TRON 10-Q
Tron Inc. (TRON)
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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ |
Commission
File Number
(Exact name of registrant as specified in charter)
| (State or other jurisdiction | (IRS Employer | |
| of incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered | ||
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. ☐ YES ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
As of November 12, 2024, there were shares of the registrant’s common stock outstanding.
FORM 10-Q TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
| Item 4. | Controls and Procedures | 11 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 12 |
| Item 1A | Risk Factors | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
| Item 3 | Defaults Upon Senior Securities | 13 |
| Item 4. | Mine Safety Disclosures | 13 |
| Item 5. | Other Information | 13 |
| Item 6. | Exhibits | 13 |
| SIGNATURES | 14 | |
| 2 |
PART I - FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q includes the accounts of SRM Entertainment, Inc. (“SRM Inc”) is a Nevada corporation and was incorporated on April 22, 2022. SRM. Entertainment Limited (“SRM Ltd”), is a limited company incorporated in Hong Kong, now a Special Administrative Region of the People’s Republic of China, on January 23, 1981 and formerly owned by Safety Shot, Inc. Effective August 14, 2023, SRM Inc acquired SRM Ltd. The acquisition of SRM Ltd by SRM Inc has been accounted for as a Reverse Acquisition (see Basis of Presentation below). The combined SRM Inc and SRM Ltd are collectively referred to as the Company or SRM.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “will,” “may,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” “forecasts,” “potential,” “continue,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about future operating results and the development of our products, are forward-looking statements.
Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. Readers are urged 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. We file reports with the Securities and Exchange Commission (“SEC”). The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report on Form 10-Q, which attempt to advise interested parties of the risks and factors that may affect our businesses, financial condition, results of operations and prospects.
| 3 |
Item 1. Financial Statements
| F-1 |
SRM Entertainment Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2024 and
December 31, 2023
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Account receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and deposits | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Intangible assets (net of amortization) – Related Party | ||||||||
| Fixed assets, net of depreciation | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued and other liabilities | ||||||||
| Secured loan (net) from Related Party | ||||||||
| Total liabilities | ||||||||
| Shareholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ par value, shares authorized of which are issued | ||||||||
| Common stock, $ par value, shares authorized and issues and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated earnings (deficit) | ( | ) | ( | ) | ||||
| Common Stock Payable | ||||||||
| Total Shareholders’ Equity (Deficit) | ||||||||
| Total Liabilities and Shareholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-2 |
SRM Entertainment, Inc.
Condensed Consolidated Statement of Operations
For the Three and Nine Months Ended September 30, 2024 and 2023
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income / (expense) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ||||||||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net (loss) per share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares | ||||||||||||||||
| Basic | ||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-3 |
SRM Entertainment, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2024 and 2023
(Unaudited)
| Common | Additional | |||||||||||||||||||||||
| Common Stock | Stock | Paid-In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Payable | Capital | Deficits | Total | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Net income for the three months ended June 30, 2023 | - | |||||||||||||||||||||||
| Balance June 30, 2023 | ( | ) | ||||||||||||||||||||||
| Stock payable for services | - | |||||||||||||||||||||||
| Net proceeds from public offering | ||||||||||||||||||||||||
| Acquisition of SRM Entertainment Ltd | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss for the three months ended September 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common | Additional | |||||||||||||||||||||||
| Common Stock | Stock | Paid-In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Payable | Capital | Deficits | Total | |||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock issued from common stock payable | ( | ) | ||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||
| Fair value of options granted to Officers, Directors and Employees | - | |||||||||||||||||||||||
| Net loss for the three months ended March 31, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||||||
| Common stock payable | - | |||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance June 30, 2024 | ( | ) | ||||||||||||||||||||||
| Shares issued for services from stock payable | ( | ) | ||||||||||||||||||||||
| Stock issued for asset purchase to Related Party | ||||||||||||||||||||||||
| Stock issued for services to Related Party | ||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-4 |
SRM Entertainment, Inc.
