Fyntechnical Innovations Inc 10-Q for FY2024 Q2
Fyntechnical Innovations Inc (FYNN)
About this 10-Q
Fyntechnical Innovations Inc filed this 10-Q on August 22, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $14.62M
- compared with a net loss of $359.13K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period ________
Commission File No.
(Exact name of the small business issuer as specified in its charter) |
(State of either jurisdiction of
Incorporation or Organization)
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
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 Act). Yes
The number of shares of Common Stock, $0.001 par value of the registrant outstanding at August 20, 2024 was
FORM 10-Q
For the Quarterly Period Ended June 30, 2024
INDEX
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited) |
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| Table of Contents |
SMC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
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| December 31, |
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ASSETS |
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Current Assets: |
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Cash |
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Receivable |
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Total Current Assets |
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Goodwill |
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Intangible assets |
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Total Assets |
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LIABILITIES & STOCKHOLDERS’ DEFICIT |
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Current Liabilities: |
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Accounts payable and accrued liabilities |
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Accrued compensation |
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Due to related parties |
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Notes payable – related party |
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Convertible notes |
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Accrued interest |
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Derivative liability |
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Total Current Liabilities |
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Total Liabilities |
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Stockholders’ Deficit: |
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Series A Preferred stock, $ |
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Series B Preferred stock, $ |
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Common stock $ |
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Common stock to be issued |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Deficit |
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Total Liabilities and Stockholders’ Deficit |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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| Table of Contents |
SMC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| For the Three Months Ended |
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| For the Six Months Ended |
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Operating Expenses: |
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General and administrative |
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Compensation expense – related party |
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Bad debt expense |
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Development expense |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense |
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Gain on conversion of debt |
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Loss on conversion of debt |
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Transaction expense |
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Change in fair value of derivative |
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Total Other Expense |
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Net Loss |
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Net loss per share – basic and diluted |
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Weighted average shares outstanding, basic and diluted |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
| Table of Contents |
SMC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT For the Three and Six Months Ended June 30, 2024 (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Common Stock |
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| Additional |
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| Common |
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| Total |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Amount |
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| Paid-in Capital |
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| Stock to Be Issued |
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| Accumulated Deficit |
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| Stockholders’ Deficit |
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Balance, December 31, 2023 |
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Common stock issued for services – related party |
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Common stock issued for services |
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Net income |
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Balance, March 31, 2024 |
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Common stock issued for accrued compensation – related party |
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Common stock issued for accrued compensation |
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Common stock cancelled |
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Forgiveness of debt – related party |
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Net loss |
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Balance, June 30, 2024 |
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| $ |
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| $ |
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| 6 |
| Table of Contents |
SMC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT For the Three and Six Months Ended June 30, 2023 (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Common Stock |
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| Additional |
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| Discount to |
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| Common |
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| Total |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Paid-in Capital |
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| Preferred Stock |
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| Stock to Be Issued |
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| Accumulated Deficit |
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| Stockholders’ Deficit |
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Balance, December 31, 2022 |
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| $ |
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| $ |
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Common stock issued for conversion of debt |
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Common stock issued for services – related party |
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Common stock issued for services |
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Net loss |
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Balance, March 31, 2023 |
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Common stock issued for services – related party |
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Common stock issued for services |
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Common stock issued for conversion of debt |
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Preferred stock issued for acquisition |
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Net loss |
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Balance, June 30, 2023 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
| Table of Contents |
SMC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| For the Six Months Ended June 30, |
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| 2024 |
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| 2023 |
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Cash Flows from Operating Activities: |
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Net loss |
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| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Common stock issued for services – related party |
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Common stock issued for services |
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Change in fair value of derivative |
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Gain on conversion of debt |
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Loss on conversion of debt |
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Bad debt expense |
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Transaction expense |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Accrued compensation – related party |
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Net cash used in operating activities |
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Cash Flows from Investing Activities: |
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Cash Flows from Financing Activities: |
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Cash overdraft assumed with acquisition |
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(Repayment) / proceeds from loan – related party |
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Proceeds from loans |
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Net cash provided by financing activities |
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Net change in cash |
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Cash at beginning of period |
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Cash at end of period |
| $ |
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Supplemental schedule of cash flow information: |
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Cash paid for interest |
| $ |
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| $ |
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Cash paid for taxes |
| $ |
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| $ |
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Supplemental non-cash disclosure: |
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Acquisition of intangible assets |
| $ | |
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| $ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
| Table of Contents |
SMC ENTERTAINMENT, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 2024
NOTE 1 — DESCRIPTION OF BUSINESS AND HISTORY
SMC Entertainment, Inc. (the “Company” or “SMC”) was incorporated in the State of Nevada on January 23, 1998, under the name of Professional Recovery Systems, Ltd.
