the outstanding Class B Common Stock immediately after conversion, which may be increased by the holder to up to 9.99% upon no fewer than 61 days’ prior notice (the “Series A Beneficial Ownership Limitation”). Any conversion of shares of Series A Preferred Stock that would result in the holder beneficially owning in excess of 4.99% of the shares of Class B Common Stock will not be effected, and the shares of Class B Common Stock that would cause such excess will be held in abeyance and not issued to the holder until the date the Company is notified by the holder that its ownership is less than 4.99%, at the applicable Conversion Price, and subject to the holder’s compliance with other applicable procedural requirements for conversion. Holders of Series A Preferred Stock are not prohibited from delivering a Conversion Notice (as defined by the Series A Certificate of Designation) while another Conversion Notice remains outstanding.
The Series A Certificate of Designation provides that the Conversion Price may not be lower than a floor price (the “Floor Price”) of $0.4275 per share, subject to adjustment for stock splits and similar transactions. If the Conversion Price would be less than the Floor Price, then, subject to the terms and conditions of the Series A Certificate of Designation, the Stated Value will automatically increase in the manner provided pursuant to the Series A Certificate of Designation, as described in the following paragraph. The Series A Preferred Stock also may not be converted except to the extent that the shares of Class B Common Stock issuable upon such conversion may be resold pursuant to Rule 144 or an effective and available registration statement.
If a conversion of Series A Preferred Stock would have resulted in the issuance of an amount of shares of Class B Common Stock exceeding 19.99% of the Company’s common stock outstanding as of the date of the signing of the related binding agreement, which number of shares would be reduced, on a share-for-share basis, by the number of shares of common stock issued or issuable pursuant to any transaction or series of transactions that may be aggregated with the transactions contemplated by the Series A Certificate of Designation under applicable rules of Nasdaq, including Nasdaq Listing Rule 5635(d) (such amount, the “Exchange Limitation”), the Conversion Price would have been required to be at least equal to the price (the “Minimum Price”) that would be the lower of the last closing price of the stock immediately preceding the signing of the related binding agreement and the average closing price for the five Trading Days (as defined below) immediately preceding the signing of the related binding agreement, before the effectiveness of the approval of such number of the holders of the outstanding shares of the Company’s voting securities as required by the Bylaws of the Company (the “Bylaws”) and the Nevada Revised Statutes (the “NRS”), to ratify and approve all of the transactions contemplated by the Transaction Documents (as defined in the Ionic Purchase Agreement), including the issuance of all of the shares of Series A Preferred Stock and shares of Class B Common Stock upon conversion of the shares of Series A Preferred Stock, all as may be required by the applicable rules and regulations of The Nasdaq Capital Market tier of Nasdaq (or any successor entity) (the “Stockholder Approval”). In the event that the Conversion Price on a Conversion Date (as defined in the Series A Certificate of Designation) would have been less than the applicable Minimum Price or the Floor Price if not for the immediately preceding sentence, then, upon any conversion of shares of Series A Preferred Stock, the Stated Value will automatically be increased by an amount equal to the product obtained by multiplying (A) the higher of (I) the highest price that the Class B Common Stock trades at on the Trading Day immediately preceding the Conversion Date and (II) the applicable Conversion Price and (B) the difference obtained by subtracting (I) the number of shares of Class B Common Stock delivered (or to be delivered) to the holder on the applicable Conversion Date with respect to such conversion of shares of Series A Preferred Stock from (II) the quotient obtained by dividing (x) the Stated Value (plus any accrued but unpaid dividends and other amounts due on such shares) of the Series A Preferred Stock being converted that the holder has elected to be the subject of the applicable conversion, by (y) the applicable Conversion Price.