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 2024 and 2023
(unaudited)
| Nine Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to operating activities | ||||||||
| Common stock issued for services | ||||||||
| Fair value of Officer, Director and Employee options | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash paid for fixed assets | ( | ) | ( | ) | ||||
| Cash paid for Intangible Assets to Related Party | ( | ) | ||||||
| Acquisition | ( | ) | ||||||
| Cash (used in) investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Net cash received from initial IPO | ||||||||
| Loans to affiliates | ||||||||
| Cash payment on promissory note | ( | ) | ||||||
| Cash provided by (used in) financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH ITEMS | ||||||||
| Promissory Note issued for intangible assets | $ | $ | ||||||
| Common stock issued for intangible assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| F-5 |
SRM Entertainment, Inc.
Notes to Financial Statements
For the Three and Nine Months Ended September 30, 2024 and 2023
(Unaudited)
Note 1 - Organization and Business Operations
SRM
Entertainment, Inc. (“SRM Inc”) is a
On December 9, 2022, we entered into a stock exchange agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”) to govern the separation of our business from Jupiter. On May 26, 2023, we amended and restated the Exchange Agreement (the “Share Exchange”) to include additional information regarding the distribution and the separation of our business from Jupiter. The separation as set forth in the Share Exchange with Jupiter closed August 14, 2023. Pursuant to the Share Exchange, on May 31, 2023, we issued shares of our Common Stock (representing % of our outstanding shares of Common Stock) to Jupiter in exchange for ordinary shares of SRM Ltd (representing all of the issued and outstanding ordinary shares of SRM Ltd).
The Company’s principal business is the design, manufacture, and sale of toys to premier theme parks.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The acquisition of SRM Ltd and SRM Inc occurred on August 14, 2023. The financial statements are prepared using Reverse Acquisition Accounting and as such, for legal purposes SRM Inc was the acquiring company and for GAAP accounting, SRM Ltd was the acquiring company. Therefore, the financial statements are presented using the historical financial statements of SRM Ltd. The combined SRM Inc and SRM Ltd are collectively referred to as the Company.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
| F-6 |
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with US 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. Actual results could differ from those estimates.
Cash and Cash Equivalents
The
Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes
of the statement of cash flows. There were
Accounts Receivable and Credit Risk
Accounts receivable are generated from sales of the Company’s products. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. For the nine months ended September 30, 2024 and year ended December 31, 2023, the Company did not recognize any allowance for doubtful collections
Inventory
Inventories will be stated at the lower of cost or market. The Company will periodically review the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.
Fixed Assets and Other Assets
Fixed assets are stated at cost at the date of purchase. Depreciation is calculated using the straight-line method over the lesser of the estimated useful lives of the assets or the lease term.
The Company purchases molds for the manufacture of some of its products and are included in fixed assets at cost. Certain agreements call for the manufacturer to reimburse the Company for the cost of the molds upon first shipment of products produced using the molds. The costs of these molds are removed from fixed assets upon reimbursement. Molds that are not subject to reimbursement are depreciated when the products are in production.
| F-7 |
Net income (loss) per share of Common Stock is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all Common Stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities, and preferred stock are not considered in the calculations, as the impact of the potential shares of Common Stock would be to decrease the loss per share.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share - Weighted- average common issued and outstanding during the period | ||||||||||||||||
| Denominator for diluted earnings per share | ||||||||||||||||
| Basic (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Revenue Recognition
The Company will generate its revenue from the sale of its products directly to the end user (the “customer”).
The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company’s performance obligations are satisfied when goods or products are shipped on a FOB shipping point basis as title passes when shipped. Our products are generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.
| F-8 |
Foreign Currency Translation
Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date, while revenue and expense accounts are translated at the average exchange rates prevailing during the period. Equity accounts are translated at historical exchange rates.
Stock Based Compensation
The Company recognizes compensation costs to employees under FASB Accounting Standards Codification 718 “Compensation - Stock Compensation” (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share based compensation arrangements include stock options and warrants. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
The Company has adopted ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.
Income Taxes
The Company accounts for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material changes to its financial position. The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.
Related parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
On September 3, 2024, the Company entered into an
Asset Purchase Agreement (the “Asset Purchase Agreement”) with Suretone Entertainment, Inc. (“Seller”) pursuant
to which the Company agreed to acquire certain assets (the “Assets”) from the Seller, for an aggregate purchase price of $
| F-9 |
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Recent Accounting Pronouncements
The company evaluated issued pronouncements and did not identify any recent ones that apply to the company.