On April 21, 2023, the Company completed its acquisition of AI-enabled wealth management technology platform provider, Fyniti Global Equities EBT Inc. (“Fyniti”) for
Fyniti (www.fyniti.com, www.fynitiiq.com) is a Fintech developer and provider of technology that combines Artificial Intelligence/Machine Learning (AI/ML) driven Quantitative investing (IQ Engine) with AI-enabled wealth management Electronic Block Trading (“EBT”) technology.
NOTE 2 — SUMMARY OF SIGNIFICANT POLICIES
Basis of Presentation
The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected for the full year ending December 31, 2024. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2023.
Use of Estimates,
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Significant estimates include the fair value for derivatives, calculations used for stock based compensation, fair value of net assets acquired in a business combination and the estimate of the valuation allowance on deferred taxes. Actual results could differ from those estimates.
Concentrations of Credit Risk
We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and consequently have not experienced any losses in our accounts. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount (“FDIC”).
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of June 30, 2024 and December 31, 2023.
Basic and Diluted Earnings Per Share
Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period presented. Diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred. Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.
| 9 |
| Table of Contents |
Stock-Based Compensation
We account for equity-based transactions with employees and non-employees under the provisions of FASB ASC Topic 718, “Compensation – Stock Compensation” (Topic 718), which establishes that equity-based payments to employees and non-employees are recorded at the grant date the fair value of the equity instruments the entity is obligated to issue when the employees and non-employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments. Topic 718 also states that observable market prices of identical or similar equity or liability instruments in active markets are the best evidence of fair value and, if available, should be used as the basis for the measurement for equity and liability instruments awarded in these share-based payment transactions. However, if observable market prices of identical or similar equity or liability instruments are not available, the fair value shall be estimated by using a valuation technique or model that complies with the measurement objective, as described in FASB ASC Topic 718.
Revenue Recognition
The Company recognizes revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
Derivative Financial Instruments
The Company evaluates its convertible notes to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted-average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
| 10 |
| Table of Contents |
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The following table classifies the Company’s asset measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2024:
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Derivative |
| $ |
|
| $ |
|
| $ |
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2023:
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Derivative |
| $ |
|
| $ |
|
| $ |
| |||
Total |
| $ |
|
| $ |
|
| $ |
| |||
Recently issued accounting pronouncements
The Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 — GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses since inception and has no assurance of future profitability. The Company will continue to require financing from external sources to finance its operating and investing activities until sufficient positive cash flows from operations can be generated. There is no assurance that financing or profitability will be achieved, accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.
| 11 |
| Table of Contents |
NOTE 4— CONVERTIBLE NOTES PAYABLE
A summary of all the Company’s convertible loans is as follows.
|
| Date Issued |
|
| Maturity Date |
|
| Rate |
|
| Balance 12/31/2023 |
|
| Additions |
|
| Conversions/ Payments |
|
| Balance 6/30/2024 |
|
| Conv Terms |
| ||||||||
FV Investments |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
FV Investments |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Christopher Whitcomb |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| (1 | ) | |||||||||
Christopher Whitcomb |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| (1 | ) | |||||||||
Christopher Whitcomb |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| (1 | ) | |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Mammoth Corporation |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| (3 | ) | |||||||||
Mammoth Corporation |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
| (4 | ) | |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
Kanno Group Holdings ll Ltd |
|
|
|
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||||
ChainTrade, Ltd |
|
|
|
|
|
| % |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Kanno Group Holdings ll Ltd – accrued interest |
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| ||||
Other accrued interest |
|
| n/a |
|
|
| n/a |
|
|
| n/a |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| ||||
Total convertible debt and accrued interest |
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| ||||
(1) | 75% discount to the lowest closing price within the 60 previous trading sessions. | |
(2) | Note was assigned to Mammoth Corporation | |
(3) | Conversion rate depends on what part of the loan and when the conversion occurs. | |
(4) | 50% of market price. |
All notes past their maturity date are considered to be default.