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The Ionic Purchase Agreement required that the Company obtain the Stockholder Approval, by the prior written consent of the requisite stockholders as required by the Bylaws and the NRS, to ratify and approve all of the transactions contemplated by the Transaction Documents, including the issuance of all of the shares of Series A Preferred Stock and shares of Class B Common Stock issuable upon conversion of such shares pursuant to the Ionic Purchase Agreement, all as may be required by the applicable rules and regulations of The Nasdaq Capital Market tier of Nasdaq (or any successor entity). The Ionic Purchase Agreement and the Series A Certificate of Designation further required that the Company file a Preliminary Information Statement on Schedule 14C with the SEC within 10 days of the date of the First Ionic Closing followed by the filing of a Definitive Information Statement on Schedule 14C with the SEC within 20 days of the date of the First Ionic Closing, or within 45 days of the date of the First Ionic Closing if delayed due to a court or regulatory agency, including but not limited to the SEC, which was required to disclose the Stockholder Approval. In accordance with the rules of the SEC, the Stockholder Approval was required to become effective 20 days after the Definitive Information Statement was sent or given in accordance with SEC rules.
In accordance with the requirements and provisions described above, on May 24, 2024, the Company obtained the execution of a written consent in lieu of a special meeting of a majority of the voting power of the stockholders of the Company approving a resolution approving the issuance of Class B Common Stock in aggregate in excess of the limitations provided by Nasdaq Listing Rule 5635(d), including that an amount of shares of Class B Common Stock equal to or greater than 20% of the total common stock or voting power outstanding on the date of the Series A Certificate of Designation may be issued pursuant to the Series A Certificate of Designation at a price that may be less than the Minimum Price. On May 31, 2024, the Company filed a Preliminary Information Statement on Schedule 14C with the SEC. On June 13, 2024, the Company filed a Definitive Information Statement on Schedule 14C with the SEC disclosing such written consent. As of the 20th day following actions meeting these and other applicable requirements, the Company is permitted to issue more than the limited number of shares as defined by the Exchange Limitation, at a Conversion Price that may be below the Minimum Price.
Under the Ionic Purchase Agreement, if the closing price of the Class B Common Stock falls below $3.75 per share, the holder’s total sales of Class B Common Stock will be restricted. The holder may only sell either the greater of $25,000 per Trading Day or 15% of the daily trading volume of the Class B Common Stock reported by Bloomberg, LP, until the closing price exceeds $3.75. “Trading Day” is defined as a day on which the principal trading market for the Class B Common Stock is open for trading for at least six hours.
In addition, while any of the shares of Series A Preferred Stock are outstanding, if the closing price of the Class B Common Stock is equal to or less than $0.4275 per share for a period of ten consecutive Trading Days, then the Company will promptly take all corporate action necessary to authorize a reverse stock split of the Class B Common Stock by a ratio equal to or greater than 300% of the quotient obtained by dividing $0.4275 by the lowest closing price of the Class B Common Stock during such ten-Trading Day period, including calling a special meeting of stockholders to authorize such reverse stock split or obtaining written consent for such reverse stock split, and voting the management shares of the Company in favor of such reverse stock split.
The Series A Preferred Stock will automatically convert to Class B Common Stock upon the 24-month anniversary of the initial issuance date of the Series A Preferred Stock.
The Company will have the right at any time to redeem all or any portion of the Series A Preferred Stock then outstanding at a price equal to 110% of the Stated Value plus any accrued but unpaid dividends and other amounts due.
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Holders of the Series A Preferred Stock will generally have the right to vote on an as-converted basis with the Class B Common Stock, subject to the Series A Beneficial Ownership Limitation.
Under the Ionic Purchase Agreement, the Company generally may not sell securities in a financing transaction while Ionic beneficially owns any shares of Series A Preferred Stock or common stock until the end of the 30-day period following the initial date of the effectiveness of each Registration Statement or during any Alternate Conversion Measuring Period. In addition, the Company may not file any other registration statement or any offering statement under the Securities Act, other than a registration statement on Form S-8 or supplements or amendments to registration statements that were filed and effective as of the date of the Ionic Purchase Agreement (solely to the extent necessary to keep such registration statements effective and available and not with respect to any Subsequent Placement (as defined by the Ionic Purchase Agreement)), unless each of the First Registration Statement and the Second Registration Statement is effective and the respective prospectuses are available for use, or the outstanding shares of Series A Preferred Stock and underlying shares of Class B Common Stock may be resold without limitation under Rule 144. Additionally, the Company may not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, any securities of the Company without the prior express written consent of Ionic (other than as required by the Series A Certificate of Designation).