Note 3 – Inventory
At
September 30, 2024 and December 31, 2023, the Company had inventory of finished goods of $
Note 4 - Accounts Receivable
At
September 30, 2024 and December 31, 2023, the Company had accounts receivable of $
Note 5 – Prepaid Expenses
At
September 30, 2024, the Company had a total of $
Note 6 – Fixed Assets and Other Assets
At
September 30, 2024 and December 31, 2023, the Company had net fixed assets totaling $
| September 30, | December 31 | |||||||
| 2024 | 2023 | |||||||
| Fixed Assets | ||||||||
| Tooling and Molds | $ | $ | ||||||
| Computer equipment and software | ||||||||
| Total fixed assets | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net fixed assets | $ | $ | ||||||
At
September 30, 2024, and December 31, 2023 other assets consisting primarily of non-depreciable molds totaled $
Note 7 – Intangible Assets – Related Party
On
September 3, 2024, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Suretone Entertainment,
Inc. (“Suretone” or “Seller”) pursuant to which the Company agreed to acquire certain assets (the “Assets”)
related to the movie with the title The Kid (directed by Vincent D’Onofrio) from the Seller, for an aggregate purchase price of
$
In
consideration for the acquired assets, the Company paid the Purchase Price which consisted of: (i) payment of $
| F-10 |
Note 8 – Loans from Jupiter Wellness and Secured Note
At
December 31, 2022, the Company had an outstanding unsecured, non-interest bearing loan balance of $
In
connection with the purchase of certain assets described in Note 7 above, the Company issued the Secured Note for $
Note 9 - Capital Structure
Reverse Merger - On December 9, 2022, The Company entered into a stock exchange agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”) to govern the separation of our business from Jupiter. On May 26, 2023, we amended and restated the Exchange Agreement (the “Amended and Restated Exchange Agreement”) to include additional information regarding the distribution and the separation of our business from Jupiter. The separation as set forth in the Amended and Restated Exchange Agreement with Jupiter closed August 14, 2023. Pursuant to the Amended and Restated Exchange Agreement, on May 31, 2023, we issued to Jupiter shares of our Common Stock (representing % of our outstanding shares of Common Stock) in exchange for ordinary shares of SRM Ltd (representing all of the issued and outstanding ordinary shares of SRM Ltd) (the “Share Exchange”). Pursuant to the Share Exchange, we acquired from Jupiter by operation of law all assets and assumed all liabilities comprising our business, which were owned and held by SRM Ltd. Jupiter distributed shares of the Company’s common stock to Jupiter’s stockholders and certain warrant holders (out of the million shares issued in May 2023) and this occurred on the effective date of the Registration Statement but prior to the closing of the IPO. Following such distribution, Jupiter Wellness owns million of the shares of common stock outstanding and SRM Limited is a wholly owned subsidiary of the Company.
The financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The merger of SRM Ltd and SRM Inc occurred on August 14, 2023. The financial statements are prepared using Reverse Acquisition Accounting and as such, for legal purposes SRM Inc was the acquiring company and for GAAP accounting, SRM Ltd was the acquiring company. Therefore, the financial statements are presented using the historical financial statements of SRM Ltd including the shares of common stock issued to Jupiter.
Initial
Public Offering - On August 14, 2023, the Company consummated its IPO, pursuant to which it sold shares of its common
stock at a price of $ per share, resulting in gross proceeds to the Company of approximately $
Common Stock – The Company has shares of Common Stock, par value $ authorized As a result of the above merger and IPO, at December 31, 2023, the Company had shares of its common stock issued and outstanding comprised of founder shares issued at par, shares issued to Jupiter, shares dividended to Jupiter shareholders, shares issued to the public in connection with the IPO and shares issued for services. During the nine months ended September 30, 2024, the Company issued shares of its common stock for services in lieu of cash and shares in connection with the purchase of assets. At September 30, 2024, the Company had shares of its common stock issued and outstanding
| F-11 |
Common
Stock Payable – During the year ended December 31, 2023, the Company entered into two agreements for services provided
to the Company pursuant to which, the Company will issue a total of shares of its common stock valued at $ which is recorded
as Common Stock Payable. The Company recognized a total of expense of $ in stock-based compensation for services related to these
agreements. During the nine months ended September 30, 2024, the Company issued of the shares referenced above valued at $
Preferred Stock – The Company has shares of preferred stock, par value $ authorized of which have been issued.