A summary of the activity of the derivative liability for the notes above is as follows:
Balance at December 31, 2022 |
| $ |
| |
Decrease to derivative due to conversion |
|
| ( | ) |
Derivative loss due to mark to market adjustment |
|
|
| |
Balance at December 31, 2023 |
|
|
| |
Decrease to derivative due to modification of debt |
|
| ( | ) |
Derivative loss due to mark to market adjustment |
|
|
| |
Balance at June 30, 2024 |
| $ |
|
| 12 |
| Table of Contents |
A summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized within Level 3 of the fair value hierarchy as of June 30, 2024, is as follows:
Inputs |
| June 30, 2024 |
|
| Initial Valuation |
| ||
Stock price |
| $ |
| $ | |
| ||
Conversion price |
| $ | |
| $ | |
| |
Volatility (annual) |
|
| % |
|
| |||
Risk-free rate |
|
| % |
|
| |||
Dividend rate |
|
| - |
|
|
| - |
|
Years to maturity |
|
|
|
|
|
| ||
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management.
NOTE 5 — COMMON STOCK
During Q1 2024, the Company granted
During Q2 2024, the Company issued
On June 7, 2024, the Company cancelled
Refer to Note 8 for shares issued to related parties.
NOTE 6 — PREFERRED STOCK
Series A Preferred Stock
The Company has
Series B Preferred Stock
On December 16, 2021, the Company amended its Articles of Incorporation, creating a series of Preferred Stock designating
On April 21, 2023, the Company completed its acquisition of AI-enabled wealth management technology platform provider, Fyniti Global Equities EBT Inc. (“Fyniti”) for
| 13 |
| Table of Contents |
NOTE 7 — RELATED PARTY TRANSACTIONS
On December 26, 2023, Xuqiang (Adam) Yang, was appointed as Chief Financial Officer (“CFO”) of the Company to replace Mr. Blum, who was serving as the Interim CFO. Per the terms of the consulting agreement to serve as the Company’s CFO Mr. Yang will be compensated $
On March 25, 2024, the Company issued
On March 25, 2024, the Company issued
On March 31, 2024, the Company entered into a new consulting agreement with Ronald Hughes and North Arm Capital LLC. Per the terms of the agreement, effective January 1, 2024, Mr. Hughes is to be compensated $
On March 31, 2024, the Company entered into a new consulting agreement with Erik Blum and J W Price LLC. Per the terms of the agreement, effective January 1, 2024, Mr. Blum is to be compensated $
NOTE 8 – ACQUISITIONS
On April 21, 2023, the Company completed its acquisition of AI-enabled wealth management technology platform provider, Fyniti Global Equities EBT Inc. (“Fyniti”) for
The Company accounted for the transaction as a business combination under ASC 805 and as a result, allocated the fair value of the book value of identifiable assets acquired and liabilities assumed as of the acquisition date as outlined in the table below. The consolidated income statement for the six months ended June 30, 2024, includes $
The excess of the purchase price over the estimated fair values of the underlying identifiable assets acquired and liabilities assumed was allocated to goodwill.
Consideration |
|
|
| |
Consideration issued |
| $ |
| |
Identified assets, liabilities, and noncontrolling interest |
|
|
|
|
Cash overdraft |
|
| ( | ) |
Accounts payable |
|
| ( | ) |
Accrued Expenses |
|
| ( | ) |
Total identified assets, liabilities, and noncontrolling interest |
|
| ( | ) |
Excess purchase price allocated to goodwill |
| $ |
| |
On June 21, 2024, the Company closed on the May 30, 2024 Acquisition Agreement (the “Acquisition Agreement”) with ChainTrade, LTD (“ChainTrade”), to purchase
On June 25, 2024, as required by the Acquisition Agreement, Paul (Prem) Couture, CEO of ChainTrade, and Red Matter Capital, was appointed as the Company’s Chief Technology Officer. Mr. Couture and the Company entered into an Employment Agreement under which he is to be paid a salary of $
NOTE 9— SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, Subsequent Events, from the balance sheet date through the date the financial statements were issued and has determined that there are the following material subsequent events.
Subsequent to June 30, 2024, the Company exchanged $
Subsequent to June 30, 2024, the Company exchanged $
| 14 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included elsewhere in this quarterly report.
Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward-looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, our actual results may differ significantly from management’s expectations. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents referred to or incorporated by reference, the date of those documents.