As of March 31, 2025, all 330 shares of Series A Preferred Stock outstanding had been converted into a total of 7,970,848 shares of Class B Common Stock, of which 2,158,882 were held in abeyance pursuant to the Series A Beneficial Ownership Limitation.
Compensation to Boustead Securities, LLC
In connection with each of the First Ionic Closing and the Second Ionic Closing, pursuant to the letter agreement, dated November 29, 2021, between the Company and Boustead (the “Boustead Engagement Letter”) and the Underwriting Agreement, dated as of February 2, 2023, between the Company and Boustead (as representative of the underwriters named therein) (the “Underwriting Agreement”), the Company was required to pay Boustead a fee equal to 7% of the aggregate purchase price and a non-accountable expense allowance equal to 1% of the aggregate purchase price for the Series A Preferred Stock. On the date of the First Ionic Closing, we therefore paid Boustead a total amount of $120,000. In addition, the Company was required to issue a warrant to Boustead for the purchase of 30,800 shares of Class B Common Stock, equal to 7% of the number of shares of Class B Common Stock that may be issued upon conversion of the shares of Series A Preferred Stock sold at the First Ionic Closing at the initial Conversion Price of $3.75 per share (the “May 2024 Boustead Warrant”). On the date of the Second Ionic Closing, we paid Boustead a total amount of $120,000. In addition, on the date of the Second Ionic Closing, the Company was required to issue a warrant to Boustead for the purchase of 30,800 shares of Class B Common Stock, equal to 7% of the number of shares of Class B Common Stock that may be issued upon conversion of the shares of Series A Preferred Stock sold at the Second Ionic Closing at the initial Conversion Price of $3.75 per share (the “July 2024 Boustead Warrant”).
Pursuant to an Assignment and Assumption Agreement, dated as of July 30, 2024, among Boustead, Sutter Securities, Inc., a registered broker-dealer and an affiliate of Boustead (“Sutter”), and the Company (the “First July 2024 Boustead Warrant Assignment Agreement”), all of the rights to the July 2024 Boustead Warrant were assigned by Boustead to Sutter. Pursuant to an Assignment and Assumption Agreement, dated as of July 30, 2024, among Sutter, Michael R. Jacks (the “Warrant Assignee”), Boustead, and the Company (the “Second July 2024 Boustead Warrant Assignment Agreement”), all of the rights to the July 2024 Boustead Warrant were assigned by Sutter to the Warrant Assignee, a registered representative of Sutter. Pursuant to the First July 2024 Boustead Warrant Assignment Agreement and the Second July 2024 Boustead Warrant Assignment Agreement, the July 2024 Boustead Warrant was cancelled, and a warrant (the “July 2024 Assignee Warrant”) was issued to the Warrant Assignee. The terms of the July 2024 Assignee Warrant are identical to those of the July 2024 Boustead Warrant.
The May 2024 Boustead Warrant and the July 2024 Boustead Assignee Warrant have an exercise price of $3.75 per share, subject to adjustment, five-year terms, and cashless exercise and piggyback registration rights.
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ATM Financing
ATM Sales Agreement
On September 27, 2024, the Company entered into the ATM Sales Agreement with the Sales Agent. Under the terms of the ATM Sales Agreement, the Company may, from time to time, in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, issue and sell through or to the Sales Agent, up to a maximum aggregate amount of $1,791,704 of shares of the Company’s Class B Common Stock (the “ATM Shares”). The issuance and sale of the ATM Shares to or through the Sales Agent from time to time will be effected pursuant to the Shelf Registration Statement and the prospectus supplement filed by the Company with the SEC on September 30, 2024 relating to the offering of the ATM Shares and the accompanying base prospectus. In November 2024 and January 2025, the Company filed additional prospectus supplements to the Shelf Registration Statement to increase the maximum gross proceeds to $5,489,399.