During the year ended December 31, 2023, the Company granted a total of to three of its Directors with an exercise price of $ and a -year term. The Company recorded an expense of $ in connection with the Directors’ issuance.
During the nine months ended September 30, 2024, the Company granted a total of to three of its Officers, Directors and Employees with an exercise price of $ and a -year term. The Company recorded an expense of $ in connection with the Directors’ issuance.
| Number of | Term | Exercise | Market Price on Grant | Computed Volatility | Fair | |||||||||||||||||||
| Reporting Date | Options | (Years) | Price | Date | Percentage | Value | ||||||||||||||||||
| 10/24/2023 | $ | $ | % | $ | ||||||||||||||||||||
| 02/21/2024 | $ | $ | % | $ | ||||||||||||||||||||
Note 11 - Commitments and Contingencies
Legal Proceedings
The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity.
Note 12 – Subsequent Events
Subsequent
to September 30, 2024, the Company issued shares in connection with a private placement consisting of four accredited investors
for a total of $
| F-12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s 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. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “SRM” and the “Company” mean SRM Entertainment, Inc.
General Overview
SRM Entertainment, Inc. (“SRM Inc”) is a Nevada corporation and was incorporated on April 22, 2022. SRM. Entertainment Limited (“SRM Ltd”), is a limited company incorporated in Hong Kong, now a Special Administrative Region of the People’s Republic of China, on January 23, 1981 and formerly owned by Jupiter Wellness, Inc. Effective August 14, 2023, SRM Inc acquired SRM Ltd. The acquisition of SRM Ltd by SRM Inc has been accounted for as a Reverse Acquisition (see Basis of Presentation below). The combined SRM Inc and SRM Ltd are collectively referred to as the Company or SRM.
On December 9, 2022, we entered into a stock exchange agreement (the “Exchange Agreement”) with Jupiter Wellness, Inc. (“Jupiter”) to govern the separation of our business from Jupiter. On May 26, 2023, we amended and restated the Exchange Agreement (the “Share Exchange”) to include additional information regarding the distribution and the separation of our business from Jupiter. The separation as set forth in the Share Exchange with Jupiter closed August 14, 2023. Pursuant to the Share Exchange, on May 31, 2023, we issued 6,500,000 shares of our common stock (representing 79.3% of our outstanding shares of common stock) to Jupiter in exchange for 2 ordinary shares of SRM Ltd (representing all of the issued and outstanding ordinary shares of SRM Ltd). Effective as of September 15, 2023, Jupiter changed its name to Safety Shot, Inc. (“Safety Shot”). As of November 12, 2024, Safety Shot owned 3,436,005 shares of our common stock representing 24.8% of our issued and outstanding shares of common stock.
| 4 |
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The acquisition of SRM Ltd by SRM Inc occurred on August 14, 2023. The financial statements are prepared using Reverse Acquisition Accounting and as such, for legal purposes SRM Inc was the acquiring company and for GAAP accounting, SRM Ltd was the acquiring company. Therefore, the financial statements are presented using the historical financial statements of SRM Ltd. The combined SRM Inc and SRM Ltd are collectively referred to as the “Company” or “SRM.”
Business
The Company is a trusted toy and souvenir designer and developer, selling into the world’s largest theme parks and entertainment venues.
Our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty. We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, favorite celebrity, or favorite restaurant. We infuse our distinct designs and aesthetic sensibility into a wide variety of product categories, including figures, plush, accessories, apparel, and homewares. With our unique style, expertise in pop culture, broad product distribution and highly accessible price points, we have developed a passionate following for our products that has underpinned our growth. We believe we sit at the nexus of pop culture—content providers value us for our broad network of retail customers, retailers value us for our portfolio of pop culture products and pop culture insights, and consumers value us for our distinct, stylized products and the content they represent.
Pop culture pervades modern life and almost everyone is a fan of something. Today, more quality content is available and technology innovation has made content accessible anytime, anywhere. As a result, the breadth and depth of pop culture fandom resembles, and in many cases exceeds, the type of fandom previously associated only with sports. Everyday interactions at home, work or with friends are increasingly influenced by pop culture.
We have invested strategically in our relationships with key constituents in pop culture. Content providers value us for our broad network of retail customers and retailers value us for our pop culture products, pop culture insights and ability to drive consumer traffic. Consumers, who value us for our distinct, stylized products, remain at the center of everything we do.