The following discussion and analysis should be read in conjunction with our unaudited financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Company Overview and Description of Business
On April 21, 2023, the Company completed its acquisition of AI-enabled wealth management technology platform provider, Fyniti Global Equities EBT Inc. (“Fyniti”) for 2,500,000 shares of Series B $10.00 Preferred Stock.
Fyniti, (www.fyniti.com, www.fynitiiq.com) is a Fintech developer and provider of technology that combines Artificial Intelligence/Machine Learning (AI/ML) driven Quantitative investing (IQ Engine) with AI-enabled wealth management Electronic Block Trading (“EBT”) technology.
On August 14, 2023, the Company filed a Certificate of Change with the Nevada Secretary of State to increase the authorized shares of the Company’s common stock to 3,000,000,000.
On June 21, 2024, the Company closed on the May 30, 2024 Acquisition Agreement (the “Acquisition Agreement”) with ChainTrade, LTD (“ChainTrade”), to purchase 100% of the assets of ChainTrade’s AI-powered Trading Platform (the “Platform”). Chaintrade, a UK-registered and licensed Fintech company is a joint Venture between Plato Data Intelligence and Redmatter.Capital and was built to revolutionize trading and investing by leveraging AI's predictive capabilities. The Platform allows users to trade Equities, ETFs, Commodities, and Indices with the support of a personalized AI-powered trading assistant. The Platform, ready for commercial launch, was built to revolutionize trading and investing by leveraging AI's predictive capabilities. This will improve research, risk management and asset allocation. The Platform provides personalized and custom investment strategies and utilizes AI to evaluate assets within a portfolio.
Results of Operations
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) includes a discussion of the consolidated results from operations of SMC Entertainment, Inc. and its subsidiary.
| 15 |
| Table of Contents |
Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023
Revenue
We had no revenue for the three months ended June 30, 2024 and 2023.
General and Administrative Expenses
General and Administrative expenses (“G&A”) for the three months ended June 30, 2024, were $42,083 as compared to $92,575 for the comparable prior period, a decrease of $50,492 or 54.5%. During the current period we had a decrease to our audit and legal fees of approximately $17,000, to filing fees of $6,000 and other G&A expense of approximately $11,000.
Compensation Expense – Related Party
Compensation Expense – Related Party for the three months ended June 30, 2024, was $116,000 as compared to $144,050 for the comparable prior period, a decrease of $28,050 or 19.5%. The decrease is the result of a new consulting agreement for Ronald Hughes, that decreased his monthly compensation.
Bad Debt Expense
During the three months ended June 30, 2024, the Company wrote off a $300,000 note receivable to bad debt expense.
Other Income (Expense)
Total other expense for the three months ended June 30, 2024, was $14,131,329 as compared to total other expense of $122,506 for the comparable prior period. In the current period we had interest expense of $52,312 and a loss of $6,108,617 related to the change in the fair value of derivatives. We also recognized a $7,970,400 transaction expense related to the acquisition of ChainTrade, LTD (Note 9). In the prior period we had interest expense of $5,470, a loss on conversion of debt of $57,500, a loss of $67,174 related to the change in the fair value of derivatives and a gain on conversion of debt of $7,638.
Net Loss
For the three months ended June 30, 2024, we had a net loss of $14,619,412, mainly due to the loss from the change in fair value of our derivatives and the transaction expense. For the three months ended June 30, 2023, we had a net loss of $359,131.
Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023
Revenue
We had no revenue for the six months ended June 30, 2024 and 2023.
General and Administrative Expenses
General and Administrative expenses (“G&A”) for the six months ended June 30, 2024, were $129,166 as compared to $134,850 for the comparable prior period, a decrease of $5,684 or 4.2%.
Compensation Expense – Related Party
Compensation Expense – Related Party for the six months ended June 30, 2024, was $233,800 as compared to $288,400 for the comparable prior period, a decrease of $54,600 or 18.9%. The decrease is the result of a new consulting agreement for Ronald Hughes, that decreased his monthly compensation.
Bad Debt Expense
During the six months ended June 30, 2024, the Company wrote off a $300,000 note receivable to bad debt expense.
| 16 |
| Table of Contents |
Other Income (Expense)
Total other expense for the six months ended June 30, 2024, was $13,770,633 as compared to total other expense of $366,788 for the comparable prior period. In the current period we had interest expense of $68,063 and a loss of $5,732,170 related to the change in the fair value of derivatives. In the prior period we had interest expense of $13,426, a loss on conversion of debt of $57,500, a loss of $303,500 related to the change in the fair value of derivatives and a gain on conversion of debt of $7,638.