Pursuant to the ATM Sales Agreement, the Company may issue and sell the ATM Shares from time to time through or to the Sales Agent, acting as sales agent or principal, subject to the terms and conditions of the ATM Sales Agreement. The Company may instruct the Sales Agent to make such sales, and the Sales Agent, as agent, will use its commercially reasonable efforts to sell the ATM Shares within the parameters set forth in the Company’s notice to sell, and subject to the satisfaction of the Company’s obligations as set forth in the ATM Sales Agreement. The Company will designate the parameters within which the ATM Shares must be sold, including at a minimum the number to be sold, the time period during which sales are requested to be made, any limitation on the number of the ATM Shares that may be sold in any one trading day, and any minimum price below which sales may not be made. The Company has no obligation to sell, and the Sales Agent is not obligated to buy or sell, any of the ATM Shares under the ATM Sales Agreement and may at any time suspend offers under the ATM Sales Agreement or terminate the ATM Sales Agreement as provided for in the ATM Sales Agreement. The offering of the ATM Shares pursuant to the related prospectus supplements to the Shelf Registration Statement and the accompanying base prospectus will terminate upon the earlier of (i) the sale of the ATM Shares pursuant to such prospectus supplement and accompanying base prospectus having an aggregate sales price of $5,489,399, and (ii) the termination by the Company or the Sales Agent of the ATM Sales Agreement pursuant to its terms.
The Sales Agent may sell ATM Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act.
Unless otherwise agreed between the Company and the Sales Agent, settlement for sales of the ATM Shares will occur on the first trading day following the date on which any sales are made. Sales of the ATM Shares will be settled through the facilities of The Depository Trust Company or by such other means as the Company and the Sales Agent may agree. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
The Company will pay the Sales Agent a cash commission of 3.0% of the gross sales price of the ATM Shares sold by the Sales Agent pursuant to the ATM Sales Agreement. Pursuant to the terms of the ATM Sales Agreement, the Company also agreed to reimburse the Sales Agent for reasonable fees and expenses, not to exceed $60,000 (including but not limited to the reasonable and documented fees and disbursements of its legal counsel), and additional amounts for annual maintenance of the ATM Sales Agreement (including but not limited to the reasonable and documented fees and disbursements of its legal counsel) on a quarterly basis, not to exceed $5,000 per quarter.
Each of the Company and the Sales Agent has the right, by giving written notice as specified in the ATM Sales Agreement, to terminate the ATM Sales Agreement in its sole discretion at any time upon five (5) days’ prior written notice. The Sales Agent also has the right to terminate the ATM Sales Agreement at any time in certain circumstances, including in the event of the occurrence of a material adverse change with respect to the Company, the failure of the Company to perform its obligations under the ATM Sales Agreement, any failure to fulfill any condition to the obligations of the Sales Agent under the ATM Sales Agreement, or any suspension or limitation of trading of the ATM Shares.
The ATM Sales Agreement contains certain covenants, representations and warranties customary for an agreement of this type. The Company agreed to provide indemnification and contribution to the Sales Agent against certain liabilities, including liabilities under the Securities Act.
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This Quarterly Report on Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy, and the ATM Shares cannot be sold in any state or jurisdiction in which the offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any state or jurisdiction. Any offer will be made only by means of a prospectus, consisting of a prospectus supplement and the accompanying base prospectus, forming a part of the effective registration statement.
Waivers and Consents to ATM Financing
Under a Waiver and Consent, dated as of September 20, 2024, between the Company and Ionic, as amended and restated by the Amended and Restated Waiver and Consent, dated as of March 20, 2025, between the Company and Ionic (as amended, the “Ionic ATM Waiver”), Ionic waived any prohibition, restriction or adverse adjustment that would otherwise apply to any action of the Company relating to the ATM Financing under the Ionic Purchase Agreement or the Series A Certificate of Designation. Pursuant to the Ionic ATM Waiver, regardless of the terms and conditions of the Ionic Purchase Agreement and the Series A Certificate of Designation, the Company may at any time enter into or consummate any transactions contemplated by any agreement relating to the ATM Financing, the filing of a prospectus supplement to a prospectus contained in an effective registration statement that was filed under the Securities Act relating to the ATM Financing, the announcement of the ATM Financing, the issuance, offer, sale, or grant of any shares of Class B Common Stock relating to the ATM Financing, or the issuance, offer, sale, or grant of any securities in connection with either the provision of goods or services or settlement of any obligations that may otherwise arise with respect to the ATM Financing. In addition, pursuant to the Ionic ATM Waiver, Ionic waived any adjustment to the applicable Conversion Price, which partly determines the number of shares of Class B Common Stock issuable upon conversion of a share of Series A Preferred Stock, that would otherwise occur as a result of the ATM Financing under the terms of the Series A Certificate of Designation.