On September 3, 2024, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Suretone Entertainment, Inc. (“Suretone” or “Seller”) pursuant to which the Company agreed to acquire certain assets related to the movie with the title The Kid (directed by Vincent D’Onofrio) from the Seller, for an aggregate purchase price of $2,983,000 (the “Purchase Price”). Jordan Schur, the owner and Chief Executive Officer of Suretone, is a board member and President of Safety Shot. Prior to the transaction, Safety Shot held 34.27% of the Company’s common stock.
In consideration for the acquired assets, the Buyer paid the Purchase Price by: (i) paying $250,000 in cash on September 3, 2024; (ii) issuing 1,500,000 restricted shares of the Company’s common stock, par value $0.0001 per share (valued at $0.762 per share); and (iii) issuing a secured promissory note in the original amount of $1,500,000 (the “Secured Note”). The Assets are being amortized over a ten-year period. Amortization expense totaled $24,108 for the nine months ended September 30, 2024.
Content Providers: We have licensing relationships with many established content providers, and our products appear in venues such as Walt Disney Parks and Resorts, Universal Studios, SeaWorld, Cedar Fair, Herschend Family Entertainment and Merlin Entertainment. We currently have licenses with Smurfs, The ICEE Company and Zoonicorn LLC, from which we can create multiple products based on each character within. Content providers trust us to design, create and manufacture unique, stylized extensions of their intellectual property that extend the relevance of their content with consumers through ongoing engagement, helping to maximize the lifetime value of their content.
Consumers: Fans are increasingly looking for ways to express their affinity for and engage with their favorite pop culture content. Over time, many of our consumers evolve from occasional buyers to more frequent purchasers, whom we categorize as enthusiasts or collectors. We create innovative products to appeal to a broad array of fans across consumer demographic groups—men, women, boys and girls—not a single, narrow demographic. We currently offer an array of products that sell across several categories. Our products are generally priced between $2.50 and $50.00, which allows our diverse consumer base to express their fandom frequently and impulsively. We continue to introduce innovative products designed to facilitate fan engagement at different price points and styles.
We have developed a nimble and low-fixed cost production model. The strength of our management team and relationships with content providers, retailers and third-party manufacturers allows us to move from product concept to a new product tactfully. As a result, we can dynamically manage our business to balance current content releases and pop culture trends with timeless content based on classic movies, such as Harry Potter or Star Wars. This has allowed us to deliver significant growth while lessening our dependence on individual content releases.
| 5 |
Recent Developments
On September 3, 2024, the Company (or “Buyer”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Suretone Entertainment, Inc. (“Suretone” or “Seller”) pursuant to which the Buyer has agreed to acquire certain assets related to the movie with the title The Kid (directed by Vincent D’Onofrio) from the Seller, for an aggregate purchase price of $3,000,000 (the “Purchase Price”). Jordan Schur, the owner and Chief Executive Officer of Suretone, is a board member and President of Safety Shot. As of November 12, 2024, Safety Shot holds 24.8% of the Company’s common stock.
In consideration for the acquired assets, the Buyer paid the Purchase Price by: (i) paying $250,000 in cash on September 3, 2024); (ii) issuing 1,500,000 restricted shares of the Company’s common stock, par value $0.001 per share (valued at $0.8333 per share); and (iii) issuing a secured promissory note in the original amount of $1,500,000 (the “Secured Note”). The Secured Note will bear interest at the rate of 8% per annum and will mature on September 3, 2025 (the “Maturity Date”), calculated on a 365-day year, and is due along with the principal on the Maturity Date. The Secured Note is secured by the assets purchased pursuant to the Asset Purchase Agreement. If the Company secures financing of at least $5 million during the term of the Secured Note, it must use the proceeds to repay the Secured Note. The Company can prepay the Secured Note at any time without penalty but must provide 15 days’ notice to Suretone. The Secured Note is subject to immediate acceleration if the Company commences bankruptcy proceedings, if it winds down its operations, if the Company fails to stay current in its SEC reporting obligations, or if the Company’s common stock is delisted from the Nasdaq Stock Market.