Net Loss
For the six months ended June 30, 2024, we had a net loss of $14,463,599, mainly due to the loss from the change in fair value of our derivatives and the transaction expense. For the six months ended June 30, 2023, we had a net loss of $790,038.
Liquidity and Capital Resources
During the six months ended June 30, 2024, we used $81,583 of cash in operations compared to $71,184 used in the prior period.
During the six months ended June 30, 2024, we received $75,732 of cash from financing activities compared to $109,925 received in the prior period.
As of June 30, 2024, we have convertible notes, including accrued interest, due of $9,456,898. We also have notes payable to related parties of $1,111,460.
Off-Balance Sheet Arrangements
As of June 30, 2024, the Company had no off-balance sheet arrangements.
| 17 |
| Table of Contents |
Going Concern
Our auditors have expressed substantial doubt as to our ability to continue as a going concern. The accompanying unaudited consolidated financial statements have been prepared on a going concern basis. For the six months ended June 30, 2024, the Company had a net loss of $14,463,599; however, this was largely due to a loss on the fair value of our derivatives and the transaction cost incurred with our recent acquisition. We had net cash used in operating activities of $81,583 and an accumulated deficit of $32,024,286. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies
Refer to Note 2 for a condensed discussion of our critical accounting policies and to our Form K, which includes our audited financial statements for the year ended December 31, 2023, for a full discussion of our critical accounting policies.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures during the six months ended June 30, 2024 were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The term “disclosure controls and procedures,” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Notwithstanding the identified material weaknesses, management believes the financial statements included in this quarterly report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during quarter ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. Legal Proceedings
There are no claims, actions, suits, proceedings, or investigations that are currently pending or, to the Company’s knowledge, threatened by or against the Company or respecting its operations or assets, or by or against any of the Company’s officers, directors, or affiliates.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On June 24, 2024, the Board of Directors received notice from Olayinka Oyebola & Co (“Olayinka”), the independent registered public accounting firm of SMC Entertainment, Inc. (the “Company”), that they were resigning as the Company’s registered accounting firm effective immediately, following the appointment by the Company of RBSM, LLP (“RBSM”), effective June 24, 2024, as its new registered accounting firm.
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Item 6. Exhibits.
(a) Exhibits.
Exhibit No. |
| Description |
| Rule 13a14(a)/15d-14(a) Certification of Chief Executive Officer | |
| Section 1350 Certification of Chief Executive Officer and Chief Financial Officer | |
101.INS* |
| Inline XBRL Instance Document(1) |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document(1) |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document(1) |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document(1) |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document(1) |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document(1) |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: August 22, 2024 | SMC ENTERTAINMENT, INC. | ||
| By: | /s/ Erik Blum | ||
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| Name: Erik Blum | |
| Title: Chief Executive Officer | |||
| (Principal Executive Officer) and Director | |||
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| By: | /s/ Adam Yang |
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| Name: Adam Yang |
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| Title: Chief Financial Officer |
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| (Principal Financial Officer and Principal Accounting Officer) |
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Erik Blum, certify that:
| 1. | I have reviewed this report on Form 10-Q. |
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| 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; |
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| 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; |
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| 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: |
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| 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; |
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| 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; |
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| 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 |
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| 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 registrant’s board of directors (or persons performing the equivalent functions): |
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| 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 |
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| 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: August 22, 2024 | By: | /s/ Erik Blum |
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| A. Erik Blum |
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| Chief Executive Officer |
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EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Adam Yang, certify that:
| 1. | I have reviewed this report on Form 10-Q. |
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| 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; |
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| 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; |
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| 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: |
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| 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; |
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| 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; |
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| 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 |
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| 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 registrant’s board of directors (or persons performing the equivalent functions): |
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| 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 |
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| 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: August 22, 2024 | By: | /s/ Adam Yang |
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| Adam Yang |
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| Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES—OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of SMC Entertainment Inc. (the “Company”) for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Erik Blum, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 22, 2024 | By: | /s/ Erik Blum |
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| Erik Blum |
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| Chief Executive Officer |
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In connection with the Quartetly Report on Form 10-Q of SMC Entertainment Inc. (the “Company”) for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Adam Yang, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 22, 2024 | By: | /s/ Adam Yang |
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| Adam Yang |
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| Chief Financial Officer |
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This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.