On September 26, 2024, the Company entered into a Limited Waiver and Consent, dated as of September 26, 2024 (the “Boustead ATM Waiver”), between the Company and Boustead. Pursuant to the Boustead ATM Waiver, Boustead waived any condition on, restriction on, compensation rights, or rights of first refusal that would be applicable under the Boustead Engagement Letter and the Underwriting Agreement in relation to an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act), of equity securities of up to $5 million (“Boustead-Waived ATM”). Pursuant to the Boustead ATM Waiver, the Company may at any time enter into any agreement relating to a Boustead-Waived ATM, the filing of a prospectus supplement to a prospectus contained in an effective registration statement that was filed under the Securities Act relating to a Boustead-Waived ATM, the announcement of a Boustead-Waived ATM, the issuance, offer, sale, or grant of any shares of the Class B Common Stock relating to a Boustead-Waived ATM, or the issuance, offer, sale, or grant of any securities in connection with either the provision of goods or services or settlement of any obligations that may otherwise arise with respect to a Boustead-Waived ATM. As consideration, the Boustead ATM Waiver provides that the Company will promptly pay Boustead 3.0% of the gross sales price of all shares of Class B Common Stock sold in connection with any Boustead-Waived ATM until the end of the applicability of the provisions of the right of first refusal provisions of the Boustead Engagement Letter.
The Company has determined that the Boustead Engagement Letter was superseded by the Underwriting Agreement with respect to the right of first refusal provisions of the Boustead Engagement Letter. The right of first refusal provisions under the Underwriting Agreement terminated as of February 7, 2025.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included with this Quarterly Report on Form 10-Q, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. We believe our most critical accounting policies and estimates relate to the following:
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Intangible Assets
Intangible assets acquired are recorded at fair value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. During the three months ended March 31, 2025 and 2024, there were no intangible asset impairment charges.
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from 5 to 15 years. Our finite-lived intangible assets include acquired franchise agreements, acquired customer relationships, acquired customer lists, and internally developed software. Our indefinite-lived intangible assets include acquired domain names, trade names, and purchased software.
Intangible assets internally developed are measured at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third parties for development services and payroll costs for employees’ time spent developing the software. We expense costs incurred during the preliminary project stage and the post-implementation stage. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.
Impairment of Long-lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
Advertising Expenses
The Company expenses advertising costs as they incurred. Total advertising expenses were $212,070 and $143,915 for the three months ended March 31, 2025 and 2024, respectively, and have been included as part of general and administrative expenses.
Research and Development
Research and development costs are charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement.
The Company incurred research and development expenses of $99,364 and $119,009 for the three months ended March 31, 2025 and 2024, respectively, and have been included as part of contract labor.
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Stock Based Compensation
Service-Based Awards
The Company records stock-based compensation for awards granted to employees, non-employees, and to members of the board for their services on the board based on the grant date fair value of awards issued, and the expense is recorded on a straight-line basis over the requisite service period, which is generally one to three years.
For restricted stock awards (“RSAs”) issued under the Company’s stock-based compensation plans, the fair value of each grant is calculated based on the Company’s stock price on the date of grant.
Share Repurchase
Share repurchases are open market purchases. Share repurchases are generally recorded on the settlement date, as treasury stock. When shares are cancelled, the value of repurchased shares is deducted from stockholders’ equity through common stock with the excess over par value recorded to accumulated deficit.
Revenue Recognition
The Company recognizes revenue utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.