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of US Securities and Exchange Commission (“SEC”). The acquisition of SRM Ltd by SRM Inc occurred on August 14, 2023. The financial statements are prepared using Reverse Acquisition Accounting and as such, for legal purposes SRM Inc was the acquiring company and for GAAP accounting, SRM Ltd was the acquiring company. Therefore, the financial statements are presented using the historical financial statements of SRM Ltd. The combined SRM Inc and SRM Ltd are collectively referred to as the Company or SRM.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
| 6 |
Significant Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements for the three months ended March 31, 2024 and 2023 and audited financial statements for the year ended December 31, 2023, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission. The preparation of the 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 revenue generated, and 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 and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less when purchased to be cash and equivalents for purposes of the statement of cash flows. There were no cash equivalents as of September 30, 2024 or December 31, 2023.
Net Loss per Common 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 share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. If applicable, diluted earnings per share assume the conversion, exercise or issuance of all common stock instruments such as options, warrants, convertible securities and preferred stock, unless the effect is to reduce a loss or increase earnings per share. As such, options, warrants, convertible securities and preferred stock are not considered in the calculations, as the impact of the potential common shares would be to decrease the loss per share.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) | $ | (1,128,872 | ) | $ | (1,486,749 | ) | $ | (3,359,847 | ) | $ | (1,296,729 | ) | ||||
| Denominator: | ||||||||||||||||
| Denominator for basic earnings per share - Weighted- average common issued and outstanding during the period | 10,581,558 | 8,007,065 | 10,389,770 | 7,007,875 | ||||||||||||
| Denominator for diluted earnings per share | 10,581,558 | 8,007,065 | 10,389,770 | 7,007,875 | ||||||||||||
| Basic (loss) per share | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.32 | ) | $ | (0.19 | ) | ||||
| Diluted (loss) per share | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.32 | ) | $ | (0.19 | ) | ||||
| 7 |
Revenue Recognition
The Company generates its revenue from the sale of its products directly to the end user or distributor (collectively the “customer”).
The Company recognizes revenues by applying the following steps in accordance with FASB Accounting Standards Codification 606 “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company’s performance obligations are satisfied when goods or products are shipped on an FOB shipping point basis as title passes when shipped. Our product is generally paid in advance of shipment or standard net 30 days and we offer no specific right of return, refund or warranty related to our products except for cases of defective products of which there have been none to date.
Inventory
Inventories are stated at the lower of cost or market. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. Inventory is based upon the average cost method of accounting.
Income Taxes
We account for income taxes under ASC 740 Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on our evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Since we were incorporated on October 24, 2018, the evaluation was performed for 2018 tax year, which would be the only period subject to examination. We believe that our income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to our financial position. Our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.
The Company’s deferred tax asset at September 30, 2024 and December 31, 2023 consisted of net operating loss carry forwards calculated using effective tax rates (20.6% average of China and US rates) equating to approximately $1,177,676 and $497,655 respectively, less a valuation allowance in the amount of approximately $1,177,676 and $497,655, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance at September 30, 2024 and December 31, 2023.
| 8 |
Related parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Related Party Loans
As of December 31, 2021, the Company had an outstanding unsecured, non-interest bearing loan balance of $1,502,621 to Jupiter Wellness, Inc., its Parent. On September 1, 2022, the loan was converted to a six percent (6%) interest-bearing promissory note (the “Note”) due on the earlier of: (i) September 30, 2023 or (ii) the date on which Maker consummates an initial public offering of its securities. During 2022, the Company paid $50,000 to Jupiter related to the Note consisting of $19,948 principal reduction and $30,052 interest, leaving a Note balance of $1,482,673 at December 31, 2022. The total balance of $1,538,520 ($1,482,673 Note and $55,847 interest) due Jupiter was paid from proceeds of the Company’s Initial Public Offering (“IPO”) on August 14, 2023.
Recent Accounting Pronouncements
The company evaluated issued pronouncements and did not identify any recent ones that apply to the company.