Subscriptions
Subscription revenue is related to a single performance obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability recorded over the contracted service period.
Marketing
Revenue related to marketing campaign contracts with customers are normally of a short duration, typically less than two (2) weeks.
AE.360.DDM Contracts
Revenue related to AE.360.DDM contracts with customers are normally of a short duration, typically less than one (1) week.
Contract Liabilities
Contract liabilities consist of quarterly and annual subscription revenue that have not been recognized. Revenue under these agreements is recognized over the related service period. As of March 31, 2025 and December 31, 2024, total contract liabilities were $667 and $369 respectively. Contract liabilities are expected to be recognized as revenue over a period not to exceed twelve (12) months.
Changes in contract liabilities for the three months ended March 31, 2025 and 2024 are as follows:
| 2025 | ||||
| Balance, January 1 | $ | 369 | ||
| Deferral of revenue | 298 | |||
| Recognition of revenue | - | |||
| Balance, March 31 | $ | 667 | ||
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Earnings per Share of Common Stock
The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for warrants and options using the treasury stock method.
As of March 31, 2025, warrants representing 105,490 shares of common stock equivalents were excluded from the computation from diluted net loss per share as the result was anti-dilutive.
Commitments and Contingencies
The Company follows ASC 450-20, “Loss Contingencies”, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. As of March 31, 2025 and December 31, 2024, the Company did not have any commitments and contingencies.
Segment Reporting
The Company operates as one operating segment. The Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews the operating results for the Company as a whole to make decisions about allocating resources and assessing financial performance. The CODM uses operating margin and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the determination of the rate at which the Company seeks to grow operating margin, the allocation of budget between operating expenses and the management and forecasting of cash to ensure enough capital is available. Accordingly, we determined we operate in a single reporting segment.
Our CEO assesses performance and decides how to allocate resources primarily based on net income, which is reported on our Statements of Operations. Total assets on the Balance Sheets represent our segment assets.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board issued ASU 2024-03 final standard on Income Statement: Disaggregation of Income Statement Expenses, which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This guidance will be effective for us on January 1, 2027.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) prior to the filing of this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are not currently aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Unregistered Sales of Equity Securities
During the three months ended March 31, 2025, we did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed in a Current Report on Form 8-K.
Purchases of Equity Securities
No repurchases of our common stock were made during the three months ended March 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be disclosed in a Current Report on Form 8-K during the three months ended March 31, 2025 but was not reported.
None
of our directors or “officers,” as defined in Rule 16a-1(f) under the Exchange Act,
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ITEM 6. EXHIBITS.
| * | Annexes, schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted annexes, schedules and exhibits upon request by the SEC. |
| ** | Filed herewith |
| *** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 15, 2025 | ASSET ENTITIES INC. | |
| /s/ Arshia Sarkhani | ||
| Name: | Arshia Sarkhani | |
| Title: | Chief Executive Officer and President | |
| (Principal Executive Officer) | ||
| /s/ Matthew Krueger | ||
| Name: | Matthew Krueger | |
| Title: | Chief Financial Officer | |
| (Principal Accounting and Financial Officer) | ||
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Exhibit 31.1
CERTIFICATIONS
I, Arshia Sarkhani, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Asset Entities Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2025
/s/ Arshia Sarkhani | |
| Arshia Sarkhani | |
Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS
I, Matthew Krueger, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Asset Entities Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2025
/s/ Matthew Krueger | |
| Matthew Krueger | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Executive Officer of Asset Entities Inc. (the “Company”), DOES HEREBY CERTIFY that to my knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement on May 15, 2025.
/s/ Arshia Sarkhani | |
| Arshia Sarkhani | |
Chief Executive Officer and President (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Asset Entities Inc. and will be retained by Asset Entities Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned Chief Financial Officer of Asset Entities Inc. (the “Company”), DOES HEREBY CERTIFY that to my knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
IN WITNESS WHEREOF, the undersigned has executed this statement on May 15, 2025.
/s/ Matthew Krueger | |
| Matthew Krueger | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to Asset Entities Inc. and will be retained by Asset Entities Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.