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Sales | $ | 876,392 | $ | 1,128,062 | $ | 3,390,676 | $ | 4,556,905 | ||||||||
| Cost of Sales | 679,874 | 898,712 | 2,705,945 | 3,583,713 | ||||||||||||
| Gross profit | 196,518 | 229,350 | 684,731 | 973,192 | ||||||||||||
| Operating expense | ||||||||||||||||
| General and administrative expenses | 1,328,851 | 1,717,777 | 4,058,546 | 2,227,433 | ||||||||||||
| Total operating expenses | 1,328,851 | 1,717,777 | 4,058,546 | 2,227,433 | ||||||||||||
| Other income / (expense) | ||||||||||||||||
| Interest income | 12,377 | 13,045 | 22,884 | 13,359 | ||||||||||||
| Interest expense | (8,916 | ) | (11,367 | ) | (8,916 | ) | (55,847 | ) | ||||||||
| Total other income (expense) | 3,461 | 1,678, | 13,968 | (42,489 | ) | |||||||||||
| Net (loss) | $ | (1,128,872 | ) | $ | (1,486,749 | ) | $ | (3,359,847 | ) | $ | (1,296,729 | ) | ||||
| Net (loss) per share: | ||||||||||||||||
| Basic | $ | (0.11 | ) | $ | (0.19 | ) | $ | (0.32 | ) | $ | (0.19 | ) | ||||
| Weighted average number of shares | ||||||||||||||||
| Basic | 10,581,558 | 8,007,065 | 10,389,770 | 7,007,875 | ||||||||||||
| 9 |
Three months ended September 30, 2024 compared to 2023
Revenues and Cost of Sales
The Company had sales of $876,392 and $1,128,062 for the three months ended September 30, 2024 and 2023. The decrease in sales is due to declines in attendance at our customers theme parks. Gross margins were slightly higher at 22.4% for the three months ended September 30, 2024 versus 20.3% for September 30, 2023.
Operating Expenses and Other Income (Expense)
Operating expenses totaled $1,328,851 and $1,717,777 for the three months ended September 30, 2024 and 2023, respectively. Operating expenses for the three months ended September 30, 2024 included (i) marketing expenses of $7,083, (ii) legal and professional fees of $656,900, (iii) rent and utilities of $16,885, (iv) depreciation and amortization of $28,908, (v) general and administrative expenses of $416,575 and (vi) stock based compensation of $202,500. Operating expenses for the three months ended September 30, 2023 included (i) marketing expenses of $281, (ii) legal and professional fees of $1,233,519, (iii) rent and utilities of $5,199, depreciation of $2,279, (v) general and administrative expenses of $476,499 and (vi) no stock based compensation. The decrease in expenses is a result of the initial costs of “going public” in the third quarter of 2023 which were greater than the increased investors relation costs of being a public company.
During the three months ended September 30, 2024, the Company generated net interest income of $3,461 versus $1,678 of net interest income during the three months ended September 30, 2023.
Income/Losses
Net losses were $1,128,872 for the three months ended September 30, 2024 compared to net income of $1,486,749 for the same period in 2023.
Nine months ended September 30, 2024 compared to 2023
Revenues and Cost of Sales
The Company had sales of $3,390,676 and $4,556,905 for the nine months ended September 30, 2024 and 2023. The decrease in sales is due to declines in attendance at our customers’ theme parks. Gross margins were lower than expected in the first quarter of 2024 due to increased manufacturing costs which decreased our nine months’ margin to 20.2% compared to 21.4% for the nine months ended September 30, 2023.
Operating Expenses and Other Income (Expense)
Operating expenses totaled $4,058,546 and $2,227,432 for the nine months ended September 30, 2024 and 2023, respectively. Operating expenses for the nine months ended September 30, 2024 included (i) marketing expenses of $39,334, (ii) legal and professional fees of $1,374,537, (iii) rent and utilities of $34,466, (iv) depreciation and amortization of $36,154, (v) general and administrative expenses of $1,209,507 and (vi) stock based compensation of $1,364,548. Operating expenses for the nine months ended September 30, 2023 included (i) marketing expenses of $11,750, (ii) legal and professional fees of $1,275,789, (iii) rent and utilities of $9,256, (iv) depreciation of $3,764, (v) general and administrative expenses of $926,873 and (vi) no stock based compensation. The increase in expenses is a result of being a stand-alone public company which includes all of the additional costs related to a small public company during 2024 versus being a wholly owned subsidiary of a larger company in 2023.
During the nine months ended September 30, 2024, the Company generated net interest income of $13,968 as a result of higher cash balances in 2024 due to the Company’s IPO in 2023 versus a net interest expense of $42,589 in 2023 which was due to interest bearing loans to its Parent prior to the Company’s IPO.
Income/Losses
Net losses were $3,359,847 for the nine months September 30, 2024 compared to net loss of $1,296,729 in 2023.
Liquidity and Capital Resources
Prior to our Initial Public Offering (“IPO”), our operations participated in cash management and funding arrangements managed by Safety Shot. Pursuant to the IPO, which went effective on August 14, 2023, the Company sold 1,250,000 shares of its common stock at a price of $5.00 per share, resulting in gross proceeds to the Company of approximately $6.25 million. Net proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses paid by the Company and the repayment of a $1,538,520 loan from Safet Shot, were $3,629,805. These proceeds have been adequate to finance the operations of the Company and at September 30, 2024 and December 31, 2023 the Company had $346,327 and $4,078,736, respectively in working capital.
In October 2024, the Company closed private placements in a registered direct offering of 1,711,477 shares of common stock (the “Shares”) among four accredited Investors generating gross proceeds of $1,044,000. The Shares were offered and sold to the Investors pursuant to a prospectus supplement and accompanying prospectus, which was filed with the SEC, in connection with a takedown from the Company’s effective shelf registration statement on Form S-3 (File No. 333-282028) which was filed with the SEC on September 11, 2024 and subsequently declared effective on September 19, 2024.
Commitments
There are no fixed forward commitments for lease expense, license fees, or capital expenditures.
| 10 |
Off-Balance Sheet Arrangements
We did not have, during the periods presented, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Cash Flow
The following table presents our cash flows for the periods presented:
| Nine Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| Net cash flows provided by (used in) operating activities | $ | (1,681,081 | ) | $ | (412,789 | ) | ||
| Net cash provided by (used in) investing activities | (273,264 | ) | (393,081 | ) | ||||
| Net cash flows provided by (used in) financing activities | - | 3,687,183 | ||||||
| Increase (decrease) in cash | $ | (1,954,345 | ) | $ | 2,881,313 | |||
Net cash used in operating activities was $1,681,081 and $412,789 for the nine months ended September 30, 2024, and 2023. The increase in cash used in operations was primarily due to increases in inventory of $536,876, increased general and administrative expenses of $282,634 and other increases including investor relations and legal and professional expenses.
Net cash used in investing activities during the nine months ended September 30, 2024 included purchase of fixed assets of $23,264 and the cash portion of $250,000 in the purchase of intangible assets compared to fixed asset purchases of $42,780 and $350,301 for the SRM Ltd acquisition during the nine months ended September 30, 2023.
The Company had no cash provided by financing activities during the nine months ended September 30, 2024 and the net cash provided by financing activities for nine months ended September 30, 2023 were the net proceeds from the Company’s IPO in 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time communicated to the Company’s management, including its Chief Executive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e). The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company’s desired disclosure control objectives. In designing periods specified in the SEC’s rules and forms, and that such information is accumulated and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’s certifying officers have concluded that the Company’s disclosure controls and procedures are effective in reaching that level of assurance.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the three and nine months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Limitations on the Effectiveness of Controls
Management has confidence in its internal controls and procedures. The Company’s management believes that a control system, no matter how well designed and operated can provide only reasonable assurance and cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitation in all internal control systems, no evaluation of controls can provide absolute assurance that all control issuers and instances of fraud, if any, within the Company have been detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the year ended December 31, 2023, the Company issued 315,000 restricted shares of the Company’s common stock for services provided to the Company.
During the nine months ended September 30, 2024, the Company issued: (i) 650,000 restricted shares of the Company’s common stock for services provided to the Company; (ii) 1,500,000 shares to a related party in connection with the purchase of an asset; and (iii) 250,000 for services provided to the Company by a related party.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit Number | Description | |
| (31) | Rule 13a-14 (d)/15d-14d) Certifications | |
| 31.1 | Section 302 Certification by the Principal Executive Officer | |
| 31.2 | Section 302 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| (32) | Section 1350 Certifications | |
| 32.1 * | Section 906 Certification by the Principal Executive Officer | |
| 32.2 | Section 906 Certification by the Principal Financial Officer and Principal Accounting Officer | |
| 101* | Interactive Data File | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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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.
| SRM Entertainment, Inc. | |
| /s/ Richard Miller | |
| Richard Miller | |
| Dated: November 13, 2024 | Chief Executive Officer (Principal Executive Officer) |
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